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RFE/RL NEWSLINE Vol 2, No. 190, Part I, 1 October 1998
___________________________________________________________ RFE/RL NEWSLINE Vol 2, No. 190, Part I, 1 October 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 * TO NATIONALIZE OR NOT TO NATIONALIZE? * CABINET NEARS COMPLETION * KAZAKH PRESIDENT ANNOUNCES LIBERALIZATION MEASURES End Note: THROWING BAD MONEY AFTER BAD xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx RUSSIA TO NATIONALIZE OR NOT TO NATIONALIZE? The draft version of Deputy Prime Minister Yurii Maslyukov's economic plan, according to "Kommersant Daily" on 30 September, calls for a fixed ruble rate, a 60 percent increase in the money supply, and the nationalization of banks to fund failing industries. The cabinet was scheduled to discuss the plan on 1 October, and the debate may grow heated -- particularly since Central Bank chairman Viktor Gerashchenko told Interfax that he does not support a nationalization of the nation's commercial banks and that the Central Bank will allow the ruble's exchange rate to float. However, a compromise may already be in the works. Gerashchenko told reporters that he supports the idea of a state bank for reconstruction and development; the only problem, he added, is how to provide this bank with funds. JAC CABINET NEARS COMPLETION... By 30 September, Russian President Boris Yeltsin had filled all the major posts in the cabinet, except for the one abandoned by Aleksandr Shokhin last week. Among the latest appointees are rector of the Patrice Lumumba University Vladimir Filippov, who will become minister of education, Director of the Russian State Library Vladimir Yegorov (minister of culture), Deputy Health Minister Vladimir Starodubov (minister of health), and President of the Union of Russian Cities Valerii Kirpichnikov (minister of regional policy). Yeltsin also reappointed Yevgenii Adamov as minister of atomic energy and Viktor Semenov as minister of food and agriculture. JAC ...GAINS NEW PARTY REPRESENTATIVE. Yeltsin also appointed Sergei Kalashnikov, a member of the Liberal Democratic Party (LDP), as minister of labor. A moderate, Kalashnikov is the only member of the cabinet from the LDP. In an interview with "Trud" on 1 October, Kalashnikov declared his support for indexing pensions as soon as November. After Kalashnikov's appointment was announced, LDP leader Vladimir Zhirinovsky declared that Primakov's entire cabinet has his party's full backing. JAC PRIMAKOV TO TAKE TOUGH APPROACH TO REGIONS? Sverdlovsk governor Eduard Rossel told reporters on 1 October that he suggested to President Yeltsin that a firm top-down management system be introduced in Russia. Rossel also said that Yeltsin promised that the role of governors in federal policy-making will be considerably enhanced. "Kommersant- Daily" concluded on 30 September that the appointment of Kirpichnikov as regional policy minister indicates that the Primakov has decided to adopt a "tough approach" to the regions. According to the newspaper, Kirpichnikov is one of the "founding fathers" of the movement for strong local self- government in which municipal authorities provide a counterweight to governors. JAC ARMY CHECKS ARE IN THE MAIL? One day before the army conscription campaign was scheduled to begin, a number of Russian newspapers reported on 30 September that the various military districts have not yet received their back wages, despite Prime Minister Yevgenii Primakov's earlier announcement that the government has cleared its debt to the military. According to "Izvestiya," the airborne, air defense, and strategic missile troops as well as the navy and General Staff have so far been paid only for June. In an interview with "Krasnaya zvezda" on 29 September, Duma Defense Committee chairman Roman Popkovich pledged that the "1999 budget won't be approved if the government doesn't increase the size of allowances for servicemen by 2.06 times." He added that allowances have not increased since 1995. JAC IVANOV SAYS DIPLOMACY TO RELY MORE ON SKILL. In an interview with "Komsomolskaya pravda" on 30 September, Foreign Minister Igor Ivanov addressed the question of the future of Russian foreign policy in the context of both its current economic crisis and the prospect that its wishes for a solution in Kosova will be ignored by the international community. Ivanov said that Russian diplomacy, deprived of "a dynamic economy behind it," has to rely more on skill, "the skill of seeking compromises, of considering the interests of different states on different issues, of seeking allies." He added that Russia "does not dictate" but is "an important player on the very complex chessboard" of international diplomacy. He expressed "optimism" that the Baltic States' desire to enter the EU will encourage them to observe human rights and that Afghanistan's "friends and allies" will implement accords meant to isolate the Taliban, forcing them to negotiate a peace treaty under UN auspices. JAC RUSSIAN-WESTERN BANK RELATIONS BECOME FROSTY. A Moscow arbitration court on 30 September froze the assets of U.S. investment bank Lehman Brothers held in Russian banks. On 24 September, Lehman Brothers had a British court freeze the assets of Uneximbank and Inkombank held in British banks, which reportedly owe them $87 million and $25.9 million, respectively, for unfulfilled forward contracts (agreements to buy a certain amount of currency at a future date, see "RFE/RL Newsline," 24 September 1998). On 28 September, Lehman obtained an additional court order freezing the British bank accounts of SBS-Agro bank, which it claims owes it $15 million. Bloomberg reported on 30 September that the agenda of Russian government talks with domestic and foreign holders of defaulted treasury bonds has been expanded to include discussion of the settlement of more than $10 billion in currency forward contracts. JAC MAIL STOPPED IN ITS TRACKS. The Moscow Post Office has stopped accepting parcels to be sent to remote regions because of a dispute between the Communications Ministry and the Railroads Ministry, according to "Segodnya" on 30 September. "Izvestiya" had reported on 26 September that the Post Office, which is overseen by the Communications Ministry, owes the Railroads Ministry 210 million rubles ($13 million) and that the Railroads Ministry responded by halting all services at midnight on 25 September. The "Moscow Times" reported on 1 October that the Post Office has brought in trucks to deliver mail to regions within 2,000 kilometers of Moscow but because of the lack of train access, little mail is making it past the Ural Mountains. The same newspaper reports that Post Office Director Valerii Sokolov believes the Railroads Ministry manufactured the dispute in order to steal shipping business away from the post office, since some citizens have resorted to paying train conductors to deliver parcels. JAC ZYUGANOV NOT TO SUPPORT LUZHKOV FOR PRESIDENT. In an interview with Interfax on 30 September, Communist Party leader Gennadii Zyuganov appeared to confirm earlier press speculation that the Communist Party is forming an alliance with Moscow Mayor Yurii Luzhkov. He said that a center-left coalition with Luzhkov is "possible" and that the creation of a broad center-left coalition "would benefit everyone." Zyuganov admitted that Luzhkov has support not only in Moscow "but also in the republics, territories, and regions with which he deals actively." But he told NTV it is unlikely that his party would support Luzhkov for president. LDP party leader Vladimir Zhirinovsky said he himself would beat Luzhkov in a second round by 2 percent. Meanwhile, "Segodnya" reported that the Moscow Mayor's Office will obtain 25 percent of the stock of "Literaturnaya gazeta" Publishers by providing them with a 49-year lease to a local building. JAC PROTEST FALTERED? "Moskovskii komsomolets" reported on 1 October that the previous day's protests by Communist Party activists and trade union members on highways leading to Moscow "amounted almost to nothing" (see "RFE/RL Newsline," 30 September 1998). According to the newspaper, protesters on one highway managed to get past assembled policemen but were chased away by angry truck drivers. JAC CORRECTION: "RFE/RL Newsline" of 30 September incorrectly identified Dmitrii Ayatskov as governor of Sverdlovsk. He is the governor of Saratov. REGIONAL AFFAIRS LUKASHENKA, PRIMAKOV CALL FOR STRONGER BELARUS-RUSSIA UNION. On his first trip abroad as Russian prime minister, Yevgenii Primakov met with Belarusian President Alyaksandr Lukashenka in Minsk on 30 September and proposed strengthening the two countries' strategic partnership. "It is time to move from words to deeds," Interfax cited Primakov as saying. The two leaders agreed to convene the Belarusian-Russian Union Executive Committee on 16 October. The meeting will focus "on reaching concrete results instead of exhibitionism," Primakov commented. Lukashenka commented that Belarus "has always been and [always] will be with Russia" and that other former USSR republics are bound to join the Belarusian-Russian Union. "The people will make it happen," he added. For his part, Primakov said "the number of supporters willing to join the union will grow as its economic efficiency becomes evident." JM LUKASHENKA PRAISES PRIMAKOV'S GOVERNMENT. After his meeting with Primakov, Lukashenka said he is 'highly satisfied with the work of Yevgenii Primakov's government," Interfax reported. He said he is confident that Primakov's government will stabilize the situation in Russia. And he noted that Belarus will do its best to help Russia overcome its economic problems. Primakov said Russia faces no political crisis, only "social and economic tension." He added that Russia is "on the threshold of economic reforms and changes that must benefit the people." But he commented that the government needs to have a tighter grip on regulating the economy. "This is not a step back but rather forward towards transforming the economy, including market-based change, but with a strengthening of state regulation," Reuters quoted Primakov as saying. JM BELARUS MAY RECEIVE RUSSIAN LOAN, PAY FOR GAS BY BARTER. Primakov and Lukashenka agreed in Minsk to "try to prepare" two accords for the 16 October session of the Belarusian- Russian Union Executive Committee, Interfax reported. Citing an unnamed official from Primakov's delegation, the agency reported that one accord will grant a loan to Belarus with which it can buy Russian engines for Belarusian trucks. The other will permit Belarus to pay off its gas debt to Russia with goods. Belarus's debt for Russian gas deliveries currently stands at some $220 million. JM TRANSCAUCASUS AND CENTRAL ASIA KAZAKH PRESIDENT ANNOUNCES LIBERALIZATION MEASURES ... In his annual address to the parliament on 30 September, Nursultan Nazarbayev outlined broad measures to expedite democratization that are clearly intended to undercut support for any potential challenger in the presidential poll due in 2000. Nazarbayev proposed curtailing the powers of the president and increasing those of the parliament, making the government more accountable to the parliament, enhancing the independence of the judiciary by appointing a separate head of the Supreme Court (that post is currently held by the country's president), and privatizing some state-owned media, Interfax and Reuters reported. Nazarbayev also advocated reforming the procedure for elections at all levels by abolishing the present minimum 50 percent turnout and all fees to register as a candidate and creating 10 additional seats in the lower house, where all seats will be allocated under the proportional system. LF ...RULES OUT PRETERM PRESIDENTIAL POLL... Nazarbayev categorically rejected a proposal by four parliamentary deputies to bring forward the date of the next presidential elections to 1999 so they are not overshadowed by the presidential poll in Russia in 2000, AP and Reuters reported. The deputies also reasoned that preterm presidential elections are needed to prevent the current social and economic instability in Russia spilling over into Kazakhstan. But Nazarbayev, who has repeatedly affirmed in recent weeks that the financial crisis in Russia has not affected Kazakhstan, said the country's constitution takes precedence over such arguments. LF ...ANNOUNCES PRIVATIZATION OF SOME FARMLAND. Nazarbayev told journalists in Astana after addressing the parliament that he will soon submit to lawmakers a draft law introducing the private ownership of land, Interfax reported. He said that initially, some 30 - 40 million hectares of arable land will be sold, but only to citizens of Kazakhstan who have demonstrable expertise and experience in the agricultural sector. LF FORMER KAZAKH PREMIER COMMENTS ON NAZARBAYEV INITIATIVES. Nazarbayev also met in Astana on 30 September with former Prime Minister Akezhan Kazhegeldin, RFE/RL's bureau in the Kazakh capital reported. At joint press conference, Kazhegeldin described Nazarbayev's democratization program as "timely." Nazarbayev, however, declined to answer a question posed by an RFE/RL correspondent about the very close similarities between the measures he had proposed to the parliament and recommendations that Kazhegeldin had made to the parliament on behalf of his businessmen's union two weeks ago. LF DEVELOPMENT OF FOREIGN TOURISM NOT A PRIORITY IN TURKMENISTAN? National Security Committee chairman Mukhamet Nazarov disclosed on 29 September that 760 foreigners have been deported from Turkmenistan so far this year for violating the country's laws. He added that "administrative measures" have been taken against another 1,840 foreigners, "Noviye izvestiya" reported. Nazarov added that 50 Turkmen officials, mostly from the banking sector, have been arrested so far this year. LF SOLANA ENDS TALKS IN TBILISI, TRAVELS TO BAKU. During talks in Tbilisi on 30 September with Georgian Foreign Minister Irakli Menagharishvili and parliamentary speaker Zurab Zhvania, NATO Secretary-General Javier Solana said that security in the South Caucasus goes beyond the purely military sphere and depends also on political and economic factors, Interfax reported. Solana expressed the hope that close regional cooperation may contribute to stability and to a solution to existing conflicts, which, he said, might otherwise present a serious obstacle to European security. In Baku later that day, Solana met with Azerbaijani parliamentary speaker Murtuz Alesqerov and President Aliev, who complained of Russia's "destabilizing" role in the Caucasus, Reuters reported. In particular, Aliev condemned the presence of Russian military bases in neighboring Georgia and Armenia and Russian arms supplies to Armenia. Solana said he hopes that the OSCE will be able to mediate a settlement of the Karabakh conflict. LF ARMENIAN OPPOSITION CHALLENGES LEGITIMACY OF CE DELEGATION. In a recent letter addressed to the Council of Europe, former parliamentary speaker Babken Ararktsian, who heads the Hanrapetutyun parliamentary faction, protested the recent dismissal of the head of the Armenian delegation to that organization and cast doubts on the delegation's legitimacy, RFE/RL's Yerevan bureau reported on 30 September. Hanrapetutyun deputy Hovannes Igitian headed the delegation until his replacement in August by Armen Martirosian of the Reforms parliamentary group, who is an ally of current parliamentary speaker Khosrov Harutiunian. Martirosian told RFE/RL that Ararktsian's action is "inadmissible," and that it damaged Armenia's efforts to become a full member of the Council of Europe. He added that the council's Parliamentary Assembly has postponed recognition of his delegation's status until after a fact-finding visit to Armenia in November. LF AZERBAIJANI POLICE FOIL ANOTHER UNSANCTIONED DEMONSTRATION. Opposition supporters were forcibly prevented by police on 30 September from staging a march and protest rally near the parliament building. The Baku mayor had refused permission for the opposition to march along their proposed route but suggested an alternative. Several hundred police intercepted and beat some of the estimated 5,000 marchers as they approached the parliament building. The opposition continues to demand the postponement of the 11 October presidential elections in order to ensure they are held in free and fair conditions, the release of persons arrested during the 12 September clashes with police in Baku, and an international investigation into the alleged use of torture in Azerbaijani prisons. Also on 30 September, the Azerbaijani parliament voted by 86 to 2 to adopt a statement condemning the opposition's activities as violating public order, provoking confrontation, and damaging Azerbaijan's international image, Turan reported. LF CONGRESS OF MUSLIMS OF CAUCASUS OPENS IN BAKU. Russian Nationalities Minister Ramazan Abdulatipov, Chechen Vice President Vakha Arsanov, and representatives of Muslim organizations in Russia, Ukraine, and Central Asia are among the delegates to the 10th Congress of Muslims of the Caucasus, which opened in Baku on 30 September, Caucasus Press reported. Addressing the congress, Azerbaijani President Heidar Aliev said that stability in Dagestan is crucial for the entire Caucasus, and he expressed support for his Georgian counterpart Eduard Shevardnadze's "Peaceful Caucasus" initiative. Chechen mufti Haji Akhmed Kadyrov blamed Moscow for what he termed the "very tense" situation in the North Caucasus. He argued that Russia is encouraging Wahhabism, which he described as a serious threat to Islam, pointing to Interior Minister Sergei Stepashin's pledge not to take legal action against the inhabitants of two Dagestani villages that recently proclaimed an independent Islamic territory (see "RFE/RL Newsline," 4 September 1998). LF KARABAKH DEFENSE MINISTER DENIES INFILTRATION ATTEMPT. The press service of the Defense Ministry of the unrecognized Nagorno-Karabakh Republic issued a statement on 28 September denying that two Armenians were killed during an attempt to infiltrate Azerbaijani positions east of Karabakh earlier that day, Noyan Tapan reported (see "RFE/RL Newsline," 30 September 1998). The Armenian statement also rejected claims by the Azerbaijani Defense Ministry that Azerbaijani positions in Ter-Ter Raion came under artillery fire on 27 September. LF END NOTE THROWING BAD MONEY AFTER BAD by Julie A. Corwin The father of Russia's commercial banking system, Central Bank chairman Viktor Gerashchenko, has returned to oversee his creation. So far, it appears that his second tenure will be as permissive as his first. The Central Bank (CB) is about to perform its third debt swap to inject some life and liquidity into Russia's paralyzed banking system. And as Dmitrii Vasiliev, who recently resigned from the head of the Federal Securities Commission, suggested, the bank has done little to sort out viable banks from those that are hopelessly insolvent. To paraphrase former U.S. presidential candidate Ross Perot, the world may be hearing a giant sucking sound from Moscow as Russia's scarce financial resources are diverted to prop up too many unsound banks. Soon after the bank's second swap on 25 September, CB First Deputy Chairman Andrei Kozlov declared the CB's effort a success. And although ITAR-TASS reported the same day that the Dalrybank in Russia's Far East had resumed handling individual clients' deposits, it may be too soon for congratulations. There is still insufficient evidence that the CB's operations have had or will have the desired effect on the banking sector by making the nation's payment system functional once more. Western analysts have suggested that at the very least, the CB's effort has already been far too costly: Kozlov said that the second debt swap alone required the addition of 960 million rubles to the nation's money supply. Too much money is being thrown at too many banks considering that a drastic weeding out of their ranks--they numbered more than 1,500 as of 1 September--is in order. Moreover, the CB's solution seems expensive given that Russian industry and consumers are less reliant on the domestic banking industry than their counterparts in most developed industrial nations. For example, in 1997, according to Juliet Johnson, visiting assistant professor at Dartmouth College, New Hampshire, fewer than 10 percent of all Russian banks' loans to enterprises were long-term. Nevertheless, the banking system was worth preserving if only because it functioned as the nation's payment system and provided some working capital. When it stopped working, so did the economy. When Viktor Gerashchenko was appointed CB chairman on 11 September, economists on either side of the Atlantic questioned whether he was the right choice. Certainly, the enthusiastic support his candidacy received in early September from Russian commercial bankers inspired skepticism that Gerashchenko would be the tough taskmaster needed. Even more damning was Gerashchenko's record overseeing commercial banks. It was, after all, under Gerashchenko's rule that the number of commercial banks mushroomed. In the early 1990s, it was easier to get a license from the Central Bank to form a commercial bank than it was to open a kiosk on one of Moscow's long avenues. Such niceties as more than minimal reserve requirements were not introduced until after Tatyana Paramonova took over as acting director of the bank in 1994. Gerashchenko has a history not only of loose supervision of commercial banks but also of wiping away debts with inflationary emissions. In the first few months of his tenure at the bank in 1992, monetary emissions amounted to 20 -30 percent of GDP, according to Gary Peach in the "Moscow Times of 22 September. Economists linked this increase in the money supply to the hyperinflation that followed and the ruble's crash on Black Tuesday, 11 October 1994, when it lost more than 25 percent of its value. Some Western analysts and bankers, according to Peach, believe that it is both unfair and misleading to judge Gerashchenko on his past record. They report that he learned later in his professional life to appreciate the benefits of a tight monetary policy. And although the CB's increase of the money supply in September 1998 bears an eerie resemblance to that which occurred in 1991, it is always possible that Gerashchenko will follow up these emissions by placing the ruble printing presses in cold storage. It is also possible that the CB will use its new unprecedented powers, which were granted under a draft law on bankruptcy that has already sailed through three readings in the State Duma, to force a number of banks into bankruptcy. A final answer to the questions of whether Gerashchenko has seen the light and rescued the Russian banking system requires more time. But one thing to monitor is whether some banks actually are closed. Another is the rate of inflation, which has measured 64 percent since August. Should it spiral as it did between 1992 and 1994, when a significant chunk of the Russian population's savings was wiped out, then it might be fair to say that cost of resurrecting the nation's payment system -- no matter how efficiently it may begin to operate -- was simply too high. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Copyright (c) 1998 RFE/RL, Inc. All rights reserved. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx HOW TO SUBSCRIBE Send an email to firstname.lastname@example.org with the word subscribe as the subject of the message. HOW TO UNSUBSCRIBE Send an email to email@example.com with the word unsubscribe as the subject of the message. 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