Coleridge declares that a man cannot have a good conscience who refuses apple dumplings, and I confess that I am of the same opinion. - Charles Lamb
RFE/RL NEWSLINE

RFE/RL NEWSLINE Vol. 2, No. 169 Part II, 2 September 1998


___________________________________________________________
RFE/RL NEWSLINE Vol. 2, No. 169 Part II, 2 September 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 II, a compilation of news concerning Central,
Eastern, and Southeastern Europe. Part I covers Russia,
Transcaucasia and Central Asia 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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RUSSIA IN CRISIS
Continuing coverage in English and Russian of Russia's
economic and political crisis.
http://www.rferl.org/nca/special/ruchaos98/index.html

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Headlines, Part II

* FOUR CZECH OPPOSITION PARTIES AGREE TO FORM COALITION

* CLINTON, YELTSIN APPEAL TO BELGRADE

* POLICE BATTLE GUNMEN IN SOUTHERN ALBANIA

End Note: LITHUANIA FINDS MAINTAINING FIXED EXCHANGE RATE
INCREASINGLY DIFFICULT

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EAST-CENTRAL EUROPE

UKRAINIAN HRYVNYA TO BE DE FACTO DEVALUED. Ukrainian
President Leonid Kuchma on 1 September said that the official
exchange corridor of the hryvnya will be broadened, the Kyiv
newspaper "Den" reported on 2 September. Kuchma explained
that the government wants to shield the interests of
Ukrainian exporters in Russia in the wake of the financial
crisis in the neighboring country. The introduction of a new
hryvnya exchange corridor was confirmed by National Bank
Chairman Viktor Yushchenko the following day in the
parliament. According to ITAR-TASS, financial experts think
that the upper exchange limit should be raised to 2.45 hryvni
to $1 as a minimum. The government previously pledged to
maintain the national currency within the exchange corridor
of 1.8-2.25 hryvni to $1 until the end of this year. JM

UKRAINIAN TEACHERS START SCHOOL YEAR WITH STRIKE. According
to the Ukrainian Education Ministry, more than 320 schools
did not reopen in Ukraine on 1 September as teachers launched
a strike over unpaid wages, dpa reported. The teachers' trade
union claimed that some 450 Ukrainian schools remained
closed. Ukrainian Television on 1 September reported that
total wage arrears to teachers exceed 400 million hryvni
($177 million). Most affected by the teachers' action are
Ternopil, Chernihiv, and Kirovohrad Oblast, where teachers
have not been paid for some six months. Teachers in Kherson
are proposing a "forced job pause" to allow them to find
temporary employment at kolkhozes to earn money for the
winter, Ukrainian Television reported. JM

BELARUS EXPECTS LOWER GRAIN OUTPUT THIS YEAR. Belarusian
Minister of Agriculture Ivan Shakola on 1 September said that
bad weather has hit this year's grain harvest, Belapan and
Reuters reported. So far, 77 percent of the crop has been
harvested, compared with 92 percent in the same period last
year. The total grain crop is expected to reach 5.8 million
tons, 1 million tons less than in 1997. The average grain
yield is 2.34 tons per hectare, down from 2.7 tons per
hectare last year. Shakola announced that Belarus will double
its feed grain imports this year to 1.5 million tons in order
to compensate for the lost crops. JM

BELARUSIAN FOREIGN TRADE DECLINES. Belarusian Deputy Foreign
Trade Minister Valeryy Sadokha has said Belarusian producers
are finding it increasingly difficult to compete on foreign
markets, Belapan reported on 1 September. He cited declining
exports and a growing negative foreign trade balance. In the
first half of this year, Belarusian exports to Canada fell by
67 percent, to Israel by 58 percent, and to Poland by 33
percent, compared with the same period last year. Belarus's
negative trade balance with Germany reached $250 million,
with Ukraine $226 million, and with Poland $70 million.
Sadokha appealed to Belarusian embassies to do everything in
their power to enhance foreign trade "under difficult
circumstances of [Belarus's] international isolation." JM

ANOTHER BANK MERGER IN ESTONIA. The third-largest commercial
bank in Estonia, Forekspank, has announced it is merging with
the country's fourth-largest, the Investment Bank, ETA
reported on 1 September. Under an agreement signed by the
boards of the two financial institutions, Forekspank will
have a 50.25 percent stake in the Investment Bank. With
assets totaling 4 billion kroons (some $266.7 million), the
new bank will be smaller than either Hansapank or Uhispank,
which earlier this year merged with Hoiupank and Tallinna
Pank, respectively. JC

LATVIAN PARTIES SPEAK OUT FOR, AGAINST CITIZENSHIP LAW
CHANGES. The board of the National Harmony Party has issued a
statement urging the party's supporters to vote for the
enactment of amendments to the citizenship law, BNS reported
on 1 September. A referendum on those amendments is scheduled
to take place next month. The party's board said it
understands the wish of Latvian citizens to have the
referendum but described the vote as the result of "a
campaign of misinformation [and] the distortion of the
opinion of international organizations." Meanwhile, the
alliance of the Labor Party, the Christian Democrats Union,
and the Green Party is calling on Latvian citizens to vote
against the referendum. The alliance opposes the amendment
whereby all children will be granted citizenship regardless
of their proficiency in the Latvian language. JC

LATVIAN BANKS FEEL STRAIN OF RUSSIAN FINANCIAL CRISIS.
Latvian National Bank spokesman Edzus Veins told ITAR-TASS on
Tuesday that of the three Baltic States, Latvia has been most
harmed by the Russian financial crisis. Latvian commercial
banks have invested some 72 million lats ($120 million) in
the Russian economy, he said. According to Riga's Russian-
language newspaper "SM," Estonians and Lithuanians have
invested far smaller sums. JC

LITHUANIA SUSPENDS MEAT, DAIRY EXPORTS TO RUSSIA. Lithuania
on 1 September suspended meat and dairy exports to Russia,
ITAR-TASS reported. "The measure was taken mostly at the
request of Russian customers" who are unable to pay owing to
the ongoing financial crisis, a spokesman for the Lithuanian
Agricultural Ministry told the news agency. Lithuania exports
some 25 percent of its meat and dairy products to Russia,
primarily to Moscow and St. Petersburg. JC

POLAND, HUNGARY SAY RUSSIAN CRISIS ARGUMENT FOR JOINING EU.
Polish Foreign Minister Bronislaw Geremek and his Hungarian
counterpart, Janos Martonyi. said in Warsaw on 1 September
that their countries are coping well with Russia's economic
crisis, AP reported on 1 September. Geremek said this
provides "new arguments in [both countries'] drive to join
NATO and the EU." Martonyi supported the opinion by saying
that "the crisis shows to the world that Poland and Hungary
belong to the West." PAP reported the same day that both
ministers failed to reach agreement on Hungarian grain
imports to Poland. Following farmers' protests in June and
July, Poland last month imposed higher customs duties on
imported grain. JM

POLAND SCRAPS DEATH PENALTY. Poland's new penal code, which
took effect on 1 September, abolishes the death penalty and
adjusts criminal law and court procedures to the EU
standards, Reuters reported. "All new measures are compatible
with solutions adopted in Europe," Justice Minister Hanna
Suchocka commented. The code scraps capital punishment,
despite opinion polls showing that more than 50 percent of
Poles object to this move. It introduces life imprisonment to
replace the previous maximum prison sentence of 25 years in
cases of especially brutal murders and in some cases of
espionage. And it also introduces new categories of crime,
including environmental pollution, money laundering, and
theft of intellectual property. JM

RFE/RL BROADCASTS TO IRAN TO BEGIN IN MID-FALL. RFE/RL
President Tom Dine on 1 September said the station is "on
schedule" to begin broadcasts to Iran this fall. He denied
some Czech media reports that said the radios are postponing
plans to begin broadcasts on 1 September. Last week, the
Czech government announced it will permit RFE/RL to broadcast
to Iran beginning 1 September, and a government spokesman
said that through 31 December, the cabinet will review the
"security and economic risks" posed by those broadcasts. The
government also said that the U.S. must officially ask the
cabinet's opinion on planned broadcasts to Iraq, also
scheduled to begin this fall. Officials in Iran and Iraq have
protested the planned new broadcast services. MS

FOUR CZECH OPPOSITION PARTIES AGREE TO FORM COALITION.
Leaders of the Christian Democratic Party, the Freedom Union,
the Civic Democratic Alliance, and the Democratic Union on 1
September agreed to jointly nominate candidates for the
Senate and the local elections scheduled for 13-14 November,
AP reported. The agency said the members of the new coalition
fear that the Social Democratic Party (CSSD) and the Civic
Democratic Party (ODS) may change the constitution if after
the Senate elections they have a three-fifths majority in
both chambers of the parliament. The new coalition's members
fear in particular a move to change the proportional
electoral system into a majority one. Christian Democratic
Party leader Josef Lux called the new agreement "a
fundamental breakthrough" that creates "a strong alternative"
to the CSSD and the ODS. MS

CZECH SOCIALISTS REACT TO ODS WARNING. CSSD spokesman Libor
Roucek on 31 August said ODS deputy chairman Ivan Langer's
threat earlier that day to withdraw from the agreement with
the CSSD was "irrelevant." He explained that appointments to
leading positions in state-owned companies are "not subject
to the agreement" between the two formations. Roucek added,
however, that "if the ODS raised the demand, I can see no
reason for the CSSD and the ODS not to discuss it at their
next meeting." Meanwhile, the daily "Mlada Fronta Dnes" on 1
September reported that the ODS owes the state some 2.5
million crowns ($76,000) in outstanding taxes. Langer said
that different interpretations of the law are possible but
that his party will "comply with the interpretation of the
tax authorities." MS

CONTROVERSY DEEPENS OVER HUNGARIAN SPYING SCANDAL. Opposition
Free Democrat parliamentary group leader Gabor Kuncze on 1
September said that the alleged illegal surveillance of
Federation of Young Democrats-Hungarian Civic Party leaders
is a "boomerang that has fallen on the head of Prime Minister
Viktor Orban," Hungarian media reported. Kuncze said the
governing coalition's reluctance to release alleged documents
on the affair raises the suspicion that there are no
documents to support Orban's allegations. Opposition
representatives on the parliament's National Security
Committee believe the government wants to postpone the
investigation as long as possible. Laszlo Kover, minister
without portfolio responsible for the civilian secret
services, said the opposition's attacks are aimed at
"crippling" the operation of the government. MSZ

SOUTHEASTERN EUROPE

CLINTON, YELTSIN APPEAL TO BELGRADE. U.S. President Bill
Clinton said in Moscow on 2 September that he and Russian
President Boris Yeltsin agree that the Serbian authorities
must end repressive measures in Kosova. Clinton added that
the two leaders also call on Belgrade to allow relief
agencies greater access to the province and to pursue an
"interim settlement" on Kosova's status. PM

MILOSEVIC PRAISES ARMED FORCES. In a statement in Belgrade on
1 September, Yugoslav President Slobodan Milosevic thanked
the federal army and the Serbian special police for their
"courage and patriotic sense of duty in crippling and
bringing to a halt the activities of terrorist bandit groups"
in Kosova, RFE/RL's South Slavic Service reported. After
Milosevic met with U.S. Ambassador to Macedonia Christopher
Hill, the Yugoslav leader's office issued a statement in
which Milosevic called for urgent talks between Serbian and
Kosovar delegations. Hill told reporters that "there is a
possibility that the international community will send a
forensic team to help with the identification of the remains"
of 22 persons, which the Serbian authorities say they found
in Klecka (see "RFE/RL Newsline," 1 September 1998). Hill
added that whoever carried out the killings must be "caught,
tried, and punished." PM

ALBANIA CALLS FOR INTERNATIONAL INTERVENTION IN KOSOVA. The
Foreign Ministry issued a statement on 1 September calling
for international intervention in Kosova to halt the
bloodshed. The statement says that "developments in Kosova
are becoming more complex and more alarming every day" and
that "intervention by the international community, in all
[possible] forms, should be fast and prompt to save the life
of tens of thousands of innocent people endangered on a large
scale by the flames of war and facing a humanitarian
catastrophe." The statement accuses Serbian forces of
indiscriminate attacks on civilians and stresses that
"hundreds of thousands" of displaced people face food
shortages, the threat of Serbian attacks, and the imminent
onset of winter. The ministry also rejected Yugoslav charges
that Albania supports "terrorism" in Kosova, saying the
international community is aware who is "the aggressor and
who is the victim in need of protection." FS

DJUKANOVIC WARNS OF YUGOSLAVIA'S 'DARK FUTURE.' Montenegrin
President Milo Djukanovic said in Podgorica that the Federal
Republic of Yugoslavia may split up if the Belgrade
authorities do not treat Montenegro as Serbia's equal, the
Belgrade daily "Danas" reported on 2 September. He added that
"the federal state will not break up because of Montenegrin
separatism, but because [the federation has become]
politically and economically rotten and because of the
autocratic rule of one man," by which he meant Milosevic.
Djukanovic warned that the federation faces a "dark future"
unless Belgrade changes its policies to Podgorica's liking
and that Montenegro's patience is running out. Djukanovic
wants a greater say for his republic in federal affairs and
the introduction of policies aimed at promoting market
reforms, free trade, and open borders. He has also been
critical of Milosevic's policies in Kosova. PM

EXPLOSION IN BOSNIAN ARSENAL. NATO and Bosnian spokesmen said
in Sarajevo on 2 September that an explosion killed at least
one soldier of the mainly Muslim and Croatian federal army
and wounded several others. NATO and federal military
officials are investigating the blast, which took place in an
arsenal at Vrela, northwest of Sarajevo. AP reported that the
investigators believe the explosion was an accident. PM

INTERNATIONAL COMMUNITY ACTS TOUGH WITH NATIONALISTS.
Representatives of the OSCE, which is supervising the 12-13
September elections in Bosnia, removed the names of two
candidates for the Republika Srpska parliament from the
ballot on 1 September. The candidates, who belong to the
Serbian Democratic Party, had displayed pictures of indicted
war criminal Radovan Karadzic at a recent rally. Also in
Sarajevo, the international community's Carlos Westendorp
fired Mark Benkovic as mayor of Orasje because he tried to
prevent the return of non-Croatian refugees to that town.
Westendorp told Ante Jelavic, who heads the Croatian
Democratic Community, to select a new mayor within two weeks.
Elsewhere, U.S. special envoy Robert Gelbard told Jelavic to
stop "involving" uniformed soldiers and officers at his
election rallies. Gelbard called the involvement of the
military in politics "a fundamental violation of all laws."
PM

BOSNIA GETS UNIFIED CUSTOMS LAW. The joint parliament passed
a law in Sarajevo on 1 September, according to which
identical customs regulations will come into effect in
January 1999 in both the Republika Srpska and the federation.
In unrelated news, a spokesman for the United Nations High
Commissioner for Refugees said that some 1,649 persons from
Kosova have applied for political asylum in Bosnia since the
crackdown began in that Serbian province February. The
spokesman added that the total number of refugees from Kosova
in Bosnia is "significantly higher," RFE/RL's South Slavic
Service reported. PM

POLICE BATTLE GUNMEN IN SOUTHERN ALBANIA. On 2 September in
Lazarat, near Gjirokastra, "several hundreds" of special
troops from Tirana cleared the main highway connecting
Albania with Greece of a roadblock that heavily armed
peasants had set up the previous day. Seven policemen were
injured, and their colleagues are continuing to pursue some
of the gunmen in the mountains. The peasants sought the
release of three villagers arrested on 31 August for
committing a range of crimes, including murder during the
unrest in 1997, Reuters reported. Local police chief Islam
Qebini said the suspects have since been released. Qebini
charged that the latest incident is "a continuation of
attempts [by the political opposition] to destabilize this
area." Lazarat is a stronghold of the opposition Democratic
Party, which gained the majority there in the June local
elections. Villagers have repeatedly blocked the highway in
the past, prompting the authorities in Tirana to send in
special police forces. FS

POLICE FILE CHARGES AGAINST ALBANIAN OPPOSITION LEADERS. On 1
September, Tirana police filed charges against Democratic
Party leaders Sali Berisha and Genc Pollo for organizing a
demonstration in Tirana the previous day (see "RFE/RL
Newsline," 1 September 1998). Police had banned the rally,
saying they feared "terrorist attacks." The Democrats are
seeking the release from prison of six former government
officials for alleged crimes against humanity during the 1997
unrest. FS

CONFLICTING REPORTS ON POPE'S PROSPECTIVE ROMANIA VISIT.
Reuters reported on 1 September that in a message addressed
to an ecumenical meeting in Bucharest, Pope John Paul II said
he thanked the Romanian president and its government" for the
invitation extended in July to visit Romania and "I hope to
be able to accept." The last part of the statement was not
reported in the Romanian media. Romanian Orthodox Church
Patriarch Teoctist told Rompres that a visit by the pope must
be "well prepared" and that its timing is "a matter for the
Holy Spirit." Also on 1 September, the Ministry of Education
announced that Romanian pupils will have one hour of
compulsory religious instruction a week. Parents will have to
say in writing in which confession they want their children
to receive instruction, Mediafax reported. MS

VAN DER STOEL MEETS ROMANIAN, ETHNIC HUNGARIAN POLITICIANS.
OSCE High Commissioner on National Minorities Max van der
Stoel, who attended the ecumenical gathering in Bucharest on
1-2 September, met with Foreign Minister Andrei Plesu,
Education Minister Andrei Marga, and chairman of the
Hungarian Democratic Federation of Romania Bela Marko,
RFE/RL's Bucharest bureau reported. After the meeting with
Marko, Van der Stoel said he "needs more time for reflection"
before he makes a statement on the controversy over the
setting up of a Hungarian state university. Marko said the
commissioner told him he "very much hopes" that the
amendments to the education law will be passed by the
parliament "in the form originally submitted." He also said
that Van der Stoel is "well informed" and knows that the UDMR
demands have been accepted and included in the ruling
coalition agreement. MS

TIRASPOL MARKS 'INDEPENDENCE DAY.' Speaking to journalists on
the occasion of the eighth anniversary of Transdniester's
"declaration of independence," separatist leader Igor Smirnov
said he is not concerned about the fact that Transdniester's
"statehood" has not been recognized by other countries.
Smirnov said that this constituted "no hindrance" because the
Transdniester "has achieved the main thing--economic
independence." Therefore, Smirnov said, "political issues are
of secondary importance, and their solution is only a matter
of time." Smirnov said the Transdniester "has all the
attributes of statehood, including regular armed forces." He
accused the Moldovan leadership of being reluctant to and
incapable of solving the conflict, saying that the present
Moldovan government is trying to achieve "an
internationalization of the conflict--[the] Bosnian way,"
Infotag reported. MS

END NOTE

LITHUANIA FINDS MAINTAINING FIXED EXCHANGE RATE INCREASINGLY
DIFFICULT

Michael Wyzan

	Lithuania's economy generally receives less attention
from foreign observers than its two Baltic neighbors. It is
often seen as less reformed than Estonia and Latvia, although
since last year its macroeconomic performance has been at
least as strong as theirs.
	A continuing distinction between Lithuania and the other
two Baltic States is that it remains more dependent on trade
with Russia: 22 percent of its exports went to that country
during January-April, while the corresponding figure for
imports was 24.4 percent. The corresponding figures for
Latvian trade with Russia during the same period were 17.4
percent for exports and 13.6 percent for imports. Some 8.3
percent of Estonia's exports went to Russia, while 8.5
percent of its imports came from there.
	Most Lithuanian macroeconomic indicators are highly
favorable. GDP in the first quarter of 1998 was 6.9 percent
higher than in the same period last year, reflecting an
acceleration of economic growth from 1997's figure of 5.7
percent. Sales of industrial production were up by 9.4
percent during the first six months, almost double last
year's 5.0 percent.
	While production has boomed, consumer price inflation
has subsided, reaching 6.1 percent in the 12 months to June,
compared with 8.4 percent in the year to December 1997.
Another favorable macroeconomic indicator is the budget
deficit, which as of May was on target to meet the goal of 1
percent of GDP, which was agreed to with the IMF. That
deficit fell from 4.5 percent in 1996 to 1.8 percent last
year.
	Wages have been booming, along with the economy: the
average gross monthly wage reached $249 in May, compared with
$199 a year earlier. This may explain why the unemployment
rate has been higher during every month this year than in the
corresponding month in 1997. However, by June the difference
was negligible, with the rate that month of 5.5 percent only
slightly above June 1997's 5.3 percent.
	Large current account deficits have been a hallmark of
the Lithuanian economy. As economic growth turned positive in
1995, the current account imbalance rose from $94 million
(2.2 percent of GDP) in 1994 to $981 million in 1997 (a high
10.3 percent). This trend continued into the first quarter of
1998, when the deficit was $514 million, up $118 million on
the same period last year.
	Such deficits have been commonplace in rapidly growing
transition economies, especially ones with fixed exchange
rates; the litas has been pegged at four to the dollar under
the currency board introduced in April
1994.
	The Bank of Lithuania is currently undergoing a
transition to a normal central bank, a three-stage process
scheduled to be completed next year. For example, under the
currency board, the bank is not allowed to provide overnight
loans to commercial banks. In April, as part of the
transition to central banking, it set the interest rate it
will charge on such loans.
	To retain confidence in monetary policy, the fixed rate
for the litas against the dollar is to remain valid at least
until 1999, when the currency will be tied partly to EU
currencies; by the end of 2000, the litas will be pegged to
the Euro.
	Although the current account deficit is high, the Bank
of Lithuania's foreign reserves have risen steadily, reaching
$1.2 billion in June (further augmented by privatization
proceeds in July), compared with $939.6 million in June 1997.
Another encouraging sign is the rapid rise in foreign direct
investment, which was a cumulative $1.1 billion at the end of
June, compared with. $727.6 million in June 1997.
	The IMF's Executive Board in July praised the government
for increasing excise taxes, improving tax collection and the
budget process, privatization successes in banking and
telecommunications; and creating an Energy Pricing
Commission. The board called for further fiscal tightening to
limit the growth of expenditures and to put the Social
Security Agency on a firmer footing, especially by raising
the retirement age.
	These are the standard recommendations that the fund
would make to any successful economy in transition. A more
interesting question is how vulnerable Lithuania will prove
to contagion from the financial turbulence in East Asia and
especially Russia. Large current account deficits under fixed
exchange regimes are often an indication of such
vulnerability.
	The key issue is whether Lithuania will be able to
manage the transition to central banking under a fixed
exchange rate or whether it will be forced to allow its
currency to weaken, as the Czech Republic did in spring 1997
and Russia on 17 August 1998. In this context, Lithuania's
high trade dependence on Russia is worrisome, since the
weaker ruble will probably further increase the Baltic
State's already large trade deficit with that country.

The author is a research scholar at the International
Institute for Applied Systems Analysis in Laxenburg, Austria.

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