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RFE/RL NEWSLINE

RFE/RL NEWSLINE Vol. 2, No. 164 Part I, 26 August 1998


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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

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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
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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.

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