RFE/RL NEWSLINE Vol 2, No. 204, Part I, 21 October 1998

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RFE/RL NEWSLINE Vol 2, No. 204, Part I, 21 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

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Headlines, Part I

* CENTRAL BANK TO AX ALMOST 300 BANKS

* UN APPEALS FOR FIRE-FIGHTING AID FOR FAR EAST

* GEORGIAN PRESIDENT SEES NO NEED FOR STATE OF EMERGENCY

End Note: UZBEKISTAN'S ECONOMY PERFORMING RESPECTABLY DESPITE
SLOW REFORMS
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RUSSIA

CENTRAL BANK TO AX ALMOST 300 BANKS... According to a plan
submitted to the State Duma, the Central Bank (CB) plans to
eliminate roughly 275 of the nation's more than 1,500
commercial banks in the first half of 1999, Reuters reported
on 20 October. The CB will also design and implement
individual restructuring plans for 15 banks, including large
ones unable to operate but allegedly too "socially important"
to close. The CB will acquire stakes in the banks as
collateral, which would eventually be transferred to new
investors in the better-functioning, restructured banks.
Roughly 860 banks are stable and have enough resources to
survive without significant CB assistance, according to the
plan. The CB would acquire stakes in a fourth group of almost
400 banks, including regional banks with large branch
networks, on a three-year basis and would appoint the
managers of those banks. JAC

...AS INKOMBANK'S FATE HANGS IN BALANCE. Inkombank President
Vladimir Vinogradov on 16 October repeated an earlier
suggestion that the Central Bank assume temporary
administration of his bank. Analysts have interpreted this
and earlier offers as an indication of just how badly off the
bank must be. Once the third largest bank in Russia in terms
of assets, Inkombank heavily invested in the short-term
treasury bond market long after most banks deemed it prudent
to do so. Nevertheless, it is likely to be included in the
list of 15 "socially important" banks worth saving. JAC

PRIMAKOV, MASLYUKOV OFFER ECONOMIC NOSTRUMS... Addressing the
ninth congress of the Union of Russian Industrialists and
Entrepreneurs on 20 October, Prime Minister Yevgenii Primakov
outlined some new government measures, while First Deputy
Prime Minister Yurii Maslyukov seemed to advocate a return to
monopoly production of certain "vital goods." Primakov
pledged to reduce value-added and profit taxes in the near
future, according to "Rossiiskaya gazeta." In addition, he
said that the government will spend 7 billion rubles ($410
million) to repay debts owed to power companies in part to
ease the critical situation in the fuel and energy sector
before the winter. Maslyukov said that "powerful concerns"
should control the manufacture of other vital goods. For
example, only one company should operate the entire aerospace
industry. According to Interfax, Maslyukov added that "the
dollar mass can be reduced only if the ruble mass grows." JAC

...AS VOLSKII RETURNS TO PUBLIC EYE. Industrialist Arkadii
Volskii, leader of the union, whose name was once mentioned
as often as Boris Berezovskii's, has returned to influence
economic policy-making. Volskii told a union gathering on 20
October that the Primakov government "has started listening
to the proposals of those working in the real sector."
Earlier he told reporters that even given the country's
current crisis, industrialists should not ask the ask the
government to adopt harmful measures in their defense. Strong
protectionism, he explained, makes sense only if applied to
those items that compete with domestic goods and do not have
to be imported, such as oil and gas equipment, according to
"Rossiiskaya gazeta." JAC

GOVERNMENT SUBMITS BUDGET TO IMF. The government approved the
main features of the a draft emergency fourth quarter budget,
Finance Minister Mikhail Zadornov told reporters on 20
October. When preparing the budget, the Finance Ministry
assumed an exchange rate of 17 rubles per dollar and revenues
of 65 billion to 75 billion rubles and expenditures of some
130 billion rubles. According to Zadornov, money-printing
will not exceed 20 billion rubles and the government still
plans to cover the budget deficit with foreign loans.
However, on 21 October, "Izvestiya" argued that the current
IMF mission will review the budget only as a matter of
"political ritual," labeling the current IMF mission to
Moscow as "the most pointless in the entire history of
relations between Russia and the fund." It also said that the
Primakov government's eager welcome of IMF Managing Director
Michel Camdessus's call for food aid is a strong sign of how
bad the economy really is. JAC

UN APPEALS FOR FIRE-FIGHTING AID FOR FAR EAST. The UN called
on the international community to provide assistance to
combat forest fires that have already destroyed 15 million
cubic meters of timber in Russia's Far East region .
According to ITAR-TASS on 20 October, Russian fireman and
specialists do not have enough specialized equipment,
clothing, spare parts, or fuel. The UN said that $2.5 million
is needed and emphasized that the fires could spread,
threatening two oil and gas pipelines as well as neighboring
China. Earlier, the UN called the fires a world ecological
disaster with potential climactic consequences for the
northern hemisphere, since the millions of tons smoke
produced by the fires is likely to contribute to global
warming. Until 14 October, when it finally began to rain,
Khabarovsk "was periodically so enveloped in smoke that
airplanes couldn't land, boats couldn't navigate the Amur
River and cars drove with their headlights on during the
day," the "Moscow Times" reported on 20 October. JAC

GOVERNMENT NIXES UNION WITH YUGOSLAVIA. Russian Foreign
Ministry spokesman Vladimir Rakhmanin dismissed the proposal
of some Duma deputies to invite Yugoslavia to join the union
of Russia and Belarus, Interfax reported on 20 October. He
called such an idea impractical "at this stage," saying it is
mainly a "reflection of the friendly feelings between the
Russian and Yugoslav peoples." Duma deputy speaker Sergei
Baburin (People's Power), who led the Duma delegation to
Yugoslavia, told reporters the previous day that "leaders of
the Serbian radical party said that they will initiate the
question of joining the union of Belarus and Russia in the
Yugoslav parliament." JAC

SHAKHRAI'S BACK AND PRIMAKOV'S GOT HIM. Sergei Shakhrai,
former presidential representative to the Constitutional
Court, has been appointed Prime Minister Primakov's legal
adviser, Interfax reported on 20 October. Yeltsin dismissed
Shakhrai on 29 June without publicly giving a reason, but
Shakhrai himself claimed that he was let go because of his
prediction that President Boris Yeltsin would be impeached by
the Duma. He also urged support for Moscow Mayor Yurii
Luzhkov during the upcoming presidential race (see "RFE/RL
Newsline," 30 June 1998). The same day, Yeltsin also
appointed Nikolai Kulikov as deputy interior minister in
charge of Moscow. And on 17 October, Yeltsin signed a decree
appointing Aleksandr Avdeev first deputy foreign minister.
JAC

MASLYUKOV PLAN TO HURT DEFENSE CONTRACTORS? First Deputy
Prime Minister Maslyukov's recently announced plan to
manufacture 35-40 Topol-M missiles a year has received more
criticism (see "RFE/RL Newsline," 8 October 1998).
"Kommersant vlast" on 13 October argued that Maslyukov's plan
to concentrate on strategic missiles "would spell doom" to
the rest of the military industrial complex. According to the
newspaper, experts estimate the cost of manufacturing a
single Topol-M at between $35 million to $40 million," while
the defense budget for 1998 amounts to only $7 billion.
Therefore, "Maslyukov wants to pump all of the money in the
budget set aside for weapons manufacture into manufacturing
ICBMs." JAC

DEFENSE MINISTER IN VIETNAM. Igor Sergeev signed an
intergovernmental agreement on military-technological
cooperation with his Vietnamese counterpart, Pham Van Tra, on
21 October, ITAR-TASS reported. He also discussed future
sales of weapons to Vietnam and the Russian Navy's use of
Vietnam's Camranh Bay base until the year 2004. En route to
Vietnam, Sergeev stopped over in New Dehli to discuss a
military-technological cooperation agreement through the year
2010 with India. Sergeev said he hopes the document will be
ready for signing when Yeltsin makes a scheduled visit in
December. Sergeev departs for China on 21 October, the last
stop of his tour of Asian countries. BP

RUSSIAN POLITICIANS APPEAL TO YOUTH. At the inauguration of
the new mayor of Nizhnii Novgorod, former mayor and Deputy
Prime Minister Boris Nemtsov, 39, called for the formation of
political bloc called Young Russia, "Nezavisimaya gazeta"
reported on 20 October. Nemtsov also posted an appeal on his
web page on the Internet, calling for young people to become
more involved in politics and overrule people of the past
(see also http://www.nemtsov.ru/news/last/1998/10/08.htm).
Meanwhile, Moscow Mayor Luzhkov announced that he plans to
revive the Young Pioneer League of former Soviet days. The
"Moscow Times" quoted Fatima Tsagalova of the city
government's public relations department as saying that the
political element of the former league would be discarded.
Plans to revive the Young Octobrists have not been announced.
JAC

PKK LEADER "NOT IN RUSSIA." Russian Foreign Ministry
spokesman Rakhmanin told journalists in Moscow on 20 October
that he cannot confirm media reports that the leader of the
Kurdistan Workers' Party, Abdullah Ocalan, is currently in
Russia, Interfax reported. On 12 October, the Armenian
Foreign Ministry denied a senior Turkish government
official's claim that the PKK leader has left Syria for
Armenia (see "RFE/RL Newsline," 12-13 October 1998). LF

TRANSCAUCASUS AND CENTRAL ASIA

GEORGIAN PRESIDENT SEES NO NEED FOR STATE OF EMERGENCY.
Speaking on Georgian Television on 20 October, Eduard
Shevardnadze said he will not impose a state of emergency
because the mutiny by Georgian army units in western Georgia
is over. A spokesman for the Georgian Defense Ministry told
Caucasus Press that 80 percent of the servicemen who
participated have returned to their barracks, and that their
leader, Akaki Eliava, is on the run with several dozen
supporters. The Georgian prosecutor-general has opened a
criminal case against Eliava on charges of treason, which
could carry a life sentence. Shevardnadze again named former
Georgian deputy parliament speaker Nemo Burchuladze as a co-
instigator of the revolt, but Security Minister Djemal
Gakhokidze, who was temporarily held hostage by Eliava's men
on 19 October, said he did not see Burchuladze with Eliava.
LF

ELIAVA IN ABKHAZIA? Georgian parliament speaker Zurab Zhvania
told Caucasus Press on 20 October that Eliava and his men
left the west Georgian region of Mingrelia to join forces
with other "illegal armed detachments" in Abkhazia's Gali
raion. The chairman of the Abkhaz parliament in exile, Tamaz
Nadareishvili, told the daily newspaper "Rezonansi" that
Eliava, a former supporter of deceased president Zviad
Gamsakhurdia, is a member of an elite Abkhaz security unit.
LF

GAMSAKHURDIA SUPPORTERS ROUNDED UP IN GEORGIA. Several known
Gamsakhurdia supporters, including Giorgi Kervalishvili, the
president of the Human Rights Protection Organization, were
arrested in Tbilisi in connection with the failed
insurrection, Caucasus Press reported on 20 October, citing
"Rezonansi." LF

GEORGIAN PIPELINE CONSTRUCTION RESUMES. The Azerbaijan
International Operating Company has resumed reconstruction of
the export oil pipeline from Baku to the Georgian Black Sea
port of Supsa, Interfax reported on 20 October. Work was
suspended for security reasons the previous day when news of
the Eliava mutiny became known. LF

ARMENIAN, KARABAKH PRESIDENTS MEET. Robert Kocharian and
Arkadii Ghukasian met in Yerevan on 20 October for " a
routine exchange of information," primarily on economic
issues, RFE/RL's Yerevan bureau reported. Ghukasian told
journalists later that he and Kocharian also discussed the
Karabakh conflict and that they agreed that its solution
should include the granting of "non-conventional" status to
the unrecognized Nagorno-Karabakh Republic. That status will
fall short of full independence, Ghukasian said. He added
that he can see "no reasons" for a resumption of hostilities
with Azerbaijan, according to Interfax. LF

AZERBAIJANI PARLIAMENT TO BOYCOTT COUNCIL OF EUROPE TALKS ON
KARABAKH? Ghukasian told journalists on 20 October that he
has accepted an invitation to attend hearings on Karabakh
organized by the Parliamentary Assembly of the Council of
Europe in Strasbourg in early November, RFE/RL's Yerevan
bureau reported (see "RFE/RL Newsline," 19 October 1998). The
foreign ministers and parliament speakers of Armenia and
Azerbaijan are also invited to those talks. But the
Azerbaijani parliament has refused to send a delegation to
the talks if Ghukasian is present, Turan reported on 20
October. LF

AFTERMATH OF AZERBAIJANI PRESIDENTIAL ELECTIONS. Eleven
opposition lawmakers on 20 October proposed that the
parliament debate violations of the election law during the
presidential election campaign and vote count, Turan
reported. Parliamentary speaker Murtuz Alesqerov suggested
that the issue be discussed by one of the parliament's
committees. Meanwhile, the leaders of the several dozen
organizations aligned in the Movement for Electoral Reform
and Democratic Elections initialed a document entitled
"Charter 98" condemning the falsification of the election.
The signatories pledged to launch a peaceful campaign for the
ouster by legal means of Heidar Aliev, whom they do not
recognize as the legitimate president. Also on 20 October, a
Baku district court sentenced six supporters of defeated
presidential candidate Etibar Mamedov to three to five days
in prison for jeering and whistling at Aliev when he arrived
at Baku's Palace Hotel on 18 October for his inauguration
ceremony. LF

KAZAKH PRESIDENT TO RUN IN JANUARY ELECTIONS. Nursultan
Nazarbayev announced on 20 October that he will run in the
January presidential elections, Russian and Kazakh media
reported. Early elections were announced on 8 October. At the
time, numerous reports claimed Nazarbayev was "undecided"
about running in the elections. Interfax quotes the president
as saying his decision to run was made after receiving
telegrams "from about a million Kazakh citizens" requesting
he take part in the elections. BP

NO OPPOSITION CANDIDATES REGISTER TO DATE...The head of
Kazakh Central Electoral Commission, Zagipa Baliyeva, said
that as of 19 October, no one has requested the necessary
forms for registering as a candidate, Interfax reported.
Potential candidates have until 10 November to be nominated.
They then have until 30 November to collect 161,000
signatures, pay an election registration fee of nearly 2.5
million tenge (about $30,000) from their own funds, produce a
mental health certificate, and pass a Kazakh language test.
Nazarbayev passed his language proficiency test the same day
he announced his candidacy. BP

...WHILE ONE POTENTIAL CANDIDATE APPEARS OUT OF RACE ALREADY.
A Kazakh court on 20 October found former Kazakh Prime
Minister Akezhan Kazhegeldin guilty in absentia for
participating in "mass gatherings and sessions of an
unregistered organization," RFE/RL correspondents in Almaty
reported. Kazhegeldin left Kazakhstan after the alleged
assassination attempt against him on 13 October. The next
day, he announced his intention to run for the presidency.
Under a recently passed Kazakh law, Kazhegeldin will be
unable to run in the presidential elections following his
conviction of a crime. BP

TURKMEN TV CHIEF SACKED, RUSSIAN BROADCASTS SHORTENED.
Turkmen President Saparmurat Niyazov on 20 October fired
Klychmurad Kakabayev, head of Turkmen Television, after
criticizing the standard of programming, "Nezavisimaya
gazeta" reported on 21 October. Kakabayev was accused of
serious financial violations and replaced by Annageldy
Nurgeldyev. Niyazov also announced that the rebroadcasting of
Russian Public Television programs will be cut to five hours
daily. Niyazov said the move is necessary because of the cost
of such broadcasts and because their contents often
contradict the moral standards of Turkmen society. Niyazov
called for Turkmen Television and Radio to become advocates
of patriotism and a high standard of morality. BP

CONFISCATED WEAPONS HEAD BACK TO IRAN. The Kyrgyz parliament
held a special session on 20 October to decide what to do
with 700 tons of weapons seized on a train earlier this month
(see "RFE/RL Newsline," 13 October 1998), Interfax and ITAR-
TASS reported. According to RFE/RL correspondents, the
Iranian ambassador to Kyrgyzstan attended the session and
told lawmakers his country has obtained clearance from
Uzbekistan and Turkmenistan to allow the train to return to
Iran with its cargo. The train originated in Iran and
traveled through Turkmenistan and Uzbekistan before Uzbek
customs officials noticed that two of the 20 railway cars,
designated as carrying "humanitarian aid" bound for
Afghanistan, contained weapons. Customs officials in
Kyrgyzstan then impounded 16 of the railway cars outside Osh,
while the other two remain unaccounted for. The Erkin
Kyrgyzstan Party favored giving the weapons to the Kyrgyz
armed forces. BP

END NOTE

UZBEKISTAN'S ECONOMY PERFORMING RESPECTABLY DESPITE SLOW
REFORMS

by Michael Wyzan

	Uzbekistan has chosen a gradual path to economic reform,
arguing that the conditions prevailing in the Central Asian
country militate against a radical move to a market economy.
Indeed, the macroeconomic effects of the break-up of the USSR
and the move away from central planning have been mild in
Uzbekistan. Observers disagree on whether there is some
inherent merit in gradualism or whether the country's
agrarian structure and reliance on a few commodities
(especially cotton, gold, and natural gas) easily sold on
world markets account for the relatively good performance.
	Whatever the explanation, Uzbekistan's gross domestic
product (GDP) declined less in the early years of the
transition than in any other former Soviet republic.
Uzbekistan's GDP this year is expected to be 91.1 percent of
the 1990 level; comparable figures are 34.7 percent for
Russia and 44.6 percent for Kazakhstan. By 1996, Uzbekistan's
GDP was growing, albeit at a modest 1.6 percent rate. In
1997, it grew by 5.2 percent and in the first half of this
yea by 4 percent.
	Agriculture has traditionally dominated production and
exports. In 1997, the sector accounted for 26.8 percent of
GDP, with cotton fiber alone responsible for 36 percent of
export earnings. Cotton harvests, which remain the most
important statistic to watch, fluctuate from year to year
between 3.5 million and 4 million metric tons. This is down
from the 4.6 million tons harvested in 1990, although the
decline is to a certain extent the result of a policy to
diversify agriculture by increasing production of grain,
fruits, and vegetables.
	The service sector has grown sufficiently rapidly to
become the largest of the economy (producing 30.7 percent of
GDP last year). Industry, which is dominated by textiles,
machinery, fuels, and non-ferrous metals (especially gold),
has performed relatively well, registering positive growth in
every year since 1994.
	Consumer price inflation has fallen from its peak of
1,117 percent in 1994 to only 13 percent in the 12 months to
June 1998. However, it is too early to tell whether inflation
in 1998 will be much lower than the projected 22 percent (or
1997's 27.6 percent). As a rule, the central bank
significantly increases the money supply in the fall, as
farmers and agricultural enterprises are paid by the state
for fulfilling state orders for cotton and other crops.
Another pro-inflationary factor is the 50 percent raise
granted to public sector workers on 1 July.
	The use of state orders is not the only aspect of the
economy that has remained virtually the same since the fall
of the USSR. Officially, unemployment was only 0.4 percent in
June. The average monthly wage, calculated at the official
exchange rate, was $53 in the second quarter, up from $48 in
December 1997. This gives Uzbekistan the second highest
dollar wage in Central Asia after Kazakhstan, where the
figure was $129 in June.
	In most years, Uzbekistan has run trade surpluses or
small deficits, although 1996, with its poor cotton and wheat
harvests, was an exception. Last year, there was a modest
$143 million trade deficit, while from January-June 1998,
there was a $203 million surplus. Exports and imports have
been diverted away from the CIS, which accounted for 25
percent of exports and 31 percent of imports in the second
quarter (compared with 62 percent and 54 percent,
respectively, in 1994).
	The current account deficit in 1997, according to the
IMF, was 4.6 percent of GDP, below the level at which alarm
bells usually ring. Uzbekistan's ability to run up external
imbalances is limited by the fact that it has not received
support from the IMF since December 1996, when the fund
suspended disbursements under a $185 million loan.
	The IMF took this action in response to the government's
introduction of foreign-exchange controls in the aftermath of
the 1996 poor harvests. There continue to exist two separate
exchange rates for the sum--one determined on the Republican
Currency Stock Exchange, where the central bank regulates
transactions by limiting the number of participants, and
another "market" rate determined on other exchanges, which
are less tightly regulated. Since November 1996, the second
rate (against the dollar) has generally been about twice the
official one. For example, the official rate in June was 89.7
sum to the dollar, while market rate was 169.5 sum. During
the crisis in Russia, the official rate has weakened
considerably, reaching 105.4 sum on 15 October.
	It is tempting to see Uzbekistan's economic statistics
as similar to Belarus's insofar as they reflect significant
economic growth in a state that has avoided serious reform.
However, Uzbekistan's economy is clearly less distorted than
Belarus's in that the commodities that dominate the former's
exports would presumably do so regardless of which economic
system it had.

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


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