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RFE/RL NEWSLINE

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

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Note to readers: "RFE/RL Newsline" will not appear on 24
and 25 December, which are Christmas holidays in the
Czech Republic.

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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
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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 BritainŠ[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.
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