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RFE/RL NEWSLINE Vol. 2, No. 164 Part I, 26 August 1998
___________________________________________________________ RFE/RL NEWSLINE Vol. 2, No. 164 Part I, 26 August 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 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Headlines, Part I * RUBLE PLUNGES * GOVERNMENT ANNOUNCES DEBT PLAN * GEORGIAN LEADERS CONDEMN ZUGDIDI BOMBING End Note: IMPROVING ECONOMY HAS YET TO AFFECT LIVING STANDARDS IN ARMENIA xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx RUSSIA RUBLE PLUNGES. On 25 August, the value of the ruble fell 10 percent against the dollar, closing at 7.86 to $1. It was the biggest drop since "Black Tuesday," 11 October 1994, when the ruble sank more than 25 percent. Acting Prime Minister Viktor Chernomyrdin told reporters that the fall of ruble is both an "economic and a political issue." He said that "our economy is too closely linked to politics." Andrei Illarionov, Director of the Moscow-based Economic Analysis Institute said he can envision a 15 ruble/$1 exchange rate if Russian financial policy is not overhauled and the leadership of the Central Bank replaced. Earlier, Illarionov had declared a devaluation of the ruble inevitable (see "RFE/RL Newsline," 31 July 1998). JAC GOVERNMENT ANNOUNCES DEBT PLAN. The government on 25 August rewarded patient investors by announcing details of its plan to restructure short-term debt. The plan was originally scheduled for release on 24 August but was held up until acting Prime Minister Chernomyrdin was able to review it. According to ITAR-TASS, investors holding treasury bills that mature within three years or less will receive 5 percent of the bonds' face value in cash and the opportunity to trade them for three new issues of Russian securities that will mature over three to five years and pay interest rates ranging from 20 percent to 30 percent. Investors will also have the option of swapping their bonds denominated in rubles for securities denominated in dollars, which pay a lower annual interest rate of 5 percent and mature in 2006. JAC PURGE OF REFORMERS PREDICTED... Russian Regions faction leader Oleg Morozov told ITAR-TASS on 25 August that the new government is unlikely to include any "first-wave reformists." Echoing this sentiment, Vladimir Ryzhkov, Duma First Deputy Speaker and member of the Our Home is Russia faction, told "Segodnya" that the absence of presidential envoy to international financial institutions Anatolii Chubais, Russia's Democratic Choice leader Yegor Gaidar, and former Deputy Prime Minister Boris Nemtsov is a condition for the Duma's confirming Chernomyrdin's candidacy. Morozov said that acting Deputy Prime Minister Oleg Sysuev and Chubais will not be included in the new cabinet. However, acting Deputy Prime Minister and State Tax Service head Boris Fedorov will be kept as an "emblem of the government's preservation of its market orientation," according to "Russkii Telegraf" on 25 August. Acting Deputy Prime Minister Viktor Khristenko's duties have already in effect been transferred to Fedorov, suggesting that Khristenko will be asked to leave. The newspaper considers the dismissal of acting Minister of Fuel and Energy Sergei Generalov inevitable. JAC ...WHILE PROTEGES, UNAMBITIOUS REMAIN. According to "Russkii telegraf," Chernomyrdin will preserve the position of his loyalists, such as Minister of State Property Farit Gazizullin and Federal Bankruptcy Agency head Georgii Tal. In addition, Acting Minister of Industry Yurii Maslyukov is likely to stay because of his "moderate views on the economy and absence of any political ambition." In its own "political horoscope," "Segodnya" reckoned that at least a few other ministers are unlikely to be replaced: Minister of Science and Technology Vladimir Bulgak, Minister of Atomic Energy Yevgenii Adamov, and Minister of Justice Pavel Krasheninnikov. Minister of Defense Igor Sergeev and Minister of Internal Affairs Sergei Stepashin have "guaranteed places" in the new government. And President Boris Yeltsin continues to have great faith in Federal Security Service chief Vladimir Putin, according to the newspaper. JAC BANK CONSOLIDATION PROCEEDS. Following last week's statement by the Central Bank that consolidation in the banking industry may prevent a system collapse, Uneximbank, Most Bank, and Menatep announced on 25 August plans to merge. According to RFE/RL, Uneximbank and Menatep are Russia's fourth- and seventh-largest banks in terms of assets, while Most trails behind in 17th place. Menatep board chairman Aleksandr Zurabov said that the banks' different strengths complement one another. Uneximbank specializes in servicing large corporate clients, while Most focuses mainly on individuals. Each bank will contribute 51 percent of their stock into a holding company. The banks still need to work out the values of the shares of the new bank and undergo an audit by an international accounting firm. The Uneximbank- Menatep-Most merger follows an earlier announcement of a merger between National Reserve Bank and Inkombank (see "RFE/RL Newsline," 25 August 1998). However, the "Financial Times" clarified on 26 August that the banks are still negotiating. JAC BUMPS ALONG ROAD TO COALITION. Two Duma factions have put up at least some resistance to Chernomyrdin's bid to form a coalition government. Yabloko deputy Sergei Ivanenko told Interfax on 25 August that Yabloko will not hold talks on membership in the Chernomyrdin government. According to Ivanenko, the results of Chernomyrdin's prior work in government were "pitiable." The same day, Viktor Ilyukhin, chairman of the Duma's Security Committee and member of the Communist Party, threatened that unless at least 10 ministerial posts are allotted to left opposition groups, Chernomyrdin will not be confirmed "even under the threat of dissolution." JAC OUR HOME IS RUSSIA SUBMITS WISHLIST, BLACKLIST. Our Home is Russia (NDR) faction leader Aleksandr Shokhin said that the NDR expects to place six to seven people in the cabinet. He revealed that his name was floated for possible inclusion in the cabinet in discussions with Chernomyrdin but that no final decision was reached. NDR Deputy Chairman Georgii Boos told Interfax that NDR also drew up a list of people who must not be included in the government. Among these names were Chubais, Nemtsov, financial magnate Boris Berezovskii, former Minister of Economy Yevgenii Yasin, Central Bank chief Sergei Dubinin, Finance Minister Mikhail Zadornov, State Tax Service head Fedorov, and former Deputy Prime Minister Ivan Rybkin. JAC BEREZOVSKII PULLING STRINGS? Two newspapers controlled by Vladimir Potanin's Oneksimbank, "Komsomolskaya pravda" and "Russkii telegraf," have accused financial magnate Boris Berezovskii of orchestrating Chernomyrdin's return to power. "Russkii telegraf" on 25 August points out that although many Russian newspapers called for a change in the Russian government, only one mentioned Chernomyrdin as a possibility, "Nezavisimaya gazeta," which receives financial backing from Berezovskii's LogoVAZ Group. "No one was suggesting Chernomyrdin because the consensus was that he was responsible for the present collapse," the newspaper commented. The same day, "Komsomolskaya pravda" reported that Chernomyrdin spent most of his sabbatical from government service in the company of Berezovskii and that Berezovskii met with Chubais the day before Yeltsin dismissed Sergei Kirienko's government. JAC RUSSIAN HACKERS TARGET GOVERNMENT, BANKS. "Kultura" on 20 August describes a little-known department within the Federal Agency for Governmental Liaison and Information, whose primary task is to prevent "break-ins" on government computers. According to the agency's deputy director-general and liaison to the Main Security Department, Lieutenant General Aleksandr Pavlovich Alferov, the presidential administration's web server is under constant attack, including during President Yeltsin's interview on the Internet. There have also been numerous attempts to access the Justice Ministry's computer network; agency specialists working together with Justice Ministry officials were able to defend the system from collapse. Even more vulnerable than government agencies are some banks, who reportedly choose, install, or use computer security systems incompetently. Alferov says that inexpert usage of foreign databases has allowed some hackers to access a system within 10 minutes. JAC NEW THEORY OF KALMYK JOURNALIST'S MURDER. "Nezavisimaya gazeta" on 25 August summarized what it claims is the confession of one of three men accused of the June murder of Larisa Yudina, editor of the opposition newspaper "Sovetskaya Kalmykiya." According to Vladimir Shanukov, he set up a meeting with Yudina by offering her information on the firm ARIS in the hope she would agree to purchase an apartment he wanted to sell. When Yudina realized that Shanukov did not have any such information, a heated altercation ensued that ended with Shanukov stabbing Yudina. This account of an apparently unpremeditated murder contradicts claims by Russian Interior Minister Sergei Stepashin and Yabloko leader Grigorii Yavlinskii that Yudina's death was a contract killing on political grounds (see "RFE/RL Newsline," 9 and 12 June 1998). LF DEMONSTRATORS MARCH ON DAGESTANI CAPITAL. All roads to the Dagestani capital, Makhachkala, were closed on 26 August, and the city's entire police force placed on the alert, according to RFE/RL's North Caucasus correspondent. Following mass meetings earlier that day in the towns of Kizilyurt and Khasavyurt to demand the resignation of the Dagestani government and the clarification of the 21 August murder of mufti Saidmukhamed Abubakarov, up to10,000 people, some of them armed, are reportedly marching on Makhachkala. State Council chairman Magomedali Magomadov returned to the capital after abandoning plans to hold talks with the inhabitants of three mountain villages that last week declared an "independent Islamic territory." LF TRANSCAUCASUS AND CENTRAL ASIA GEORGIAN LEADERS CONDEMN ZUGDIDI BOMBING. Following Georgian President Eduard Shevardnadze's condemnation (see "RFE/RL Newsline," 25 August 1998), Minister of State Vazha Lortkipanidze on 25 August denounced the bombing the previous day of the local administration building in the west Georgian town of Zugdidi. Lortkipanidze said the bombing was intended "to destabilize the situation in the region and in the republic as a whole, including Tbilisi," according to ITAR-TASS. In a letter to UN Secretary-General Kofi Annan on 25 August, Tamaz Nadareishvili, chairman of the Abkhaz parliament-in-exile, blamed the explosion on Abkhazia and requested that the UN and OSCE condemn the "vandalism of Abkhaz separatists and their back-up forces," Caucasus Press reported. Instruction in Zugdidi's schools will not begin as scheduled on 1 September because all school buildings are occupied by fugitives from Abkhazia's Gali Raion. Those fugitives cannot return to their homes and refuse to move to other Georgian towns. LF LINE-UP OF ARMENIAN PRESIDENTIAL COUNCIL ANNOUNCED. Two Armenian opposition parties, the Communists and Vazgen Manukian's National Democratic Union, have declined President Robert Kocharian's offer of representation on the Presidential Council, RFE/RL's Yerevan bureau reported on 25 August. That body was created in order to offer a discussion forum to parties that either have no representation or are underrepresented in the parliament. The provisional composition of the council was announced on 25 August and comprises 11 parties, including eight that backed Kocharian's presidential bid as well as the former ruling Armenian Pan-National Movement (HHSh). The People's Party, recently founded by defeated presidential candidate Karen Demirchian, is not represented on the Presidential Council, but it is unclear whether it was invited to join. LF FORMER DEPUTY PARLIAMENT SPEAKER ASSESSES SITUATION IN ARMENIA. In an interview with RFE/RL's Yerevan bureau on 25 August, former deputy parliamentary speaker Ara Sahakian, a prominent HHSh member, described the present Armenian leadership as "authoritarian." The negative phenomena that existed under the previous leadership are becoming more pervasive, he said, adding that the positive ones are being marginalized. Sahakian argued that only the resignation of the present government can reverse that trend. LF AZERBAIJAN OPPOSITION PLANS SECOND MASS RALLY. Azerbaijani opposition parties aligned in the Movement for Democratic Elections and Democratic Reforms have agreed to convene a second mass rally to demand further democratization of the conditions for holding the 11 October presidential elections, changes in social policy, and the return of Nagorno-Karabakh to Baku's jurisdiction, RFE/RL's Baku bureau reported. Musavat Party chairman Isa Gambar told Turan on 25 August that the opposition will not formally request permission from Baku mayor Rafael Allakhverdiev to hold the demonstration on Baku's central Liberty Square, as the country's constitution enshrines the right to public gatherings. Allakhverdiev had imposed a ban on gatherings in the square two days before the opposition's 15 August rallies. Gambar also accused the Azerbaijani leadership of preparing to gerrymander the elections results. He said the outcome of the poll will determine the country's future political course. LF UZBEK, TAJIK PRESIDENTS GIVE PAKISTANI MINISTER COLD SHOULDER... Pakistani Minister of State for Foreign Affairs Mohammed Kanju was in Uzbekistan and Tajikistan on 24-25 August but the presidents of both countries refused to meet with him, ITAR-TASS and Interfax reported. Instead,. Kanju met with the two countries' foreign ministers, whom he told that his country does not militarily support Afghanistan's Taliban movement. There are no reports that either the Tajik or Uzbek foreign minister raised the question of Pakistani support for radical Islamic groups in the CIS Central Asian states. However, Uzbekistan has made that claim on several occasions, and Tajikistan earlier this week expelled four Pakistani citizens for allegedly disseminating Wahhabi and/or Taliban propaganda in Dushanbe (see "RFE/RL Newsline," 24 August 1998). BP ...WHILE TURKMEN PRESIDENT RECEIVES HIM. Kanju arrived in Ashgabat on 25 August and held talks with Turkmen President Saparmurat Niyazov, RFE/RL correspondents reported. While the two discussed events in Afghanistan, the main focus of their talks was the plan to build a pipeline that will transport natural gas form Turkmenistan to Pakistan via Afghanistan. One of the major partners in the deal, U.S. company UNOCAL, suspended its participation in the project last week following the U.S. bombing of suspected terrorist positions in Afghanistan. BP FATE OF TAJIK OPPOSITION FIGHTERS IN AFGHANISTAN STILL UNCERTAIN. The United Tajik Opposition (UTO) said it is alarmed by delays in returning its remaining 200 fighters who are currently in Afghanistan, Interfax reported on 25 August. Under the terms of the June 1997 Tajik peace accord, the fighters are to be repatriated and integrated into the Tajik Army. However, their return is likely to be delayed further as the UN mission to Tajikistan, which is to oversee their repatriation, has scaled back its operation this week. That move is owing to the failure of the Tajik government and UTO to apprehend and bring to trial those responsible for murdering four UN employees in late July. In a related story, the number of UTO fighters who have taken the oath of allegiance is now put at some 4,000, with approximately 1,000 not yet having done so. BP TURKMEN POLICE, INTERIOR MINISTRY OFFICIALS ARRESTED FOR CORRUPTION. The Turkmen Interior Ministry announced at a 25 August press conference that 30 police and Interior Ministry officials of varying rank have been arrested in an anti- corruption campaign, RFE/RL correspondents in Ashgabat reported. Turkmen Television broadcast the press conference, where the accused, wearing hand-cuffs, stood as Interior Ministry officials alleged the prisoners were guilty of taking bribes. BP PROBLEMS GROW FOR AIR KAZAKHSTAN. More than 80 current and former employees of Air Kazakhstan, Kazakhstan's national airline, demonstrated outside the company's headquarters in Almaty on 25 August to demand back wages, ITAR-TASS reported. The pilots were asking for wages arrears dating back to February. Among the demonstrators were retired airline workers who have not received pensions or disability payments for injuries they sustained while employed by the airline. Those workers face a long-term problem because the Air Kazakhstan bought out the bankrupted Kazakhstan Aue Zholi in 1997 and refuses to pay any of its predecessor's debts. Prosecutor-General's Office recently announced that Air Kazakhstan has provided 222 free tickets for flights between Almaty and Astana to government officials. BP END NOTE IMPROVING ECONOMY HAS YET TO AFFECT LIVING STANDARDS IN ARMENIA by Emil Danielyan With robust economic growth and low inflation, the Armenian economy has made significant gains in the first half of 1998, but ongoing problems, such as high unemployment, mean there has been little impact on living standards. The Armenian government has claimed a major success in implementing economic reforms. Inflation fell to its lowest level since 1991, 0.9 percent, while the economy grew 6.7 percent in the first six months of this year, compared with the same period in 1997. Industrial output increased 3.2 percent, owing to a 40 percent upswing in light industry and textiles, in particular. Also contributing to the growth was a 25 percent increase in the construction sector. Most of the $188 million investment during the first six months of1998 was channeled into newly privatized enterprises. Direct foreign investment reached $98 million, an eightfold increase over the first half of 1997. This was a result of the government's increased reliance on cash (as opposed to voucher) privatization and on international tenders, which are part of the privatization process. Economic growth has meant a 50 percent increase in budget revenues. With zero net borrowing from the Central Bank and with tax revenues doubling, the budget deficit shrunk by one quarter. The government stresses that increased tax revenues are due to improved tax administration and its strategy of reducing tax rates but expanding the tax base. These positive trends prompted Finance and Economics Minister Eduard Sandoyan in late July to announce a "breakthrough" toward stable growth. But George Anayiotos, the IMF's resident representative in Armenia, takes a more cautious view, pointing to a "very low base" upon which the success is being built. Indeed, the figures become less impressive bearing in mind the dramatic economic slump in the early 1990s that followed the break-up of the Soviet Union and the war in Nagorno-Karabakh. Another economist, former Yerevan mayor, Vahagn Khachatrian, stressed in an interview with RFE/RL that the improvement is in comparison with last year's economic slowdown, which hit a low point in the first six months. In fact, the recovery started in late 1997, after the government tightened monetary-fiscal policy and accelerated structural reforms. "Significant progress" was noted by the IMF Executive Board in February. Armenia is in its final year of the IMF's $136.6 million loan program (Enhanced Structural Adjustment Facility), launched in February 1996. Negotiations are under way on the release of the last $45 million tranche, Anayiotos told RFE/RL that Yerevan has reason to expect it will receive the loan, as it is on schedule to meet most ESAF targets for 1998. In line with those targets, 7 percent economic growth appears a possibility. Armenia's foreign reserves currently total $309 million and are sufficient to cover 4.2 months of imports (the ESAF requirement is 3.5 months). Similarly, inflation is likely to be below the agreed 8 percent limit this year, having reached 8 percent in the first quarter but having bounced back as consumer prices fell dramatically in the second quarter. Continuing deflation has prompted the government to hint that it will ease its rigorous macroeconomic policy. But that move would not be welcomed by the IMF, which has called it "unjustified." Anayiotos argues that high inflation is not conducive to growth and that keeping inflation low is essential. Nevertheless, interest rates are falling in Armenia. The Central Bank earlier this month further reduced its re- financing rate to 33 percent (from 47 percent in June). According to Khachatrian, even this is too high for industry, given the comparatively low level of inflation. But Armenia is apparently not living up to the ESAF projection on its current account deficit, which reportedly exceeds 20 percent of GDP, well above the targeted 12.5 percent for the whole of 1998. This chronic problem was slightly alleviated in the first half of the year, with exports up 30 percent and imports down 2.7 percent. Sandoyan agrees that exports should be growing faster to allow Armenia to cope with its $800 million foreign debt. In Khachatrian's words, an economic boom could be only export-oriented because domestic consumption has reached its upper limit in Armenia. A resolution of the long-standing Nagorno-Karabakh conflict and the opening of the borders with Azerbaijan and Turkey, he said, "would expand our markets." The government, however, stresses the need to improve conditions at home to attract foreign capital. Such improvements would include liberal trade laws, a freer trade regime, independent courts, economic and political stability, and a secondary market for securities. In general, the latest economic improvements are having little effect on living standards, which are still lower than during the Soviet era. Unemployment--the number one social problem--remains extremely high: the official figure is 9 percent, but the real figure is thought to be much higher. The authorities admit that at least several years are needed for those standards to be significantly raised, even with the projected 7 percent growth. As the IMF representative says, success is contingent on "consistency and continuity" in pursuing the appropriate monetary-fiscal policies and structural reforms. Judging from its assurances and its short-term record, the Armenian government is keen to pursue both. The author is an RFE/RL correspondent based in Yerevan. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Copyright (c) 1998 RFE/RL, Inc. All rights reserved. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx HOW TO SUBSCRIBE Send an email to email@example.com with the word subscribe as the subject of the message. HOW TO UNSUBSCRIBE Send an email to firstname.lastname@example.org with the word unsubscribe as the subject of the message. 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