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RFE/RL NEWSLINE

RFE/RL NEWSLINE Vol. 2, No. 137 Part I, 20 July 1998


___________________________________________________________
RFE/RL NEWSLINE Vol. 2, No. 137 Part I, 20 July 1998

A daily report of developments in Eastern and Southeastern
Europe, Russia, the Caucasus and Central Asia prepared by
the staff of Radio Free Europe/Radio Liberty.

This is Part I, a compilation of news concerning Russia,
Transcaucasia and Central Asia. Part II covers Central,
Eastern, and Southeastern Europe and is distributed
simultaneously as a second document. Back issues of RFE/RL
Newsline and the OMRI Daily Digest are online at RFE/RL's
Web site: http://www.rferl.org/newsline

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Headlines, Part I

* YELTSIN MOVES TO RAISE TAXES BY DECREE

* GOVERNMENT WANTS TO CHANGE TAX RATES UNILATERALLY

* ABKHAZ RELEASE GEORGIAN COMMANDER

End Note: DIPLOMACY WITHIN RUSSIA
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RUSSIA

YELTSIN MOVES TO RAISE TAXES BY DECREE... President Boris
Yeltsin has made good on the Kremlin's promise that
presidential decrees will be used to implement economic
policies that are considered vital by the government but
have not gained parliamentary approval. Aleksandr Livshits,
deputy head of the presidential administration, announced on
19 July that Yeltsin has issued a decree raising the land
tax, Russian news agencies reported. The decree calls for
doubling the tax on plots of land that are in cities or are
not being used for the declared purpose and quadrupling the
tax on other categories of land. The State Duma recently
rejected a draft law on increasing the land tax rate.
Article 90 of the constitution states that the president may
not issue decrees that contradict existing federal laws. LB

...VETOES SOME PARTS OF ANTI-CRISIS PLAN. Yeltsin on 19 July
vetoed two laws that were approved by the Federation Council
two days earlier. The laws would have reduced the profit tax
for enterprises from 35 percent to 30 percent and more than
halved excise duties on oil. Livshits noted that the laws
would have reduced annual federal revenues by 8.7 billion
rubles ($1.4 billion) and 7.7 billion rubles, respectively.
He said Russia cannot afford such losses when the Duma has
not approved other measures to augment revenues, Russian
news agencies reported. Prime Minister Sergei Kirienko
addressed the Duma on 17 July and said that the laws
approved by the lower house would increase federal budget
revenues by only 3.1 billion rubles and all budget revenues
combined by only 28.2 billion rubles (the anti-crisis
program called for corresponding increases of 71 billion
rubles and 102 billion rubles, respectively). LB

GOVERNMENT WANTS TO CHANGE TAX RATES UNILATERALLY... The
government has issued a directive to revise the list of
products that are subject to value-added tax below the
standard rate of 20 percent, ITAR-TASS reported on 19 July.
Effective 1 August, the discounted VAT rate of 10 percent
will apply only to bread and milk products, along with some
children's goods. A law to institute those changes was part
of the government's anti-crisis program, but Finance
Minister Mikhail Zadornov withdrew it from consideration by
the Duma on 1 July, after many deputies harshly criticized
the proposal. On 17 July, Prime Minister Kirienko brought
the Duma a draft law that would give the government the
authority to introduce changes in tax rates by up to 10
percent. Such tax hikes would go into effect as long as the
Duma does not reject them within 10 days of when the
government announces the planned changes. LB

...ORDERS HIKE IN IMPORT TARIFFS. Prime Minister Kirienko
announced on 18 July that the government has issued a
directive raising all import duties by 3 percent, Russian
news agencies reported. He acknowledged that the measure is
"harsh" and will lead to price increases, but he said it is
necessary to boost budget revenues and support domestic
industry. According to Interfax, the Economics Ministry
estimates the increase in import duties will bring in 1
billion rubles ($160 million) in additional revenues. The
increase will not apply to goods imported from CIS
countries, ITAR-TASS reported on 20 July. Like the latest
presidential decree and vetoes, the directives on VAT and
customs duties are aimed at demonstrating the government's
commitment to the anti-crisis plan that was the basis for
Russia's recent negotiations with international financial
organizations. The IMF board of directors is to meet on 20
July in Washington to make a final decision on a bailout
package involving $11.2 billion in new loans to Russia this
year. LB

MIXED REACTION TO INCREASE IN IMPORT DUTIES. Duma Speaker
Gennadii Seleznev, a prominent member of the Communist
Party, told Interfax on 18 July that he supports the
government's plan to raise import duties, adding that the
government should have done so "long ago." Seleznev said
such a policy falls within the government's jurisdiction but
warned against attempts to issue government directives that
contradict legislation. Aleksandr Shokhin, leader of the Our
Home Is Russia Duma faction, argued that raising import
duties is "understandable and justified" in Russia's current
circumstances, but he noted that such a policy "is at odds
somewhat with our plan to join the World Trade Organization
in the near future," Interfax reported. Duma Privatization
Committee Chairman Pavel Bunich, also of Our Home Is Russia,
criticized the directive during an interview with Ekho
Moskvy, saying Russian consumers will be hurt by rising
prices for imported goods. LB

FEDERATION COUNCIL APPROVES MANY LAWS IN ANTI-CRISIS PLAN.
The Federation Council on 17 July approved a number of
government-backed laws with minimal debate. Deputies passed
the first part of a new tax code, which stipulates the
rights and obligations of taxpayers and the tax authorities,
ITAR-TASS reported. The Council also approved the following
measures: a law allowing regional authorities to introduce a
sales tax; a revised budget code; a revised law on gambling
taxes; a law strengthening government regulation of alcohol
production; a law to simplify taxation of small businesses;
a law changing the allocation of land tax revenues between
federal and regional budgets; a law lowering the profit tax,
and a law allowing enterprises to sell goods at prices below
production cost. LB

KIRIENKO WANTS DUMA TO HOLD SPECIAL SESSION IN AUGUST.
Speaking in the Duma on 17 July, Prime Minister Kirienko
urged deputies to convene a special session in August to
consider new draft laws on economic and tax policy, RFE/RL's
Moscow bureau reported. The premier told reporters that such
a session may be held on 10 August. Although the Duma's
summer recess is scheduled to run through early September,
Duma Speaker Seleznev did not rule out holding a special
session next month, ITAR-TASS reported. Although the Duma
passed many government-backed laws in July, it voted down
some key parts of the anti-crisis program. On 17 July,
deputies rejected in the second reading a draft law on
changing the income tax scale. That draft was already
substantially different from the government's initial
proposal on revising income tax rates (see "RFE/RL
Newsline," 17 July 1998). LB

UPPER HOUSE APPROVES LAW ESTABLISHING BORDER TAX. The
Federation Council on 17 July approved a law that would
establish a tax for filling out documents when crossing the
Russian border. The Duma approved the measure last month.
The government sought to introduce a border tax last year,
but the Constitutional Court ruled that taxes may be
introduced only through legislation, not government
directives (see "RFE/RL Newsline," 12 November 1997 and 23
June 1998). Also on 17 July, the Council passed a law on
rescheduling debts to the federal budget, which would allow
enterprises to pay back fines over four years and other
penalties over 10 years, ITAR-TASS reported. But the upper
house rejected a draft law on foreign investment, which was
passed by the Duma two days earlier. LB

GDP DECLINED IN FIRST HALF OF YEAR... Russia's GDP during
the first six months of 1998 totaled some 1.182 trillion
rubles ($190 billion), down 0.5 percent compared with the
same period in 1997, according to data released by the State
Statistics Committee on 17 July. Total industrial output
during the first half of 1998 was calculated at 767 billion
rubles, up 0.1 percent compared with the same period in
1997, Russian news agencies reported. However, industrial
output declined in the second quarter of 1998 following
gains in the first quarter of the year. LB

...AS WAGE ARREARS CONTINUE TO GROW. Wage arrears grew by
4.6 percent in June to reach 69.97 billion rubles ($11.2
billion), Russian news agencies reported on 17 July, citing
the State Statistics Committee. Federal, regional, and local
budgets combined owe 12.43 billion rubles to state
employees, which accounts for 17.8 percent of the total wage
arrears. Back wages declined in June in only seven of the 89
regions of the Russian Federation. Meanwhile, the State
Statistics Committee has calculated the average monthly
subsistence level in Russia for the first half of 1998 at
429 rubles per person, 19 rubles higher than the equivalent
figure for 1997. The average nominal monthly salary in
Russia during the first half of 1998 was 1,042 rubles, up
12.35 percent from the equivalent figure for 1997. However,
that statistic only measures wages on paper, not wages that
workers actually receive. LB

TRANS-SIBERIAN BLOCKADE LIFTED... The blockade of the Trans-
Siberian Railroad near the towns of Yurga and Anzhero-
Sudhensk, Kemerovo Oblast, was lifted on 19 July following
the arrival of Deputy Prime Minister Oleg Sysuev in the
region. At a meeting between regional leaders, directors of
industrial enterprises, and strike leaders, Sysuev admitted
that protocols he signed in Kemerovo Oblast in May have not
been fulfilled on schedule. He announced that all wage
arrears until 15 July will be repaid on 22 July. The
previous day, Prime Minister Kirienko warned that following
a government investigation, charges will be made against
organizers of the blockade. Regional trade union leader
Anatolii Chekis vowed that unions will offer "special
protection" to anyone who is charged in connection with the
protests. BT

...WHILE GOVERNMENT PROMISES LONG-TERM SOLUTIONS. Sysuev
promised that the government will stop addressing Kemerovo's
problems as a matter of urgency and instead address the
region's "deep systematic crisis." Another government
commission is to arrive in Kemerovo by 22 July to prepare
for a cabinet session devoted to the region's problems
slated for August, Sysuev told journalists. He also said
that the federal government will share power with oblast
authorities "on a slightly different basis." Meanwhile,
Kemerovo Prosecutor Valentin Simuchenkov said that more than
180 criminal cases have been opened against managers of
mines, middlemen, and local administration officials in
Kemerovo Oblast, ITAR-TASS reported on 19 July. Government
officials have long blamed miners' economic woes on
corruption and embezzlement at mining enterprises (see
"RFE/RL Newsline," 3 June 1998). BT

FSB CHIEF IN ISRAEL. In an interview published in the 17
July issue of "Novye izvestiya," the director of Russia's
Federal Security Service (FSB), Nikolai Kovalev, described
talks he held with Israeli officials on 15-16 July. Kovalev
said that during those talks, Israeli officials "constantly
returned to" the topic of preventing the transfer from
Russia to Iran of nuclear and rocket technology. Kovalev
said he saw some "material" gathered by the Israelis on the
subject. He did not deny such transfers are taking place but
said they are being conducted by commercial firms, not the
Russian government, and that the FSB has already begun
operations aimed at stopping such transactions. Kovalev also
said the FSB now has an official in Israel and that Israeli
security agencies are exchanging information on terrorists
and drug traffickers. BP

PASTUKHOV DISCUSSES CASPIAN IN TEHRAN. Russian First Deputy
Foreign Minister Boris Pastukhov and his Iranian
counterpart, Morteza Sarmadi, issued two joint statements on
19 July at the end of Pastukhov's three-day visit to Tehran,
IRNA reported. The two deputy ministers affirmed that until
the five Caspian littoral states reach agreement on a new
document defining the status of the Caspian, the Soviet-
Iranian treaties of 1921 and 1940 remain in force. They also
said that any proposals for laying Trans-Caspian undersea
oil or gas pipelines are potentially harmful to the Caspian
eco-system. The two countries agree on the equal division of
the Caspian sea-bed, but not the utilization of its waters
and resources beneath the seabed. A second statement
registered concern over delays in the implementation of the
Tajik peace accord signed last summer but lauded the role of
the UN in the peace process. LF

RUSSIA, IRAN SUPPORT NUCLEAR-FREE ZONE IN MID EAST. The
directors of the Russian and Iranian Foreign Ministry
Departments for disarmament, non-proliferation, and export
control held talks in Tehran on 15-16 July, ITAR-TASS
reported. Both sides affirmed their determination to meet
their international obligations in those fields, according
to a Russian Foreign Ministry communique summarized by
Interfax. The Foreign Ministries also issued a joint
statement calling on all countries to consider declaring the
Middle East a nuclear-free zone. LF

COURT SAYS GOVERNMENT CAN'T ECONOMIZE ON JUDICIARY. The
Constitutional Court on 17 July struck down an article from
the 1998 budget empowering the government to reduce spending
on the judicial system, "Kommersant-Daily" reported. Article
124 of the constitution stipulates that funding for courts
comes solely from the federal budget and must provide for
the "complete and independent" functioning of the judiciary.
This year, the government cut spending on courts by 26.2
percent, despite appeals by the Federation Council and
influential judges as well as presidential orders issued in
July, which instructed the government to make the "normal
functioning of the judicial system" a priority. Many courts
now lack the funds for basic expenses such as electricity,
telephone charges, and postage. "Kommersant-Daily" argued
that even if the 1998 budget is implemented in full, planned
spending of some 4.5 billion rubles ($723 million) on the
courts is inadequate. LB

BASAEV NAMED DEPUTY COMMANDER OF CHECHEN ARMED FORCES.
Chechen President Aslan Maskhadov has issued a decree naming
former acting Premier Shamil Basaev deputy commander-in-
chief of the republic's armed forces, ITAR-TASS reported on
20 July. On 17-18 July, Maskhadov signed orders on the
expulsion from Chechnya of five foreign nationals suspected
of creating illegal armed formations and disseminating
Wahhabist ideology. He also extended for another 10 days the
state of emergency declared on 23 July, and he mobilized
some 5,000 reservists with the declared aim of continuing
the ongoing crackdown on organized crime. On 19 July,
Maskhadov abolished the Sharia Guard, which was involved in
the 14-15 July fighting in Gudermes. Some of its members
released 32 convicts from a prison in Grozny on 18 July. LF

TWO MORE CONTRACT KILLINGS IN DAGESTAN. The director-general
of the Makhachkala port, Siradjudin Yusupov, was shot dead
on the evening of16 July during a rendez-vous with his
mistress, whom the killers then abducted, RFE/RL's North
Caucasus correspondent reported. Yusupov was also a deputy
in the Dagestani parliament and one of the leaders of
Dagestan's ethnic Laks. "Nezavisimaya gazeta" on 18 July
noted that Yusupov had jurisdiction over imports and the
refining of Azerbaijani oil. Also during the evening of 16
July, the head of the Dagestani branch of Rospechat, Urudj
Ibragimov, was shot in the courtyard of his house in
Makhachkala. LF

TRANSCAUCASUS AND CENTRAL ASIA

ABKHAZ RELEASE GEORGIAN COMMANDER. Following negotiations
between Abkhaz and Georgian intelligence officials and
Chechen former Premier Shamil Basaev, the Abkhaz authorities
have released Ruzgen Gogokhia, a Georgian battalion
commander taken prisoner in Sukhumi in 1995 and sentenced to
death the following year by an Abkhaz court, Caucasus Press
reported. In other news, the EU has allocated 1.15 million
ECUs ($1.265 million) in aid for the displaced persons
forced to flee Abkhazia during the fighting in May, ITAR-
TASS reported. LF

COMMISSION ENDORSES MINOR AMENDMENTS TO ARMENIAN
CONSTITUTION. The commission tasked with proposing
amendments to the Armenian Constitution has rejected options
that would drastically curtail the sweeping powers currently
given to the president. On 17 July, 15 commission members
approved a set of principles nominally providing for a
"semi-presidential republic" but in effect maintaining the
existing system of government. The remaining three members
advocated a parliamentary system. President Robert Kocharian
had warned against a "revolutionary" revision of the
constitution but had proposed giving the cabinet greater
latitude and limiting the president's power to dissolve the
parliament. No amendments have been proposed for the areas
of defense, national security, and foreign policy; changes
in those areas are the president's prerogative under the
constitution. The commission also voted down a motion by the
opposition National Democratic Union to scrap the present
constitution, which it claims was "illegally adopted," and
start drafting a new basic law. LF

FEW RESULTS AT CENTRAL ASIAN UNION SUMMIT. The presidents of
Kazakhstan, Kyrgyzstan, and Tajikistan as well as the prime
minister of Uzbekistan met in the Kyrgyz resort town of
Cholpon-Ata on 17 July, RFE/RL correspondents reported. As a
result of Uzbek President Islam Karimov's absence owing to
illness, the planned signing of several documents has been
delayed until October, when the next summit is scheduled.
However, the participants did agree on changing the name of
the union to the "Central Asian Economic Community." Kyrgyz
President Askar Akayev and Kazakh President Nursultan
Nazarbayev signed an agreement delimiting their countries
common borders. And they also became in-laws the following
day when Akayev's son married Nazarbayev's daughter. BP

ISRAELI COMPANY TO HELP DEVELOP KAZAKH COMMUNICATIONS. The
Israeli firm Gilat has signed a $6.2 million deal with
Kazakhtelekom to provide 250 cities and towns in Kazakhstan
with satellite communications, Interfax reported on 17 July.
BP

UZBEKISTAN ASKS FOR INTERNATIONAL AID IN WAKE OF FLOOD.
Uzbekistan has appealed for international aid to alleviate
the effects of flooding in the eastern part of the country,
Reuters reported on 17 July. Melting snow in the mountains
of neighboring Kyrgyzstan caused reservoirs to overflow on 8
July and resulted in a major flood in the Uzbek section of
the Fergana Valley. ITAR-TASS reported on 18 July that the
death toll has reached 115. But, as the search continues for
more bodies, Uzbek Interior Minister Zakir Almatov says
"that number is sure to change." BP

END NOTE

DIPLOMACY WITHIN RUSSIA

by Paul Goble

	A dramatic increase in the number and intensity of ties
between Russia's regions and various foreign countries has
prompted the central Russian government to set up a special
department within the Foreign Ministry to deal with such
contacts.
	Established earlier this year to "regulate rather than
forbid" such contacts, the new department has yet to receive
full parliamentary approval. The State Duma approved the
measure last month, but the Federation Council--in which the
regions are represented directly--has yet to back it.
	On the one hand, many people in Moscow approve such
expanded contacts between the regions and foreign countries.
Not only do such ties help to promote economic development,
but they are widely viewed in Europe and the U.S. as entirely
natural. The EU, for example, has institutionalized sub-state
representation at a variety of forums. Any number of American
states maintain special liaison offices in key foreign trade
partners. And the Russian authorities themselves have openly
pushed ties between regions within the Commonwealth of
Independent States as a means of promoting the integration of
that organization's 12 member countries.
	On the other hand, even more officials in the Russian
capital are concerned about the negative impact that such
contacts may have on Russian foreign policy, Russian
political development, and even the stability of the Russian
state. Representatives of the Foreign Ministry noted several
weeks ago that Moscow was extremely unhappy when several
Russian regions entered into direct economic contacts with
Abkhazia, a breakaway region in Georgia. Such contacts
undercut Moscow's efforts to promote ties with Tbilisi, they
argued.
	The Russian Foreign Ministry was even more upset when
representatives of Bashkortostan, Dagestan, Sakha, Tatarstan,
and several other regions participated in an Istanbul
conference that formally recognized the Turkish Republic of
Northern Cyprus. Not only did that declaration contradict
Russian policy vis-a-vis that island, but it inevitably
raised questions in the Greek half of the island about just
how reliable a partner the Russian government will prove to
be.
	And the Russian Foreign Ministry openly complained to
the press in June that Saratov Governor Dmitrii Ayatskov's
efforts to promote ties with German Chancellor Helmut Kohl
crossed the line between what Moscow considers permissible
and what it does not.
	The Russian government is also concerned about the ways
in which such ties between its regions and foreign countries
could affect domestic political development. While the
central authorities seem pleased by the economic aspect of
such contacts, they are less happy about the way in which
such an independent source of wealth allows the regions to
act with respect to Moscow. Regions with significant foreign
ties often negotiate with the relatively weak central
government from a position of strength, giving the regions
rather than Moscow the upper hand on such issues as tax
collection and the implementation of centrally adopted laws.
	Finally, many in Moscow are nervous about the way in
which such ties could help to power secessionist movements
within the Russian Federation. Many of the most independent-
minded regions of the country, populated by ethnic Russian
and non-Russian alike, are actively pushing to have
representatives abroad, just as some union republics did in
the Soviet period. Several recent Russian commentaries have
recalled the symbolic importance for Ukrainians and
Belarusians of the missions to the UN that those two
republics maintained from 1945 until the end of Soviet power.
	Tatarstan, for example, now has representatives of
various kinds in more than 15 countries. Chechnya is actively
pursuing such contacts. And even regions like Leningrad,
Pskov, and Karelia are entering into special relationships
with foreign states.
	In most countries around the world, such ties between
regions and foreign countries would not seem to be a serious
problem. Both the central governments and the regions
recognize that there is a more or less natural division
between their powers and responsibilities.
	But that is not the case in Russia. From the viewpoint
of both Moscow and the regions, their relationship is one in
which the gains of Moscow appear to the regions like a return
to hypercentralization and the gains of the regions look to
Moscow like the first step toward secession.
	For this reason, the contacts Russian regions now have
with foreign countries could prove explosive. But the
creation of a new department at the Russian Foreign Ministry
suggests that Moscow may now be preparing to institutionalize
something that has long been common in other countries.

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