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RFE/RL NEWSLINE Vol 2, No. 246, Part I, 23 December 1998
________________________________________________________ RFE/RL NEWSLINE Vol 2, No. 246, Part I, 23 December 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 Note to readers: "RFE/RL Newsline" will not appear on 24 and 25 December, which are Christmas holidays in the Czech Republic. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Headlines, Part I *GOVERNORS ASK DUMA TO REJECT BUDGET *PRIMAKOV PLEDGES NO DEFAULT, AS DEBT DEADLINE LOOMS *KYRGYZ PRESIDENT CALLS FOR GOVERNMENT'S RESIGNATION End Note: GEORGIA'S FINANCIAL CRISIS REFLECTS DOMESTIC ECONOMIC PROBLEMS xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx RUSSIA GOVERNORS ASK DUMA TO REJECT BUDGET. The Federation Council adopted an appeal on 23 December asking the State Duma to reject the 1999 budget in its first reading so that a tripartite commission can be set up to draft a version acceptable to both the Duma, the Federation Council and the government, Ekho Moskvy reported. Federation Council Chairman Yegor Stroev told Reuters that "the interests of the regions were not included in the present budget" and that "none of the governors will vote for the budget unless he knows how much money his region will receive." Altai Krai Governor Aleksandr Surikov said that the government is cutting expenditures at the regions' expense and that 12 regions have disappeared from the list of recipients of subsidies without explanation. The Duma is to consider the budget on 24 December. JAC DUMA FALLS TO PASS LAND CODE. The Duma on 23 December twice rejected a draft Land Code that had been reworked to incorporate Russian President Boris Yeltsin's recommendations, Interfax reported. During the first vote, only 217 deputies voted in favor of the bill, while 96 opposed it. The second time, only 178 deputies were in favor, with 127 opposed, according to Interfax. Earlier, Duma Deputy Speaker Vladimir Ryzhkov said that continued failure to pass the legislation, which had been languishing in the Duma for some five years, poses a significant obstacle to market reform in the country, ITAR-TASS reported on 9 December. The Duma will now have to prepare a new bill. JAC PRIMAKOV PLEDGES NO DEFAULT, AS DEBT DEADLINE LOOMS. During an official visit to Kazakhstan (see below), Prime Minister Yevgenii Primakov pledged on 23 December that "Russia will pay all of its debts, both on domestic and foreign markets." He added that Russia is "interested in restructuring its debts" and "has already held talks with the London Club, which ended successfully." The previous day, however, Deputy Finance Minister Mikhail Kasyanov told reporters that Russia has secured the support of only 72 percent of the members of the London Club, while 95 percent are needed for final approval of any deal. Kasyanov added that if the necessary amount is not achieved by the 29 December deadline, then Vnesheconombank may be declared in default. Russian officials are reportedly pessimistic that the 95 percent support can be gathered in time, but they believe that the resulting default would be that of Vnesheconombank and not the Russian government, AFP reported. JAC MOSCOW TO CRACK DOWN ON ANTI-SEMITISM IN REGIONS... Representatives from the Main Military Inspectorate and the Security Council were sent to several Russian regions on 21 December to check whether those regions are complying with President Yeltsin's instruction on combating political extremism, "Kommersant- Daily" reported on 22 December. According to the daily, Krasnodar and Stavropol Krais top the list of the most problematic regions in terms of political extremism and ethnic intolerance. Also likely to be investigated is Kaluga Oblast, where anti-Semitic literature is being openly distributed, the newspaper reported. JAC ...AND CORRUPTION. The same day, Prosecutor-General Yurii Skuratov reported that 17 regions in Russia have engaged in unauthorized spending of budget funds, according to ITAR-TASS. In addition to not paying wages, some of these regions are granting either low-interest or interest-free loans to favored local enterprises. "Kommersant-Daily" reported that chief of the presidential administration Nikolai Bordyuzha has promised to send investigative teams to several regions to study individual cases of official corruption. JAC GOVERNMENT TO TRY TO SELL SVYAZINVEST AGAIN. In 1999, the Russian government plans to sell packages of shares in six large enterprises: Gazprom, Svyazinvest, Onako, Sovkomflot, Aeroflot, and the Moscow River Steam Navigation Company. The government hopes to raise 15 billion rubles ($718 million) from the sale of state property, "Segodnya" reported on 22 December. An earlier attempt to sell 25 percent minus two shares in Svyazinvest was abandoned. Eleven international firms have been hired to appraise the value of the six companies to be sold. JAC IRAQI RAIDS LABELED SERIOUS DIPLOMATIC ERROR... In an article published in "Nezavisimaya gazeta" on 22 December, Aleksandr Bessmertnykh, president of the Foreign Policy Association, argued that historians will regard the U.S.'s decision to launch air strikes against Iraq as a serious diplomatic error. According to Bessmertnykh, the U.S.'s posture as the world's "lone policeman" has caused serious distrust of Washington and "an alarming feeling that America is not always able to control itself." In addition, the action resulted in serious discord among the world's great powers (which he identified as the U.S., China, France, and Russia) and caused significant long-term damage to the UN, Bessmertnykh contended. JAC ...FOR WHICH RUSSIA WILL DEMAND BUTLER'S DISMISSAL. Bessmertnykh went on to argue that if the U.S. continues to insist on weapons inspections, then "this will signal that the bombings raids were pointless" since they failed to achieve their aim, namely the elimination of Iraqi biological and chemical weapons production. Bessmertnykh concluded that it is up to Russia to come up with a new approach to Iraq and help Washington out of its diplomatic "quagmire." The same day, "Segodya" and "Kommersant-Daily" wrote that Russia will demand the dismissal of UN weapons inspector Richard Butler as the price for renewed U.S.-Russian ties. According to one Russian diplomatic source quoted by "Kommersant-Daily," "Russia is not intent on protracting confrontation with the U.S. and Britain┼[and] Moscow will not ask much for reconciliation--only the dismissal of Richard Butler." According to "Segodnya," the strikes were "predetermined and all Butler had to do was churn out his report at the right time." JAC START-II STILL ON 1999 DUMA AGENDA. Duma Defense Committee Chairman Roman Popkovich (Our Home Is Russia) told ITAR-TASS on 22 December that ratification of the START-II treaty might be considered as early as the second half of February and that the delay in consideration of the treaty resulted because new documents had to be reviewed--not because of U.S.-U.K. airstrikes against Iraq. However, Duma Deputy Speaker and member of Our Home is Russia Vladimir Ryzhkov told reporters the same day that ratification is not guaranteed. Inclusion of the treaty on the agenda only showed that "the Duma will continue to work in the direction of ratification," he said. Meanwhile, Duma Chairman Gennadii Seleznev repeated his assertion that the bombings of Iraq have "raised a serious obstacle in the path to ratification of START-II." JAC ANOTHER REGION IMPOSES FOOD RESTRICTIONS. The government of the Republic of Marii El Republic has restricted food exports without its prior permission, ITAR-TASS reported on 22 December. The oblast's Interior Ministry will step up security at border posts, according to the agency. However, Marii El President Vyacheslav Kislitsin told angry local producers that they can continue exporting but not without first creating a reserve of products. Kursk Oblast Governor Aleksandr Rutskoi told residents in his region that the only way to control rapidly increasing food prices is to close the oblast's borders and declare independence from Russia. However, he added that this is not a realistic option. Egg prices in the oblast have doubled in one week, according according to "EWI Russian Regional Report" on 22 December. JAC IMPRISONED JOURNALIST TO RUN IN VLADIVOSTOK ELECTIONS. President Yeltsin has ordered Central Election Chairman Aleksandr Ivanchenko, presidential representative to Primorskii Krai Viktor Kondratenko, and Primorskii Krai Governor Yevgenii Nazdratenko to personally oversee the 17 January municipal elections in Vladivostok, ITAR-TASS reported on 22 December. Previous elections were declared invalid because the name of the incumbent mayor was struck from the ballot in some districts. The agency reported that nine candidates for mayor have been registered; Russian Television had reported earlier that only six candidates would run (see "RFE/RL Newsline, 22 December 1998). Grigorii Pasko, the journalist charged with espionage for revealing environmental hazards associated with Russia's nuclear submarines, has registered as a candidate for Vladivostok's municipal assembly, ITAR-TASS reported. Pasko is still in jail awaiting trial in mid-January and hopes to draw attention to his case. JAC WEAPONS DESIGNER RECEIVES NATION'S TOP HONOR. President Yeltsin has bestowed one of the nation's top honors, the Order of Saint Andrei, on weapons designer Mikhail Kalashnikov, ITAR-TASS reported on 22 December. According to Yeltsin, Kalashnikov had "dedicated his life to strengthening the defense ability of his country." Russian writer Aleksandr Solzhenitsyn recently turned down the same honor (see "RFE/RL Newsline," 14 December 1998). JAC TRANSCAUCASUS AND CENTRAL ASIA KYRGYZ PRESIDENT CALLS FOR GOVERNMENT'S RESIGNATION. At a Security Council session on 23 December, Askar Akayev expressed his disappointment in the work of the government and called for it to resign, RFE/RL correspondents in Bishkek reported. Akayev had just heard reports on the economy from Finance Minister Taalaibek Koichumanov and chairman of the National Bank Marat Sultanov. After asking several questions, he said it is clear that no one has any answers and that the government has no real program. Akayev's press secretary, Kanybek Imanaliev, told journalists that since Kubanychbek Jumaliev was named prime minister in April, "the government has not fulfilled one task given it by Askar Akayev," ITAR-TASS reported. He added that "during this time, the Kyrgyz som has fallen in value, industry is in decline, and the standard of living has dropped as a result." Imanaliev laid the blame on the government and the National Bank. To date, there are no reports that the government has resigned. BP PRIMAKOV MEETS WITH KAZAKH PREMIER... Russian Prime Minister Yevgenii Primakov met with his Kazakh counterpart, Nurlan Balgimbayev in Astana on 22 December, ITAR-TASS reported. The two signed documents on cooperation in the fields of information, border security, fuel and energy, and education. Primakov also met with President Nursultan Nazarbayev. After their meeting, Primakov told journalists that the two countries "are progressing along the path of joint action that is based on the common interests of the two countries." He also stressed that Russia and Kazakhstan are working together to solve the economic crisis affecting both countries. Nazarbayev said "there are no problems in Russian-Kazakh relations. We will enter the 21st century as partners and allies." BP ...COMMENTS ON UPCOMING ELECTIONS. Responding to questions about the 10 January presidential elections in Kazakhstan, Primakov said, "We support the [incumbent] president of Kazakhstan." ITAR-TASS reported. He added that "Russia is not one of those governments that is trying to pry into the internal affairs of Kazakhstan." This is likely an allusion to U.S. criticism of both the decision by the Kazakh parliament to hold early elections and a later decision by the Kazakh Supreme Court to bar two candidates from participating because of minor legal infractions. BP NAZARBAYEV CALLS FOR LAW ON LAND OWNERSHIP. Kazakh President Nursultan Nazarbayev on 22 December ordered the country's legislators to draft a law on private land ownership within two weeks. Nazarbayev said he wants the law to be in effect by spring 1999, Interfax reported. BP RUSSIAN PEACEKEEPERS DENY RESPONSIBILITY FOR DEATH OF GEORGIAN SOLDIER. An officer with the Russian peacekeeping force deployed under CIS auspices along the border between Abkhazia and the rest of Georgia has denied that his troops opened fire on Georgian positions during the night of 21-22 December, Caucasus Press reported. He said that his men had responded in self- defense to shots from those positions. One member of the Georgian Interior Ministry forces stationed in the region was killed during the exchange of fire. LF ARMENIAN PARLIAMENT SUSPENDS ELECTION LAW DEBATE. The Yerkrapah majority group postponed the debate on the draft election law shortly after it began on 22 December, RFE/RL's Yerevan bureau reported. The law had been passed in the first reading in November, after which Yerkrapah bowed to opposition pressure and proposed minor amendments that would increase the number of seats in the 131-member legislature to be allocated under the proportional system from 51 to 56. Most opposition parties want the majority of seats allocated on that basis, and for that reason several opposition parties boycotted the 22 December debate. Yerkrapah chairman Albert Bazeyan said that his group wants more time for "political consultations" with the opposition before the debate resumes on 25 January. LF ARMENIA RECEIVES NEW LOANS FROM IMF, WORLD BANK. Armenia has received approval for loans from the World Bank and the IMF totaling some $124 million, an RFE/RL correspondent in Washington reported on 23 December. The IMF third-year credit of approximately $59 million is intended to boost privatization and banking banking as well as to revive the energy sector. The $65 million structural adjustment loan from the World Bank will be used to help Armenia ease the social costs of adjustment and to accelerate the development of the private sector and increase domestic savings. The loans include an additional $26 million to compensate for the spillover effect from the financial crisis in Russia. LF GEORGIA FINALIZES SECURITY ARRANGEMENTS FOR OIL EXPORT PIPELINE. The Georgian Governmental Guard Service signed an agreement on 22 December with the Georgian Pipeline Company on guarding the Georgian sector of the Baku- Supsa oil export pipeline, which is to begin operation shortly, Caucasus Press and Interfax reported. Azerbaijani officials have held talks with NATO on deploying a NATO force to guard the Azerbaijan stretch of that pipeline (see "RFE/RL Newsline," 30 January 1998). LF. END NOTE GEORGIA'S FINANCIAL CRISIS REFLECTS DOMESTIC ECONOMIC PROBLEMS by Michael Wyzan Georgia's economy recently entered a period of financial instability. The lari, introduced in October 1995 at 1.25 to the dollar, had weakened only to 1.30 at the end of last year. But the exchange rate was 1.62 lari to the dollar on 3 December and 2.21 on 7 December (although it has strengthened to below 2 to $1 since then). Meanwhile, the National Bank has decided to stop using its rapidly depleting international reserves to prop up the currency. While the prices of most consumer goods are reported to have risen recently by 30-80 percent, it is too early to know the magnitude of the effects of the currency crisis on the macroeconomy. Nonetheless, it seems certain that the crisis has brought at least a temporary halt to a period in which Georgia had combined the fastest-growing economy in the CIS with low and declining inflation. GDP rose by 8.6 percent in 1996, 11.3 percent in 1997, and 7.3 percent in January- September 1998. Consumer prices grew by 7.9 percent in 1997 and only 3.6 percent during January-September 1998. Although the immediate cause of the country's problems is the Russian financial crisis, there are also significant domestic causes, in particular poor fiscal performance. Other domestic factors cited in the Georgian press include the recent uprising in western Georgia and the need to import fuel before the onset of winter. Financial crises triggered by speculative attacks on currencies often occur in countries with large fiscal and external imbalances (generally associated with a currency that is appreciating in real terms) and that have received substantial inflows of short-term capital. Although Georgia's budget deficit has not been enormous in recent years (it was only 2.5 percent of GDP on a cash basis in 1997), tax collections as a share of GDP remain among the lowest in the world. In 1997, the central government managed to collect only 10.3 percent of GDP in budget revenue, compared with 25.9 percent in Russia and 16.5 percent in Kyrgyzstan. That trend has continued this year: as early as April, it was clear that collections from value-added taxes and excise duties were beginning to fall well short of targets. Georgia's foreign trade has been highly unbalanced (in 1997, imports were 3.7 times exports). This has resulted in current account deficits of more than 10 percent of GDP in recent years. However, those deficits have been financed by loans from international financial institutions, workers' remittances from abroad, and, increasingly, foreign direct investment (which totaled $242 million in 1997). There have been only minor short- term inflows. The IMF recently changed its tune on how well the Georgian authorities are doing in reforming the economy. In July, when its executive board approved the release of the third annual loan under a facility awarded in February 1996, it praised Georgia's accomplishments in the second half of 1997. Those accomplishments included acceleration of the privatization of medium-sized and large enterprises, enactment of a law aimed at establishing a competitive market in electricity generation and distribution, further progress on land privatization, and improved control over budget expenditures through a treasury system. However, earlier this month an IMF official said that Georgia will receive the support of international financial institutions only if the government adopts a stronger economic policy. As a result of the fiscal crisis, targets have not been reached for government borrowing from the Central Bank, health spending, expenditure arrears, and sales of treasury bills. The government has not met other fiscal targets because of failings of an administrative nature. It is hard to say how severe and prolonged a downturn Georgia will suffer. Economy Minister Vladimer Papava argued in mid-October that the absence of securities markets precluded the spread of the world economic crisis to the country. Tacis experts argued at that time that Georgia's diversified exports, large value-added tax in transit trade, and small budget deficits made a Russia-type crisis unlikely. In reality, it is very difficult to predict the timing and severity of currency crises, especially in such small, fragile economies as Georgia's. The absence of significant short-term capital inflows means there is little protection against such crises, as demonstrated by Bulgaria's experience in 1996 and 1997, when Bulgarians dumped leva for foreign currencies. The key question is whether the Georgian state will be able to restore the credibility of its macroeconomic policies; in Bulgaria, this required both a change of government and policy regime under a currency board. On the other hand, the IMF's decision last week to offer $200 million to bolster the foreign reserves of Georgia and five other countries (which the fund described as the "poorest countries neighboring Russia which have been hardest hit by the Russian crisis") should help stabilize the situation. The author is a research scholar at the International Institute for Applied Systems Analysis in Laxenburg, Austria. 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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