RFE/RL NEWSLINE Vol 1, No. 130, Part I, 2 October 1997

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

* YELTSIN AMBIGUOUS ON POSSIBLE THIRD TERM

* PROSECUTOR-GENERAL TO INVESTIGATE KOKH

* ARMENIAN OPPOSITION LEADER PLEADS NOT GUILTY

End Note : THE PARADOXES OF PRIVATIZATION

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RUSSIA

YELTSIN AMBIGUOUS ON POSSIBLE THIRD TERM. After stating
unequivocally in September that he will not seek a third term,
President Boris Yeltsin said on 2 October that aides have urged him
not to comment. Asked during a visit to Nizhnii Novgorod if there is
any chance he will seek a third term, Yeltsin told reporters: " My
friends and colleagues have forbidden me from talking about this.
Why are you pushing me so early?" Russia's constitution, adopted in
1993, limits the president to two terms in office, but some
commentators have suggested the Kremlin is looking for a loophole
allowing Yeltsin to run again. Speculation has centered on the fact
that Yeltsin was first elected in 1991 under the Soviet-era
constitution. He has therefore served only one term under the new
constitution. State Duma Speaker Gennadii Seleznev said on 2 October
that a third Yeltsin term is a bad idea. Interfax quoted Seleznev as
saying Yeltsin's two terms "are quite enough."

SELEZNEV ACCUSES YELTSIN OF PROVOKING CONFRONTATION.
Seleznev told a news conference on 1 October that Yeltsin's hints that
he will disband the Duma are provoking a conflict, an RFE/RL
correspondent in Moscow reported. Yeltsin criticized Duma deputies
on 29 September for holding up passage of the 1998 federal budget
and a new tax code, rejecting the government's welfare reforms, and
supporting a land code that prohibits the sale of farmland. Seleznev
said Yeltsin's remarks are counterproductive and merely serve to
further galvanize the Duma against Yeltsin. "The president must
understand that every shout brings a reaction and that deputies will
be considering the laws he proposed with bias and irritation,"
Seleznev told reporters. However, Seleznev indicated he was not in
favor of a vote of no confidence in the cabinet, saying the feud
between Yeltsin and legislators should not be brought to the "point of
explosion."

PROSECUTOR-GENERAL TO INVESTIGATE KOKH. The Moscow
Prosecutor-General's Office on 1 October launched a criminal
investigation into former privatization chief Alfred Kokh after
allegations that he may have done favors for a major bank. Moscow
Deputy Prosecutor-General Yurii Syomin told ITAR-TASS that the
investigation will focus on abuse of power. He cited suspicions over a
$100,000 advance Kokh received from the Swiss firm Servina
Trading for a book yet to be published and media allegations that the
firm has links to Oneksimbank, which is controlled by Kokh's close
friend, Vladimir Potanin. Syomin also told Ekho Moskvy that Kokh
has not been charged but there are grounds for suspicion. Kokh told
"Kommersant Daily" in an interview published the same day that he
sees nothing suspicious about his relationship with Potanin. He
insisted his book will be published soon.

CHUBAIS DEFENDS KOKH. First Deputy Prime Minister Anatolii
Chubais defended Kokh, saying the probe into his long-time ally is
the work of Kokh's former friends in the big banks angry about the
auction of Svyazinvest, Interfax and ITAR-TASS reported. "Kokh's an
honest man," Chubais said in televised remarks. "Well-paid-for lies
are being reprinted...from one banker's newspaper to the other's [and
broadcast] from one television channel to the other.... But they're still
lies." In July, Oneksimbank led a consortium that was awarded a 25
percent stake in Svyazinvest in what was Russia's biggest-ever sale
of a state asset. Chubais said the probe into Kokh is the latest move
in attacks by disappointed Svyazinvest bidders, Reuters reported.

SKURATOV ORDERS REVIEW OF CORRUPTION CASES. Continuing
Russia's crackdown on corruption, Prosecutor- General Yurii Skuratov
on 2 October issued an order re-opening corruption cases dropped in
recent years, Interfax reported. Skuratov will send a team of "most
experienced workers" to the regions where there are cases of
corruption, his aide Aleksandr Zvyagintsev said. He said the decision
came after Skuratov's recent meeting with President Yeltsin, in
which the two discussed ways to prevent criminals from infiltrating
the country's political structure. The latest anti-corruption drive
comes after "Izvestiya" published allegations in September that the
mayor of Leninsk-Kuznetsk has a criminal past. A special
investigative unit from the Prosecutor-General's Office is due in
Leninsk-Kuznetsk by the end of the week to probe charges against
Gennadii Konyakhin, "Izvestiya" reported on 1 October.

RUSSIAN DEFENSE MINISTER MEETS WITH NATO COLLEAGUES. Igor
Sergeev arrived in Maastricht on 1 October to attend an informal
two-day meeting of NATO defense ministers. Sergeev met with his
Greek counterpart, Akis Tsohatzopoulos, to discuss Turkey's ongoing
protests over the planned delivery to Greek Cyprus of Russian S-300
anti-aircraft missiles, "Nezavisimaya gazeta" reported. Sergeev told
Interfax that he plans to exchange views with his NATO counterparts
Russian President Boris Yeltsin's proposal that NATO gradually be
transformed into a political alliance in the framework of the OSCE.
Other topics of discussion were bilateral military, political, and
technical issues, the situation in Bosnia and the reduction of
conventional forces in Europe. Sergeev is also to meet with NATO
Secretary-General Javier Solana.

IS RUSSIA LOSING PATIENCE WITH GROZNY? Russian Deputy Prime
Minister Ramazan Abdulatipov held talks with President Aslan
Maskhadov in Grozny on 1 October. The two leaders agreed that the
staff of the Russian representation in Chechnya be allowed to return
to Grozny. The approximately 80 staff members were forced to leave
Grozny for Mozdok in neighboring North Ossetia during the night of
30-September to 1 October on orders from Chechen Vice President
Vakha Arsanov (see "RFE/RL Newsline," 1 October 1997). Speaking at
a press conference in Moscow the same day, Russian Security Council
Secretary Ivan Rybkin said Yeltsin's insistence that he will not sign
an inter-state treaty with Chechnya has triggered "hysterics" in
Grozny. He termed the expulsion of the Russian delegation "a
thoughtless move" on the part of the Chechen leadership. He also
implicitly criticized Maskhadov for not overruling Arsanov.

CHERNOMYRDIN ANNOUNCES NEW PENSION INDEXATION PLAN.
Prime Minister Viktor Chernomyrdin announced on 1 October the
introduction of a new pension indexation plan that, he said, will in
effect raise pensions payments, according to ITAR-TASS.
Chernomyrdin said under the new plan, which will take effect on 1
February 1998, pensions will be based on "real labor contributions."
Yeltsin recently signed a law raising pensions by 10 percent as of 1
October and by another 10 percent as of 1 December.

NEMTSOV INDICATES GOVERNMENT FLEXIBLE ON BUDGET. First
Deputy Prime Minister Boris Nemtsov said in Nizhnii Novgorod on 1
October that despite the government's ongoing battle with the State
Duma over the 1998 budget, he expects a compromise to be reached
by the end of the year, Interfax reported. Nemtsov said Russian
legislators understand that "a bad budget is better than none at all."
He added that the government is ready to work with legislators on
revising the budget draft, according to Interfax. The first reading of
the budget in the Duma is scheduled for 9 October. Legislators, even
from the pro-government Our Home is Russia faction, have been
critical of reductions in state investments and subsidies for regions.
Government officials have said they are ready to negotiate on all
major elements of the budget, except for the key figures for
revenues and the deficit.

..SAYS CAR MANUFACTURER ON BRINK OF BANKRUPTCY. Nemtsov
warned that Russia's biggest car manufacturer, AvtoVAZ, could soon
face bankruptcy unless it agrees to pay its huge debt to the state,
Reuters reported. Nemtsov issued an ultimatum to the car producer
to either agree to a plan of payments to the treasury or face
bankruptcy by mid-October. AvtoVAZ-- the producer of Russia's
most popular car, the Lada-- declined comment on Nemtsov's
remarks, according to Reuters. The company is among the
government's major debtors. According to the State Tax Service, it
owes more than 8 trillion rubles ($1.3 billion ). The company reached
a preliminary agreement with the government on debt restructuring
in May. Shareholders then voted in August to double charter capital
through a new share issue, paving the way for a controlling stake to
be transferred to the government as collateral against the firm
defaulting. But AvtoVAZ deputy chief executive Konstantin Sakharov
said at the end of August that negotiations are still continuing about
such a transfer.

NEMTSOV SLAMS MASS MEDIA. Nemtsov also said in Nizhnii
Novgorod that the Russian mass media are no longer objective, an
RFE/RL correspondent reported. Nemtsov singled out NTV and
Russian Public Television, which, he said, "only reflect the opinion of
certain people whom everyone knows." (Security Council Deputy
Secretary Boris Berezovskii is considered a highly influential figure
at ORT, while NTV is owned by Vladimir Gusinskii's Media-Most
group.) Nemtsov also commented that most people in Nizhnii
Novgorod prefer to receive their news from RFE/RL and Radio
Mayak.

KURIL ISLANDS ASK FOR FINANCIAL HELP FROM JAPAN. Japanese
Deputy Foreign Minister Minoru Tamba has received a request from
the deputy administrative head of the Southern Kuril region for
loans, Russian media reported. Tamba concluded his three-day visit
to the island of Kunashir on 2 October; he is the highest ranking
Japanese official to visit the Kuril Islands since the end of World War
II. Meanwhile in Nizhnii Novgorod, Boris Yeltsin said on 2 October
that he wants to discuss a peace treaty when he meets with Japanese
Prime Minister Ryutaro Hashimoto in Krasnoyarsk on 1-2 November.
Tamba will also be present at those talks. Yeltsin added that "we are
going to touch on all issues, including territorial questions." A dispute
over ownership of the Kuril Islands is a major reason for Russia and
Japan not signing a treaty ending World War II.

"MIR" GETS NEW COMPUTER. A new computer has been installed on
the "Mir" space station and is expected to be fully operational by 2
October, Russian media reported. The new computer was brought to
the station by the U.S. shuttle "Atlantis" to replace older computers
that have failed several times since the 25 June collision of a Russian
cargo ship with "Mir." The "Atlantis," which is docked with the
station, kept the space station's solar panels oriented toward the sun
while the computer was turned off. One Russian cosmonaut and one
U.S. astronaut took a five-hour space walk to bring a "cap" to the area
where there is a suspected puncture caused by the collision.

TRANSCAUCASUS AND CENTRAL ASIA

ARMENIAN OPPOSITION LEADER PLEADS NOT GUILTY. In his final
speech to the Supreme Court, Vahan Hovannisyan, one of the leaders
of the banned Dashnak party (HHD), again affirmed his innocence,
RFE/RL's Yerevan bureau reported on 1 October. Hovannisyan is
charged with calling for the overthrow by force of the present
leadership. Hovannisyan said law enforcement agencies have found
no evidence of his guilt. He demanded his and other defendants'
acquittal. Hovannisyan and 30 other HHD members and supporters
were arrested in July 1995 on charges of plotting a coup d'etat and
murdering two policemen. The state prosecutor has demanded a
seven-year prison sentence for Hovannisyan. Hovannisyan described
the trial, which began in March 1996 and has been condemned as
politically motivated by human rights groups, as "political
punishment" for his party.

VETERAN ARMENIAN DISSIDENT ASSESSES POLITICAL SITUATION.
Speaking at a press conference in Yerevan on 1 October, the leader of
the Union for Self-Determination, Paruir Hairikyan, predicted that
recent splits within both the Hanrapetutyun bloc (which has a
majority within the Armenian parliament) and the opposition
National Accord will result in a realignment of political forces,
Armenian agencies reported. Hairikyan cited the findings of a poll
conducted by the union according to which the Communist Party is
the most popular political party in Armenia, followed by the
opposition National Democratic Union, the Union for Self-
Determination, the Dashnak Party, and the ruling Armenian Pan-
National Movement. The poll further established that President
Levon Ter-Petrossyan's popularity rating has fallen to 14.7 percent.
In last year's presidential elections he polled 51 percent of the vote.

ARMENIA SOON TO JOIN COUNCIL OF EUROPE? Hovannes Igityan, the
chairman of the Armenian parliament's Committee on Foreign
Affairs, predicted on 1 October that the issue of his country's full
membership in the Council of Europe (will be soon resolved
"positively." Igityan said that of the three Transcaucasian states,
Armenia has the best chances of joining the council, according to
RFE/RL's Yerevan bureau. Igityan, who headed a recent Armenian
delegation to Strasbourg, said a council commission on human rights
will visit Armenia on 23 October, after which the council will decide
on whether to recommend Armenia to the final stage of the
admission process. Igityan said he personally thinks it expedient that
Armenia and Azerbaijan be admitted to the council simultaneously.
In April, the council adopted a resolution making membership for
the Transcaucasian states contingent on tangible progress in
resolving the Abkhaz and Karabakh conflicts.

AZERBAIJAN DEMANDS EXTRADITION OF RUSSIAN JOURNALIST.
Anatolii Naumov, a member of the editorial staff of the St.
Petersburg newspaper "Chas Pik," is being held in solitary
confinement awaiting extradition to Azerbaijan on charges of
extortion, according to "Segodnya" and "Izvestiya" on 1 and 2
October. A Russian citizen and graduate of Leningrad State
University, Naumov had worked as deputy editor of a Russian-
language newspaper in Baku. He returned to St. Petersburg in
December 1996.

COMPLICATIONS OVER REPATRIATION OF TAJIK REFUGEES IN
AFGHANISTAN. The repatriation of some 7,000 Tajik refugees in
northern Afghanistan has been complicated by fighting in that area,
according to ITAR-TASS and Interfax. Refugees near the city of
Mazar-i-Sharif are now caught in the fighting between the Taliban
movement and the anti-Taliban coalition forces. Their proposed route
of return, through the Uzbek city of Termez, is no longer open
following the Taliban capture of the Afghan town of Khairaton, on the
river bank opposite Termez. The border in that area has been sealed
by Uzbek border guards. The refugee camp was accidentally hit
during an air assault on 1 October that left one person dead and 10
wounded. A contact group for implementing the peace agreement in
Tajikistan has appealed to the UN for help. It is looking for an
alternative route through Turkmenistan for the refugees.

KAZAKH PREMIER REASSURES INVESTORS. Amirjan Kosanov, the
press secretary of Prime Minister Akezhan Kazhegeldin, has passed
on a message from the premier to foreign investors telling them they
"need not be worried about their investments," Reuters reported on 1
October. Kazhegeldin, currently in a hospital in Switzerland, said
reforms in Kazakhstan are "irreversible." Kosanov also responded to
rumors of Kazhegeldin's dismissal from office, saying "the question of
[Kazhegeldin's] resignation or retirement is a question for the
president."

MAFIA'S GROWING INFLUENCE IN TURKMENISTAN. Mukhammed
Nazarov, the chairman of the National Security Committee, said mafia
organizations are exploiting the country's current problems to make
a profit, Interfax reported on 30 September, quoting an interview in
the daily "Neitralny Turkmenistan." So far this year, the committee
has brought 138 people to trial for economic crimes. Nazarov also
criticized "some structures" that are using their connections with
foreign partners to smuggle "cotton fiber, car oil, gas condensate,
alcohol, gold, silver, mercury, and non-ferrous materials" out of
Turkmenistan. He noted that the committee's work has resulted in
the confiscation of narcotics worth $5.5 billion since the beginning of
1997.

END NOTE

THE PARADOXES OF PRIVATIZATION

by Paul Goble

Transferring ownership from the state to private persons will not, in
itself, guarantee the emergence of a market economy. Indeed, it may
not even constitute privatization in the sense of the word typically
employed in the West.
        That was the unsettling message of Grigorii Yavlinskii, the
leader of the Yabloko faction in the Russian State Duma, during his
recent visit to Washington. Speaking at the Carnegie Endowment for
International Peace, Yavlinskii noted that 82 percent of all
enterprises in the Russian Federation no longer belong to the state.
But he suggested that at the same time, few are privately owned. In
fact, their new "owners" are the old communist-era managers. And
those people consider their new possessions to be more like the
collective farms of the past than the private enterprises of a market
economy. That is, they do not seek to maximize their profit in
competition with other firms but rather to maximize their immediate
personal wealth and to gain additional subsidies from the state.
        In order to line their own pockets, they sell off assets created
by others rather than investing in their own enterprises to improve
the future position of the firm. As a result, Yavlinskii said,
investment in the Russian Federation is likely to decline some eight
to ten percentage points this year instead of rising, as Moscow
routinely claims. Such disinvestment not only pushes any turnaround
in the Russian economy further into the future but also means that
any future growth will start at a far lower level and with far fewer
available resources than is the case in capitalist countries following a
down-turn.
        In order to secure additional state subsidies, the new "owners"
behave much as they did in the past. They form alliances with state
bureaucrats who can provide them with both resources and
protection from other owners as well as from other government
bureaucrats who may be grouped against them and their allies in the
state apparatus.
        According to Yavlinskii, such alliances mean that both the
"owners" and the bureaucrats with whom they are allied generally
oppose any real reform lest it challenge both their incomes and
power. And as in communist times, those alliances entail additional
costs as well.
        Neither the owners or the bureaucrats want to face the
prospect of social upheaval that bankruptcies or massive
unemployment might produce. As a result, both work to keep
enterprises in operation even when the efficiencies of the market
dictate that many older and inefficient firms should be allowed to
fail and their resources reallocated to better use.
        And both work to hide unemployment. Yavlinskii argued that
real unemployment in Russia is equal to the number of people not
being paid--some 25 percent of the total labor force-- and not to the
much lower figure put out by the Russian government. But neither
the government nor the firms have the funds to compensate those
laid off or the political will to deal with the massive social dislocation
caused by such lay-offs.
        For all these reasons, Yavlinskii suggested, privatization has not
been the panacea that many in both Russia and the West had
expected. Instead, privatization--as carried out under Russian
conditions--has often had the effect of reinforcing rather than
undermining Soviet-styles of economic activity.
        But if privatization has not yet led to a free market and a
dynamic Russian economy, Yavlinskii implied that it is a necessary, if
not sufficient, measure. He also suggested that any retreat from a
commitment to private ownership and a free market would be even
more disastrous than the current situation.
        What Russia needs, Yavlinskii said, is the political will to stand
up to the social pressures opposing a shift from collective-farm style
ownership to genuine private property. It also requires the state
institutions capable of making possible such a transformation, he
added.
        Until Russia has both, Yavlinskii concluded, its economy and
even more its political system will remain mired in their currently
disastrous state.


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