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Issue No. 183. - July 25, 2000.
Contents :
1. Georgia: Sequestrated Country
      By Ivlian Haindrava
      By Peter Karaboev
      By Andrej Brstovsek
4. Special addition: NEW AT TOL

Georgia: Sequestrated Country
    By Ivlian Haindrava
    The high summer was marked by a not so common financial event in
Georgia: Parliament passed a law stipulating amendments to the
National Budget for the current year. The important consequence of
the drafting and hearing of this bill is that now the people of
Georgia can easily understand the meaning of the term
"sequestration", which had been unknown to them until recently,
and are engaged in broad debates concerning the probable political
effects of the case.  In numerical terms the sequestration looks
as follows: revenues now amount to GEL 685.7 millions against the GEL
874.4 millions stipulated by the original version of the
budget; spending was reduced from GEL 1,264.1 billion to GEL 960.9
millions (US $ 1.00 = GEL 1.96). Obviously, even the figures fixed
in the original budget were laughably miserable for a country
with a population of 5 millions; after the sequestration,
however, the National Budget may cause tears rather than laughter.
    Tears may unwillingly roll down one's face when one learns
that even miserable – as it originally was – spending on health
has been further cut down by 28%; on education – by 34%; on public
order and security – by 36%; and on defense – by 46%. Other
budgetary items have also been "injured": cuts took place in
the operation costs of the Constitutional and Supreme
Courts, general courts, the Council of Justice, and the
Ombudsman's Office, i.e. all those governmental institutions,
which are responsible for the protection of human rights. The
courts had seemingly been subject to reforms and should have been
saved from sinking in the overwhelming swamp of corruption by
setting up relatively high and timely-paid salaries. Naturally,
under such circumstances, there is no question that the Government
will be able to pay multiple arrears in which wages and pensions
have been in some cases as early as from 1998.
    In our report titled "Georgia: On the Threshold of Financial
Breakdown" (Issue No. 157, January 15, 2000), we discussed those
financial problems and shortcomings which Georgia had faced at the
turn of the new millennium. That time the budgetary cuts took
place in respect of a number of budgetary items of the National
Budget for 1999 at the very end of December 1999 (!). As then the
minister of finance stated (seemingly without any claim for
originality), the reason for doing that was that the actual
revenues had been lower than the planned ones and the Government's
expenses in terms of a number of budgetary items had exceeded the
projected budget. The external financial aid appeared to be less
than it had been hoped as well. All these resulted in a
post-factum cutting of the budgetary expenses for the Year 1999.
    The experts from international financial institutions, in
turn, stated that the budgetary crisis was stipulated by both the
unprecedented spread of corruption and the Government's inability
to collect taxes. According to their estimates, while in 1997 the
economic growth reached 10 per cent a year, subsequently it went
down to 2-3 per cent. The growth of GDP for the same year reached
9 per cent, but since then GDP has been deteriorating every year.
Never helped either the establishing of a ministry of revenues, or
the replacement of a minister of finance, or a number of
dismissals in the tax and customs departments: the National
Budget-1999 was a complete failure.
    Since the fall 1999, both IMF and World Bank have almost
entirely ceased their financial assistance to Georgia. Their call
– "Georgia has to develop a consistent economic policy for the
Year 2000, and the Government has to take more decisive steps in
order to have access to the funds of international institutions" –
amazingly was nothing but a voice crying in the wilderness.
    The National Budget-2000 was passed by Parliament just in
March. It was approved notwithstanding the fact that the
government's actual revenues for the first two months of 2000
proved to be much lower than was projected in the budget. This
means that the budget parameters were unrealistic from the very
outset – the fact that was realized by all, including probably
even those who had drafted and approved the budget. The situation
characteristic to the recent years came about again: Parliament
was late to adopt a budget which had been destined to failure from
the very beginning. By way of illustration let me give examples of
the last year: Mr. Hunter Monroe, a permanent representative of
IMF in Georgia, said at a press conference that "the low level of
fiscal revenues for January and February enable us to predict that
the Government will face serious problems with the implementation
of the National Budget-1999". Mr. Mikheil Saakashvili, the
chairman of the parliamentary faction of the ruling party
"Citizens' Union", recognized that the National Budget-1999 was a
very bad one, but in the absence of the better one,
parliamentarians would have to vote for the proposed budget.
    "Certain shortcomings that are obvious in the draft budget for
the Year 1999, should not prevent Parliament from passing it" –
diplomatically noted Zaza Sioridze, the chair of the parliamentary
finance and budget committee. Someone of celebrities has said that
only fools learn from their own mistakes. But what's the name of
those who are unable to draw conclusions even from their own
repeated mistakes?  The people, who are responsible for the
existing situation, are talking about a mere "budgetary crisis"
stubbornly insisting that the economic growth is still the case.
If this is true, in other words, if the economy is growing, while
fiscal revenues are diminishing year by year (sequestration in the
middle of the fiscal year is nothing but a graphic evidence of the
latter), this must mean that the share of shadow economy is
growing, like is the turnover of illegal money behind the back of
the Government. All these, in turn, as Mr. Irakli Batiashvili, a
parliamentarian in opposition, says mean that the Georgian
leadership is simply unable to govern the country. "To our shame
presently Georgia has a budget which is by far more limited that
those of certain European soccer clubs", said Mr. Batiashvili at a
Parliament's session. Practically in parallel with the hearings of
the sequestration bill, the president announced about his
initiative to establish a special group that will be assigned to
develop a strategy of struggle against corruption. The public, as
a whole, reacted to both the composition and the objectives of the
group positively. Nobody could answer, however, to the question
"why the president was so late to take such a step?" The truth is
that corruption, like metastases, has already spread all over the
body of the Georgian State. Even the "shock therapy" may be
out-of-date - President Shevardnadze revealed another measure
targeted on the recovery of economic situation in Georgia. An
economic council will be established and headed by Polish
economist Leszek Balcerowicz, who oversaw Poland's successful
transition to a market economy. The World Bank is conducting talks
with Balcerowicz on that issue. Shevardnadze in his 17 July
briefing said that the proposal that Tbilisi engage Balcerowicz's
services originated in the U.S., which will cover all expenses
    The problem is that experts recommend that the condition
precedent to success in the struggle against corruption is the
replacement of the political elite. In the Georgian context, given
that parliamentary elections took place as recently as in October
1999 and the presidential election in April 2000, this would mean
that the corrupted elite should demonstrate a good will and yield
their positions to those who are determined to fight against
corruption to the death. As to me, hardly can I believe that this
can ever happen.
    By Peter Karaboev
    This game has been going on for years. It looked like a form of street
gambling popular in the past - a skillful man is quickly moving
 small boxes on a table and the prize is hidden in one of
them. Then the "croupier" stops and you must point to one of boxes as
a prize-box. If you are not paying enough attention, you're doomed
to lose. It's fun if the bid is for $1, but it's too serious if
the bid is $1 billion or so. And the problem now is that the box
shifting was going on for more than 4 years and both players are
tired. At any moment one of them can take his boxes away and the
other - his millions. And eventually this is going to happen in
Bulgaria at the end of July. Maybe this is too unusual a way  to
describe the privatisation of Bulgarian Telecom  Company (BTC), but it
illustrates the environment around this deal.
    Last Thursday the Bulgarian Government decided to take the final
decision at the end of July and its far from sure that
negotiations will end with success. So the mood is in favor of the
settlement that Bulgaria will take away BTC from the bidding
table. The potential biers - Greek state-owned telecom company OTE
in association with Dutch telecom giant KPN - will keep $600 mln.
they promised for BTC. "There won't be a deal at any price. We
will not allow pretensions from OTE/KPN that will be in conflict
with our bid for EU membership and some of their recent terms are
unacceptable for the Government", said Petar Zhotev - the only
Deputy Prime-Minister and Minister of Economy, who last week took
over the BTC privatisation. If we are to open new privatisation
tender, we will negotiate with 3 bidders at once so no one of them
will be in the position of OTE/KPN to dictate its terms as the
only tender, Zhotev added. A day earlier France as a current
chairman of EU presidency said that EU will open 5 new chapters in
enlargement negotiations with Bulgaria and the one of them is
Telecommunications. "It's logical and correct Mr. Zhotev to head
the final part of negotiations as the expert group that I chaired
can't offer anything new. Our mission was to inform the Government
how BTC negotiations are proceeding, but now we entered the stage
where we need involvement from other institutions like the Foreign
Ministry", said Antony Slavinsky, Minister of Transport and
Telecommunications. The deal has to be in line not only with EU
competition and anti-trust rules, but with the ones of the World
Trade Organisation for liberalisation of this sector. Why is whole
this fuse about? BTC is the genuine "diamond in the crown" of
Bulgarian economy (the only remaining monopolist ones are
BulgarTabac - tobacco and cigarettes company; and BulgarGas -
natural gas distributor). There was a lot of talking about BTC
privatisation in mid-1990s, but it was decided only on 14 June
1996 to start privatisation procedure. In fact BTC was offered for
sale an year later and under another (current one) Government. And
it was only 51% part of the telecom company. Soon the offer was
merged with the one for the second GSM operator with national
coverage. A lot of numbers and speculations were mentioned through
the years - from the funny expectations for $4-5 bln. through the
optimistic $1 bln. to the more realistic $700 mln. The
intermediate consultant was "Deutche Morgen Grenvel" and OTE/KPN
was chosen about 16 months ago as the only candidate to negotiate
with. The price they offered at the beginning was little over 400
mln. dollars to be raised later to 500 and very recently to 600
million. But from negotiated documents it was clear almost 12
months ago that Bulgaria is not selling but rather makes a
present. Government promised to amend some laws and even the
Constitution (which is in the sphere of the Parliament), to keep
monopoly status of the new BTC up to year 2002 and eventually to
2004 and pay back compensations according to a very hazy terms of
the future deal. In the meantime the profit of BTC increased (so
did its price) and the countdown showed that the company will
repaid itself back to the new owner in only 3-5 years. At the end
of 1999 Bulgaria was invited to negotiate full EU membership and
this dramatically shifted the base of the deal because OTE/KPN
wanted a say in the texts of some future Bulgarian laws concerning
EU and NATO integration, which no more is acceptable for Bulgarian
Government. At least the times are different - in 1999 Bulgaria
was under strong pressure of Kosovo crisis and was counting to
fill its deficit gap with the money from BTC deal, equal to about
5% of GDP, and promises fro future investment of 2% of GDP. But
Bulgaria's economy status at the end of 1999 was good and is
expected to be much better this year. Greek-Dutch tenders wanted
to make 120 mln. dollars of the payment a hostage of Bulgaria's
promise in the first 9 months after finalising of the deal  to
amend its telecom laws and to guarantee that they wo uld not be
challenged in Constitution Court in Sofia and by EU in Bruxelles.
Which after invitation to Bulgaria to negotiate full EU membership
is no more valid. OTE/KPN lost important advantage on negotiation
    The mood in Bulgaria at the moment is that they are shifting
the focus of negotiations from what level of service will be
offered to a bargaining about countless compensations and
"insurance" payments from Bulgaria if the deal is dragging its
feet through the years in the environment of liberalised telecom
sector. OTE/KPN, for example, tried to retain the monopoly
position of BTC as the only prime Internet provider in Bulgaria
which means at least guaranties for huge traffic through BTC
infrastructure. Another problem is that OTE has contract that 30%
of its equipment will be ordered through Greek company Intracom.
Because of this a deal for 20 new telephone centers for about 20
million dollars - the biggest in the last 3 years - was postponed
until the final sell of BTC. Many Bulgarian town remained in
uncertainty with old-fashioned telephone devices. The last problem
in the line is that BTC is offered with state part in the firs GSM
operator Mobicom and a license for the second GSM operator and
OTE/KPN is ready to pay 8 mln. dollars for it. OTE/KPN wanted to
freeze transfer of dividends from Mobicom (with 1999 annual profit
of 10 mln. dollars) until the ownership is transferred to the new
owner. In fact the future owner is an off-shore company based in
Cyprus and there's a real danger that there won't be any dividends
and taxes paid in Bulgaria. Whole this mess doesn't means that
OTE/KPN wouldn't be the new owner of BTC. According to some local
analysts the best opportunity to sell telecom in Central/Eastern
Europe was in 1994-1996, which Bulgaria missed. After 1998 the
biggest players in the telecom field shifted their attention to
the merger-mania and the marginal telecoms like BTC dropped from
their horizon of interest. In year 2000 there are not much big
companies interested in South East Europe telecoms and there is no
time left to try another tender. It was declared 5 times through
the last 4 years that the deal is almost finished and new
postponement will sound like disaster. "We really do not believe
that Bulgarian Government wants to sell BTC", London City analysts
were quoted this weekend in Sofia. An alternative - at least on
theory - is to cancel negotiations, to separate the second GSM
operator license from the the offer and to issue some BTC shares
on stock markets in Sofia and abroad - in Frankfurt, for example.
The last thing is useful as test for BTC value but it's risky too
because it can lower the shares price and the one of the whole
company. Even though, this act will eventually rise the market
interest to BTC, will impose more discipline among BTC officers
and will send a clear political signal that the Government is
serious in its privatisation intentions and structural reform. But
this is only an idea appearing too late. The final answer will be
known at the end of July.
    By Andrej Brstovsek
    In the beginning of June citizens of the Slovenian capital
Ljubljana could observe an unusual event on the main city square.
The newly elected government was celebrating coming to power with
champagne, freshly sworn-in ministers were laughing and posing for
reporters shoulder by shoulder with the statue of the nation's greatest
poet,  their wishes coming true. The coalition of center-right
parties had won in parliament, creating the first government in
eight years without parties which they see as communist
    Only weeks later the coalition is on the brink of collapse,
sparked by internal rows over the electoral law.
    It has been the most vivid year in Slovenia's politics since
the  nation of two million gained independence from former
Yugoslavia in 1991. With stable economy and firmly on its way
toward integration into European union  the country  often  labels
itself as "the success story". But it is the election year and it
seems as if  integrating into European union is the only political
goal common to all major parties.
    Since the beginning of spring the complex chain of events
resulted in the fall of one government and election of a new
cabinet which will have stayed in power only a few months when
regular election is held.
    The merger of opposition Christian Democrats (SKD) and then
junior government People's party (SLS) had been anticipated for
months and came true in April. The merger turned out troublesome
until the last moment. Incapability of various high-level parties'
officials to reach agreements is most clearly displayed by the
notoriously long name of the new party: SKD+SLS-Slovene People's
    SLS had announced it would leave the government after the
merger. That left Liberal Democrats (LDS) and it's prime minister
Janez Drnovsek, the prominent political figure and leader of
various Slovenian governments in last eight years, without
majoritys support. In the beginning of April Drnovsek tried to
form a new technocrat government with experts filling emptied
minister posts, but failed to gain enough support in parliament.
    Hence Mr. Drnovsek and Slovenian president Milan Kucan called
for early elections to resolve the political crisis. But
SKD+SLS-Slovene People's Party formed a coalition with
center-right opposition Social Democratic Party (SDS) of Janez
Jansa. In an inner-coalition debate over the candidate for prime
minister they compromised and came up with a name, unknown to most
Slovenian people.
    Parliament elected Andrej Bajuk, 57, for premier in the
beginning of May and approved his list of cabinet members in
beginning of June with thin majority (46-44)  after gaining the
support of two independent MPs who had left their parties.
    Mr. Bajuk is a son of emigrants who fled Slovenia after WWII.
He had lived in exile in Argentina, studied in USA, lived in Paris
and came to Slovenia only recently. Unknown to most of the people,
he stayed away from public eyes and gave his first major interview
more than a month after being elected. Mr. Jansa, president of the
junior coalition party SDS and a defense minister, was seen as the
most prominent political figure of the new government. But it
seems that Mr. Bajuk has been gradually improving his image and
rebuffing some rumors, like the one claiming  his poor knowledge
of native language.
    The biggest task new government is facing in the forthcoming
months are preparations for the adoption of budget for 2001.
Second biggest task is the further preparation for the EU
membership. "The foreign policy priorities remain integration into
Nato and EU", declared foreign minister Lojze Peterle of
SKD+SLS-Slovene People's party. Slovenia is one of the six
candidates for the so-called first round of  enlargement, together
with Poland, Hungary, Czech Republic, Estonia and Cyprus. During
his recent visit European commissioner for the enlargement Günter
Verheugen said Slovenia remained in "pole position" among
membership candidates. But some issues have to be targeted:
Slovenia should speed up privatization and deregulation,
liberalize economy and reform public administration. To speed up
the adoption of the common European law government announced it
would take no holidays in August.
    Economy is doing well and is expected to remain on the same
path in the future. In June, government Institute for
Macro-Economic Analysis and Development predicted real economic
growth for 2000 to amount between 4,5 and 5 percent, drop in
unemployment by 1,2 percent and average annual inflation of 7,6
percent. Some foreign estimations say economic results put
Slovenia side by side to EU's poorest country Greece.
    But some actions of the new government were seen as
controversial. It dismissed political appointees in
state-controlled business and government and nominated its own
people. The changes were so big even some foreign diplomats felt
the need to comment. "Some of the changes that are being made in
the business world are astonishing, to say the least," said UK
Ambassador to Slovenia David A. Lloyd for a British Financial
    The most controversial was appointment of vice-president of
the former government Marjan Podobnik as a CEO of the Telekom
Slovenije, the monopoly  fixed line telecommunications operator
and company with the largest profit in the country. Mr. Jansa
defended the appointment saying the former CEO was also put to
position for political purposes and wasn't an expert.
    The biggest task for all political parties still lies ahead:
adoption of a new electoral system. The issue has caused a major
problems within the coalition. SDS prefers majority system, but
SKD+SLS-Slovene People's party voted in parliament for the
constitutional changes, which would modify the existing
proportional system. The rift was so big that Mr. Janša said he
wasn't sure whether the coalition has broken up, because the
coalition agreement states that both parties would do everything
in their power to put majority system in law. But leader of
SKD+SLS-Slovene People's party Franc Zagozen said it was simply a
practical solution, because it was clear that majority system
didn't have enough support in parliament and all possibilities to
enact it were exhausted.
    Slovenia must change either election system or constitution
before the general election is held, since the current is seen as
invalid. The Constitutional Court ruled that majority system
should have been put into law since the majority of the people on
the referendum had voted for it.  But the system lacks required
2/3 majority support in parliament. The most likely solution is
the change of constitution. The other, proposed by the government,
is new referendum. President Kucan must issue writs for election
until  September the 13th.
    Whatever the outcome, Slovenia must hold general election
until mid-November. Amid turbulent  political developments it is
far from clear who will be opening champagne in the fall.
Special addition : NEW AT TOL
    Transitions Online (TOL) is the leading
Internet magazine covering Central and Eastern Europe, the
Balkans, and the former Soviet Union. If you aren't already a
member, fill out our registration form at
to receive your free two-month trial membership. If you'd like to become a TOL member
right away, go to And if you're a
citizen of a post-communist country, FREE annual memberships are
still available at

    In an ongoing effort to bring our readers the best and most
significant news from the region, we have revamped our Week in
Review section to include the TOP 10 stories from the 28 countries
TOL covers. Fewer in number but more in-depth, these stories will
offer readers a sharper, filtered look at post-communist countries
in transition.
RUSSIA: Putin Courts China, North Korea
 UKRAINE: Ambassador Accuses Ukraine of Anti-Russian Sentiment
 KYRGYZSTAN: Shutting Down a Human Rights' Defender
 POLAND: Pay-Back Time For Former Slave Laborers
 CROATIA: Optimism Surrounds WTO Acceptance
 ARMENIA: Parents Protest Peacetime Deaths
 BULGARIA: Israel To Remove Monument to Bulgarian Jews
 GEORGIA: Slain Oppositionist Still Not Buried
 AZERBAIJAN: Pulling the Plug on Basayev
 UZBEKISTAN: Ancient Princess Rises From Grave
For the first time TOL brings you "Our Take"--a weekly
editorial on one of the region's significant or controversial
events. This week: Constantinescu's astute move in Romania.

    IN FOCUS: Quite Russiagate
    by Anna Badkhen
    Just type in the name of your favorite Russian oligarch,
Kremlin insider, politician, mafiosi, or journalist and hit enter.
If you happen to be toying around on Russia's hottest new website,
dubbed "Russiagate," you'll immediately find something juicy. But
don't expect it to be accurate. The information in the site's
database is often old and erroneous and hasn't whetted the
appetite of a Russian public well used to kompromat.

    OPINION: Dueling With Discrimination
    by Claude Cahn
    In many European countries there are no adequate laws against
racial discrimination, no clear definitions of what exactly
constitutes discrimination, no comprehensive guidelines for law
enforcement bodies, and no appropriate punishments. The European
Union's new "race directive" hopes to draw much clearer lines for
its member states.

    OPINION: Out-of-Pocket Parliaments
    by Abdumannob Polat and Nickolai Butkevich
    During a 25 May address to parliamentarians, Uzbek President
Islam Karimov called for the country's legislature to be replaced
by a two-house parliament . Despite his poor track record for
democratic reforms and little tolerance of political opposition,
the Uzbek president's recent changes to the country's parliament
may bring a modicum of democratic change.

    FEATURE: Immortalizing Nazarbayev
    by Bea Hogan
    The Kazakh government on 27 June passed a law granting
President Nursultan Nazarbayev lifelong powers, including immunity
from any prosecution. On 20 July, the Constitutional Court
endorsed the decision. The opposition says the bill will allow
Nazarbayev to remain president for life; Nazarbayev himself says
he's had nothing to do with the weighty legislation; and
proponents say the new law was passed simply to ensure that
reforms would continue along their present path. The article
originally appeared on EurasiaNet. (
    The following article is one of TOL's Annual Surveys for 1999:
exclusive overviews of individual countries in the region written
for TOL by top local and Western analysts and edited by regional
specialist Professor Peter Rutland of Wesleyan University. These
valuable resources follow the fine tradition established by the
OMRI/East-West Institute Annual Surveys. Both sets of reports, old
and new, can be found in our expanded Country Files along with links and maps for the
27 countries in the post-communist world.

    Moldova 1999: Hard Times Continue
    by Paul D. Quinlan
    When U.S. President Bill Clinton on 25 January, 1999, received
Ceslav Ciobanu, the new Moldovan ambassador to the United States,
the president described Moldova as a model of democracy in Eastern
Europe. Just one week later, on 1 February, Prime Minister Ion
Ciubuc unexpectedly announced his resignation, and Moldova found
itself once again in the throes off a political crisis to top of
its economic woes.