[Ian Jeffries] the Countries of the Former Soviet (BookFi.org)

Following the highly successful Economies in Transition: A Guide to China, Cuba,Mongolia, North Korea and Vietnam at the Turn of the Twenty-first Century (published inthe Routledge Studies in Development Economics series), Eastern Europe at theTurn of the Twenty-first Century: A Guide to the Economies in Transition and The FormerYugoslavia at the Turn of the Twenty-first Century: A Guide to the Economies in Transition,this book is the second of two (following The Caucasus and Central Asian Republics atthe Turn of the Twenty-first Century: A Guide to the Economies in Transition) to focus oneconomic and political events in the countries of the former Soviet Union.

The author presents a clear, detailed and accessible breakdown of the devel-opments in the Baltic States of Estonia, Latvia and Lithuania, and in Belarus,Moldova, Russia and Ukraine.

This book provides a unique level of coverage of economic and politicalevents of global significance, including differing paths of economic and polit-ical transition, the Russian financial crisis, foreign direct investment, theChechen crisis, NATO/EU membership for the Baltic States, and the reactionsof the countries of the former Soviet Union to the 11 September 2001terrorist attacks on the United States and to the 2003 war in Iraq. It willprovide an invaluable source of reference for all those interested in transitionaland developing countries.

Ian Jeffries is Member of the Centre of Russian and East European Studies atthe University of Wales.

The Countries of the FormerSoviet Union at the Turn of theTwenty-first Century

1 The Economics of Soviet Break-upBert van Selm

2 Institutional Barriers to Economic DevelopmentPolands Incomplete TransitionEdited by Jan Winiecki

3 The Polish Solidarity MovementRevolution, Democracy and Natural RightsArista Maria Cirtautas

4 Surviving Post-SocialismLocal Strategies and Regional Response in Eastern Europe and the Former Soviet UnionEdited by Sue Bridger and Frances Pine

5 Land Reform in the Former Soviet Union and Eastern EuropeEdited by Stephen Wegren

6 Financial Reforms in Eastern EuropeA Policy Model for PolandKanhaya L. Gupta and Robert Lensink

7 The Political Economy ofTransitionOpportunities and Limits ofTransformationJozef van Brabant

8 Privatizing the LandRural Political Economy in Post-Communist Socialist SocietiesEdited by Ivan Szelenyi

9 UkraineState and Nation BuildingTaras Kuzio

10 Green Post-Communism?Environmental Aid, Innovation and Evolutionary Political EconomicsMikael Sandberg

11 Organisational Change in Post-Communist EuropeManagement and Transformationin the Czech RepublicEd Clark and Anna Soulsby

12 Politics and Society in PolandFrances Millard

13 Experimenting with DemocracyRegime Change in the BalkansGeoffrey Pridham and Tom Gallagher

14 Poverty in Transition EconomiesEdited by Sandra Hutton and Gerry Redmond

15 Work, Employment and TransitionRestructuring Livelihoods in Post-CommunismEdited by Al Rainnie, Adrian Smith andAdam Swain

16 Environmental Problems ofEast Central Europe: 2nd

EditionEdited by F. W. Carter and David Turnock

Routledge Studies of Societies in Transition

17 Transition Economies and Foreign TradeJan Winiecki

18 Identity and FreedomMapping Nationalism and Social Criticism in Twentieth Century LithuaniaLeonidas Donskis

19 Eastern Europe at the Turn of the Twenty-first CenturyA Guide to the Economies in TransitionIan Jeffries

20 Social Capital and the Transition to DemocracyEdited by Gabriel Badescu and Eric M.Uslaner

21 The Former Yugoslavia at theTurn of the Twenty-first CenturyA Guide to the Economies in TransitionIan Jeffries

22 The Countries of the FormerSoviet Union at the Turn ofthe Twenty-first CenturyThe Baltic and European States inTransitionIan Jeffries

23 Federalism and the Dictatorship of Power in RussiaMikhail Stoliarov

24 Elites and Democratic Development in RussiaEdited Anton Steen and Vladimir Gelman

25 The Caucasus and Central Asian Republics at the Turn of the Twenty-first CenturyA Guide to the Economies in TransitionIan Jeffries

Of the few authors sufficiently knowledgeable to write on all the thirty-pluscountries moving from central planning to the market, Ian Jeffries isoutstanding Ranging from front-rank EU candidates to barely changedCuba and North Korea, this short sequence of books promises to be a mustbuy for any university library.

Professor Michael Kaser (Universities of Birmingham and Oxford)

This massive volume [The Former Yugoslavia at the Turn of the Twenty-firstCentury: A Guide to the Economies in Transition] as a reference work willprove useful to anyone working on post-Yugoslav topics This volume should find a place in every university library.

Sabrina P. Ramet (EuropeAsia Studies, 2003, vol. 55, no. 2, pp. 32930)

The Countries of theFormer Soviet Union at the Turn of theTwenty-first CenturyThe Baltic and European states in transition

Ian Jeffries

First published 2004 by Routledge11 New Fetter Lane, London EC4P 4EE

Simultaneously published in the USA and Canadaby Routledge29 West 35th Street, New York, NY 10001

Routledge is an imprint of the Taylor & Francis Group

2004 Ian Jeffries

All rights reserved. No part of this book may be reprinted or reproducedor utilised in any form or by any electronic, mechanical, or other means,now known or hereafter invented, including photocopying and recording,or in any information storage or retrieval system, without permission inwriting from the publishers.

British Library Cataloguing in Publication DataA catalogue record for this book is available from the British Library

Library of Congress Cataloging in Publication DataA catalog record for this book has been requested

ISBN 041525230X

This edition published in the Taylor & Francis e-Library, 2004.

ISBN 0-203-64754-8 Master e-book ISBN

ISBN 0-203-67315-8 (Adobe eReader Format)(Print Edition)

List of tables xiAcknowledgements xii

Introduction and overview 1The Baltic States of Estonia, Latvia and Lithuania: a summary 5Belarus: a summary 21Moldova: a summary 27Russia: a summary 39Ukraine: a summary 117

PART I

The Baltic States of Estonia, Latvia and Lithuania 129

1 Estonia 131

Politics 131The political background 131Political developments prior to the 5 March 1995 general election 136The 5 March 1995 general election 137Political developments after the 5 March 1995 general election 138The 7 March 1999 general election 140Political developments after the March 1999 general election 142

The economy 164The economic background 164Financial policy 164Prices 166Privatization 166Foreign trade 174

Contents

Foreign direct investment 175Agriculture 175Economic performance 178

2 Latvia 179

Politics 179Citizenship 179The general election of 56 June 1993 187Political developments after the June 1993 general election 188The general election of 30 September1 October 1995 188Political developments after the 1995 general election 190The general election of 3 October 1998 193Political developments after the October 1998 general election 194

The economy 205Financial policy 205Prices 207Privatization 208Foreign trade 216Foreign direct investment 217Agriculture 219Economic performance 220

3 Lithuania 222

Politics 222Citizenship 222Political developments 223The general election of 20 October 1996 and 10 November 1996 224Political developments after the OctoberNovember 1996 general election 225

The economy 240The economic background 240Financial policy 242Prices 245Privatization 245Foreign trade 255Lithuania and the Russian financial crisis 256Foreign direct investment 256

viii Contents

Agriculture 259Economic performance 261

PART II

Belarus, Moldova, Russia and Ukraine 263

4 Belarus 265

Politics 265The political and demographic background 265Political developments 266The negotiations about the formation of a political, economic and monetary

union with Russia 290

The economy 300The economic system 300Financial policy 301Prices 305Privatization 306Foreign trade 311Foreign direct investment 319Agriculture 319Economic performance 323

5 Moldova 325

Politics 325The political background 325Political developments 327

The economy 351Economic background 351The economic system 352Financial reform 353Prices 357Privatization 358Foreign trade 364Foreign direct investment 365Agriculture 367Economic performance 371

Contents ix

6 Russia 373

The economy 373Liberalization 374Privatization in the non-agricultural sectors 398Agriculture 430Direct foreign investment 454Macroeconomic stabilization before the financial crisis of August 1998 464Foreign debt and aid before the August 1998 financial crisis 479A chronology of major aid agreements, including debt rescheduling 481Russia and the Asian financial crisis 482Economic performance 510

7 Ukraine 511

Politics 511The political and demographic background 511Crimea and the Black Sea Fleet 511Chernobyl 514Political developments from mid-1995 to the 1998 general election 516The general election of 29 March 1998 520Political developments after the March 1998 general election 526

The economy 560The economic background 560The economic system in the early years of transition 560Financial policy 561Prices 567Privatization 570Foreign trade 580Ukraine and the Asian/Russian financial crisis 584Foreign aid 589Foreign direct investment 590Agriculture 591Economic performance 603

Bibliography 605Index 616

x Contents

1.1 Estonia: selected economic indicators 19952002 1762.1 Latvia: selected economic indicators 19952002 2183.1 Lithuania: the general election of 20 October and

10 November 1996 2253.2 Lithuania: selected economic indicators 19952002 2574.1 Belarus: selected economic indicators 19952002 3205.1 Moldova: selected economic indicators 19952002 3666.1 Russia: the nominal value of the rouble on the Moscow

Interbank Currency Exchange 3936.2 Russia: private farms 4496.3 Russia: selected economic indicators 19902002 4557.1 Ukraine: the general election of 29 March 1998 5207.2 Ukraine: selected economic indicators 19952002 568

Tables

The mammoth task of keeping up to date with rapidly changing economic andpolitical events in thirty-five countries would not have been possible without thehelp of a magnificent library staff, the secretaries in the Department ofEconomics (Sin Brown, Frances Jackson, Jaynie Lewis and Mary Perman) andthe portering/cleaning staff in general. Individuals deserving of particularmention are the following (in alphabetical order): Gwen Bailey (Library);Michele Davies (Library); Simon Davies (Library); Dianne Evans (Library);Barry Howells (Library); Chris Hunt (Library); Ray Jones (Library); NigelOLeary (Economics); Lis Parcell (Library); Ann Preece (Library); Paul Reynolds(Library); Kathy Sivertsen (Library); Syed Hamzah bin Syed Hussin (Library);Clive Towse (Library); Ray Watts (Library); Chris West (Library).

The earliest possible access to quality newspapers and magazines has, asalways, been ensured by the excellent Kays Newsagency, owned and managed byRussell Davies.

Professor Michael Kaser and Professor Paul Hare have continually providedexternal support and encouragement.

Armenia Economic Trends, Azerbaijan Economic Trends, Belarus Economic Trends,Georgia Economic Trends, Kazakhstan Economic Trends, Moldovan Economic Trends,Ukrainian Economic Trends and Uzbekistan Economic Trends are invaluable sources ofinformation which have been provided free of charge. My thanks to all thoseinvolved in producing and sending them.

The staff at Routledge have, as always, provided support of the highestdegree and professionalism of the highest standard. My thanks in particular (inalphabetical order) go to Yeliz Ali, Simon Bailey, Amrit Bangard, Oliver Escritt,Tessa Herbert, Alan Jarvis, Liz Jones, Alex Meloy, Alfred Symons, AnnabelWatson, James Whiting, Vanessa Winch and Jayne Young.

Ian JeffriesCentre of Russian and East European Studies, University of Wales

Acknowledgements

A Guide to the Socialist Economies was published in 1990. Covering fourteen commu-nist countries (accounting, in mid-1988, for 1.6 billion out of a world populationof 5.1 billion), the final amendments to the book had been made in earlyOctober 1989. The book was fortunate to receive some very generouscomments:

Jeffries has produced a useful reference guide that will doubtless become astandard in the field and a valuable addition to academic libraries.

(Journal of Comparative Economics, 1991, no. 15)

The book is a very welcome addition to the library of publications on thesocialist world It is more than a textbook it is also a reference book anda guide Jeffries covers a vast area It is a truly formidable task to catchup with all the changes that are taking place in these countries and theauthor does it with great success.

(International Affairs, 1990, vol. 66, no. 3)

In late 1989 communism collapsed in Eastern Europe, followed in late 1991by the disintegration of the Soviet Union (the largest country in the world byarea, covering a sixth of the worlds land area excluding Antarctica, and then asuperpower able to challenge the USA in terms of military capacity).Yugoslavia also disintegrated and in a generally very bloody fashion. Academicslike myself who had invested a lifetime in studying the communist countries sawtheir intellectual capital mostly vanish overnight. The effort of trying to compre-hend profound changes, in many ways unique events and the multiplication ofcountries (as well as the disappearance of the GDR into a reunified Germany!)has been staggering.

My first stab at covering what became known as the transitional economiescame in 1993 with the publication of Socialist Economies and the Transition to theMarket: A Guide, which includes analyses of the basic features of commandeconomies and the general issues involved in the transition to a market economyplus chapters on the original fourteen communist countries before 1989 andtheir individual experiences after 1989 (including the disintegration of the Soviet

Introduction and overview

Union and Yugoslavia). While most countries opted for the market economy andpolitical democracy, Cuba (initially) and North Korea retained the essentialfeatures of the traditional communist economic and political system. China, incontrast, adopted gradual and partial economic reform. Vietnam took note ofthe Chinese model, although there were speedier elements. Both China andVietnam, however, remained firmly in the grip of the Communist Party.

Some of the more generous comments on the book were as follows:

This weighty tome can be unreservedly commended Students and theirteachers can learn a great deal from this book Excellent! Ian Jeffries hasdone us all a service.

(EuropeAsia Studies, 1993, vol. 45, no. 6)

This hefty and well documented volume on socialist economies and thetransition to the market is both useful and timely Despite its shortcom-ings the book is strongly recommended to general readers, teachers andstudents.

(Journal of Contemporary Asia, July 1995)

A personal tour de force by Ian Jeffries.(Economics of Transition, 1994, vol. 2, no. 2)

This book will serve as a valuable source of information for anyone with aninterest (academic, business or otherwise) in the area. Simply brilliant.

(Paul Nunn, Manchester Metropolitan University, Routledge Catalogue)

A Guide to the Economies in Transition was published in 1996. Basically acompanion volume to (as opposed to a revised edition of) Socialist Economies and theTransition to the Market: A Guide, it covers the period up to the mid-1990s. I am notan economic theorist but the volume includes an overview of the main issues inthe transition from command planning to the market (including bigbang/shock therapy versus gradualism, China as an economic model, andprivatization). Although I am mostly interested in how economic and politicalsystems actually change, I discuss the basic economic performance of individualcountries. Since I am not an econometrician I simply provide readers with anidea both of broad economic magnitudes and of the difficulties of obtainingmeaningful data during the transition. The other chapters are devoted to themajor political and economic events in thirty-five countries (including the reuni-fication of East and West Germany): the now fifteen independent countries ofthe former Soviet Union, the counties of Eastern Europe (broadly defined) andthe non-European countries (China, Cuba, Mongolia, North Korea andVietnam).

I am increasing convinced of the artificiality of separating economics andpolitics. For example, the privatization programmes chosen may be profoundlyaffected by political factors such as the strength of the central government and

2 Introduction and overview

whether or not to seek foreign debt forgiveness. I am not a political scientist andI am unable to interrelate the two disciplines to a desirable degree. Instead, I doattempt to do two things: (1) provide a basic guide to understanding how all thebits fit together, and (2) present a richly endowed quarry of up-to-dateeconomic and political information (often presented chronologically whereappropriate) to allow the reader to dig out any desired facts and figures.

This is not (and is not meant to be) original research but a broad-brushpainting of the overall economic and political picture. I make use of a range ofsecondary sources in English (necessary given the large number of languagesinvolved). Apart from journals and books, the sources include the following:

1 Reports such as the European Bank for Reconstruction and Developments(EBRDs) Transition Report, the United Nations World Economic and SocialSurvey, the United Nations Economic Commission for Europes EconomicSurvey of Europe, the United Nations Economic and Social Commission forAsia and the Pacifics Economic and Social Survey of Asia and the Pacific, theWorld Banks Transition, the IMFs World Economic Survey and the OECDsEconomic Outlook.

2 Quality newspapers such as the International Herald Tribune (IHT), FinancialTimes (FT), The Times, the Guardian, the Independent, the Telegraph and theBaltic Times.

3 Weeklies such as The Economist and the Far Eastern Economic Review (FEER).4 Quarterlies/monthlies/fortnightlies such as Business Central Europe, Eastern

Europe (EEN, formerly Eastern Europe Newsletter), The World Today, Asian Survey,Current Digest of the Post-Soviet Press (CDSP, before 5 February 1992 known asCurrent Digest of the Soviet Press), Transition, Finance and Development, ArmeniaEconomic Trends (ARET), Azerbaijan Economic Trends (AET), Belarus EconomicTrends (BET), Georgia Economic Trends (GET), Kazakhstan Economic Trends (KET),Moldovan Economic Trends (MET), Russian Economic Trends (RET), UkrainianEconomic Trends (UET) and Uzbekistan Economic Trends (UZET).

A review in the Times Higher Education Supplement (29 October 1993) kindlyreferred to my meticulous referencing, even though detailed referencing has thepotential to be tiresome to readers. But since this is not original research and Iam deeply indebted to many sources, I feel it necessary to make every effort toacknowledge the material used. It is not always feasible to name the correspon-dents or contributors, but I try, as far as possible, to ensure that credit goes whereit is due. Partly for this reason and partly for accuracy I make extensive use ofquotations, although where these include commonly quoted sayings or speechesI leave out specific sources.

My task in these five companion volumes was to cover mainly the period fromthe mid-1990s up to the turn of the century. I once naively thought that thingswould settle down and that the follow-up volume (in the singular!) would besmaller than the 1996 one. Far from settling down, the amount of economicand political material to be processed has expanded almost exponentially!

Introduction and overview 3

Routledge has kindly supported me in the gargantuan task of writing five sepa-rate volumes:

1 Economies in Transition: A Guide to China, Cuba, Mongolia, North Korea andVietnam at the Turn of the Twenty-first Century

This was published in June 2001. The rationale for a separate volume was signif-icantly enhanced by China, North Korea and Cuba on occasion being at thecentre of world attention. Chinas rapid economic progress has aroused consid-erable interest worldwide in China as an economic model of gradualism. Chinais increasingly participating in globalization (witness events such as its prospec-tive entry into the WTO). Its economic progress has enormous implications interms of international affairs. Hong Kong and Macao have been reclaimed butrelations with Taiwan remain edgy. Chinas human rights record is often thecause of friction, especially with the USA. The June 2000 summit between theleaders of North and South Korea turned out to be an dramatic event afterdecades of bitter division. The Elian Gonzalez case and the actions of his Miamirelatives had important implications for US policy towards Cuba. Mongoliacontinues to provide a fascinating case study of continued commitment tomarket-orientated economic reform despite political squabbling and changes ofgovernment. Vietnams attitude to economic reform has fluctuated. The Asianfinancial crisis, for instance, dampened enthusiasm. But in July 2000 the tradeagreement with the USA was signed after a years delay and greater encourage-ment has been given to the private sector and foreign direct investment.

2 Eastern Europe at the Turn of the Twenty-first Century: A Guide to theEconomies in Transition

This was published in February 2002. Part I covers economic and political devel-opments in Albania, Bulgaria, the Czech Republic, Hungary, Poland, Romaniaand Slovakia. Part II deals with general issues, relating to topics such as bigbang/shock therapy and privatization. These issues are best analysed in thisvolume, e.g. Poland in 1990 was the first country to adopt big bang/shocktherapy. The major issues relating to German reunification have already beendealt with in the 1993 and 1996 volumes. The only thing I thought worthincluding in this volume was privatization in the eastern part of Germany as arevealing case study in privatization.

3 The Former Yugoslavia at the Turn of the Twenty-first Century: A Guide to theEconomies in Transition

This massive volume as a reference work will prove useful to anyoneworking on post-Yugoslav topics This volume should find a place inevery university library.

(Sabrina P. Ramet, EuropeAsia Studies, 2003, vol. 55, no. 2, pp. 32930)


This volume was published in May 2002. The countries covered are Bosnia-Hercegovina, Croatia, the Former Yugoslav Republic of Macedonia, Sloveniaand the Federal Republic of Yugoslavia (Serbia and Montenegro).

The West intervened militarily to protect Moslems in Bosnia and in Kosovoand international military and civilian involvement for the foreseeable future isproving critical in maintaining the peace and rebuilding economies and politicalstructures. The terrible events of 11 September 2001, when terrorists attackedtargets in New York and Washington, showed the dangers of allowing states likeAfghanistan to fail. International terrorists were given sanctuary by the Moslemfundamentalist Taleban regime. There has been a profound change in the atti-tude of the administration of President George W. Bush towards USinvolvement in those countries of the former Yugoslavia affected by ethnic strife.The new president, inaugurated in January 2001, was initially very cool aboutthe involvement of US troops. The Bush administration now sees the vitalimportance of the United States maintaining a presence (albeit much reduced)in the more unstable parts of the former Yugoslavia.

4 and 5

It was originally intended to include all fifteen countries of the former SovietUnion in one volume. But in order to pay sufficient attention to events of globalsignificance it was decided to publish two separate volumes: The Caucasus andCentral Asian Republics at the Turn of the Twenty-first Century: A Guide to the Economies inTransition, and The Former Soviet Union at the Turn of the Twenty-first Century: TheBaltic and European States in Transition. The stance taken by all the countries of theformer Soviet Union towards the US-led war in Iraq in 2003 is dealt with in thelatter volume. But shortage of space means that there is only a summary (albeit agenerous one) of Russian political developments. A detailed chronology of polit-ical developments up to November 2000 can be found in Jeffries (2002c).

The Baltic States of Estonia, Latvia and Lithuania: a summary

Estonia: a summary

Estonias citizenship and language laws have been substantially amended, criti-cism from the West being an important factor (especially since Estonia, all goingto plan, will become a member of both Nato and the EU in May 2004). It goeswithout saying that Russia has been highly critical. According to a censuspublished in 2001, the population fell to 1.37 million. Notable facts and figuresand developments are as follows:

1 In the 1934 population census, 88 per cent were Estonians and 8.2 percent Russians. The 1989 census revealed that 61.5 per cent of the popula-tion of 1.6 million were Estonians and 30.3 per cent were Russians. Out of


a population of 1.5 million in 1994, official statistics showed that ethnicEstonians accounted for 64 per cent and Russians for 29 per cent. Thereare about 451,000 non-citizens; some 53,000 residents have chosenRussian citizenship (Baltic Observer, 1016 November 1994, p. 2). Out of apopulation of some 1.5 million, 962,000 are Estonians and 436,000 areRussians (Baltic Observer, 26 January1 February 1995, p. 4). Since 1992about 100,000 of Estonias 500,000 Russian-speakers have obtained citi-zenship and are able to vote. Half of them lived in Estonia before theSecond World War and qualified for automatic citizenship, while the restpassed a language exam and a minimum residence requirement (BalticObserver, 915 March 1995, p. 7). About 172,000 Russian-speaking Soviet-era immigrants do not have Estonian citizenship (Baltic Times, 1824July 2002, p. 1). Some 19 per cent of Estonias 1.4 million people remain non-citizens, most of them ethnic Russians (Baltic Times, 1723October 2002, p. 2).

2 Unlike in national parliamentary elections, in local elections non-citizenswho hold Estonian residence permits and have lived in their voting districtsfor at least five years have the right to vote. Roughly 200,000 non-citizenshave the right to vote across Estonia, including 87,000 in Tallinn (BalticTimes, 2127 October 1999, p. 1). Unlike in parliamentary elections, anyonewith an Estonian residence has the right to vote in local elections, includingapproximately 300,000 Russian speakers (Baltic Times, 2329 September1999, pp. 1, 7). Narva and Sillamae in the north-east have heavy concentra-tions of ethnic Russians.

3 Constitutional amendments were passed by parliament on 15 December1998 and signed into law by the president on 31 December 1998. Thelanguage requirements were to go into effect on 1 May 1999. The amend-ments require all elected officials and candidates for public office, either onthe national or municipal levels, to display proficiency in Estonian (BalticTimes, 113 January 1999, p. 4). Max van der Stoel [the OSCE highcommissioner for national minorities] said Estonians who do not speak thestate language must retain the right to run for election (Baltic Times, 1420January 1999, p. 2).

4 On 12 February 1999 amendments to the language law were signed intolaw, despite heavy criticism from the Russian-speaking minority and ques-tions from OSCE. The amendments were to be enforced after 1 July 1999.The amendments require all people who work with the public, includingprivate business people and non-governmental organizations, to be able tospeak Estonian (Baltic Times, 814 July 1999, p. 1). The depth of knowledgedepends on the particular job, e.g. a cashier needs to know only basicEstonian (Baltic Times, 1824 February 1999, pp. 1, 4). The language lawspecifies that: Public signs, announcements and advertisements shall be inEstonian.

5 [On 21 November 2001] in the light of amendments to Estonias laws onnational and local elections, OSCE announced its remit has been fulfilled.


The announcement may herald the closure of the mission On 21November parliament abolished a requirement, which entered into force in1998, that candidates for election both to it and to local councils speakEstonian (Baltic Times, 29 November5 December 2001, p. 4).

The last Russian troops pulled out on 31 August 1994, although 210 militaryspecialists remained to decommission two nuclear reactors, used for trainingpurposes, at the Paldiski nuclear submarine base. The few remaining Russianpersonnel left the naval complex on 26 September 1995.

While rapid and consistent economic reform has placed Estonia among thefront runners for EU membership (indeed, Estonia has had to reverse some of itsmarket liberalization to adjust to EU policies!), its political life has not beencommensurately stable, with switches between centre-right and centre-left coali-tion governments (themselves unstable) and sleazy behaviour not uncommon.The former president, Lennart Meri, was more of a help to political stability,being elected by parliament in 1992 and being re-elected (albeit after a lengthyprocess) on 20 September 1996.

Nato was very wary of extending membership to the Baltic States, mainlybecause of Russias particular sensitivity. But the 11 September terrorist attacksin the United States improved relations between the USA and Russia and thusthe prospects for Nato expansion. Indeed, on 21 November 2002 formal invita-tions were extended to seven countries to join Nato with a view to thembecoming full members in May 2004: Estonia, Latvia, Lithuania, Bulgaria,Romania, Slovakia and Slovenia.

Progress towards EU membership can be traced as follows:

1 On 16 July 1997 the European Commission recommended that Estonia,Cyprus, the Czech Republic, Hungary, Poland and Slovenia open negotia-tions in early 1998 for entry to the EU. The invitation was formallyapproved at an EU summit on 13 December 1997, formal negotiations formembership beginning on 31 March 1998. Estonia had improved its abilityto cope with competitive pressures and market forces in the medium term(meaning more than one year from 2000).

2 The European Commission harshly criticized this countrys language laws The report said the laws are unfavourable to business relationships andthey tend to discriminate against minorities The adoption of thelanguage law, which restricts access of non-Europeans in political andeconomic life, constitutes a step backwards and should be amended, thereport said The European Commission targeted amendments to the lawthat says business affairs should be conducted only in Estonian Besideslanguage laws, the report called for a tougher fight against corruption, accel-eration in the pace of land privatization and progress in privatizing the oilshale sector The commission recognized Estonias commitment to judi-cial reform [but] commented that the number of judges remains low andtraining is inadequate. Continued administrative reform was also mentioned


as an idea that Estonia still needs to work on For the second year, thereport found Estonia to be a stable democracy and a functioning marketeconomy with the ability to compete in the EU (Baltic Times, 2127 October1999, p. 3).

3 The 8 November 2000 EU report was generally positive and confirmedEstonias status as a front runner for membership.

4 On 13 November 2001 the EU published its progress reports on the twelveEU applicants for EU membership with which negotiations have begun.There are thirteen applicants in all (including Cyprus, Malta and Turkey),but negotiations have not yet begun with Turkey. Estonia, Latvia andLithuania received generally very favourable reports, but what was differentthis time was that the EU indicated that it might admit up to ten newmembers at once. Gnter Verheugen (EU enlargement commissioner): Theaim of achieving the first accessions before the European Parliament elec-tions in 2004 remains a demanding one. But it is not a utopian dream; it is arealistic and feasible challenge (FT, 14 November 2001, p. 12). Bulgariaand Romania were excluded from early entry.

5 At the EU summit held in Copenhagen on 1213 December 2002, 1 May2004 was set as the target date for accession of the ten countries mentionedabove (a ratification process being required). The EU progress report onEstonia, published on 9 October 2002, was not free of criticism (e.g.mention was made of unemployment, public administration and naturaliza-tion).

Arnold Ruutel, the former chairman of the Soviet-era parliament, was electedthe new president on 21 September 2001 (effective 8 October). He replaced thehighly popular Lennart Meri, who was barred by the constitution from seeking athird term.

Estonia is supportive of the United States over the issue of internationalterrorism. The government also approved of the US-led war in Iraq in 2003.

Owing to factors such as oil shale deposits, Estonia is self-sufficient in elec-tricity production and meets 65 per cent of its total energy requirements (FT,Survey, 19 April 1994, p. 32). Oil shale is by far the most important source ofenergy, accounting for 63 per cent of primary energy consumption in 1993(DIW, Economic Bulletin, 1995, vol. 32, no. 2, p. 21).

The GDP growth rate turned positive in 1995, the rate being -14.2 per centin 1992, -8.8 per cent in 1993 and -2.0 per cent in 1994 (EBRD 2001a: 15, and2001b: 141). Growth was once again negative in 1999, but strongly positivethereafter. The Baltic States have been affected much more severely by theRussian crisis than the other CEE countries, due in part to their closer trade andfinancial links to Russia (EBRD 2000a: 5). In 2001 GDP, as a percentage of the1989 level, was an estimated 90 per cent in Estonia, 75 per cent in Latvia and 72per cent in Lithuania (EBRD 2002b: 58). Agriculture has had a hard time inEstonia. The annual inflation rate reached a peak of 1,076 per cent in 1992, buta rate in single figures was achieved by 1998.


Macroeconomic stabilization has been aided a law which states that thebudget must be balanced. Help has also been given by the operation of acurrency board. Cash and deposits in kroons at the central bank (base money)qualify for a guaranteed rate of exchange (eight kroons to one DM). Thus thegrowth of the money supply is linked to the growth of foreign exchange reserves.The kroon is fully convertible.

There is full current account convertibility and virtual capital accountconvertibility (EBRD 1994: 109). Estonia has cleared out all the remainingminor restrictions on capital movements (EBRD 2001b: 138).

Virtually no restrictions on foreign trade remain (EBRD 1994: 23). The traderegime is among the most liberal in the world (EBRD 1996b: 149). Estonia hasnot applied any notable tariffs since the mid-1990s (EBRD 1999b: 214).

There was a rapid reorientation of foreign trade away from Russia and otherCIS countries and towards the West (Finland now being the main tradingpartner). On 13 November 1999 Estonia became the third former Sovietrepublic to join the WTO. (Latvia and Kyrgyzstan became members in 1998.)

The private sector accounted for roughly 10 per cent of GDP in mid-1990. Inmid-2001 the figure was 80 per cent (EBRD 1999b: 24, 216; and 2002b: 20, 144).

Small privatization went ahead very quickly. Large privatization has seenpriority given to sales, with vouchers and restitution playing subsidiary roles inindustry. Large privatization really got under way after August 1993 when theprivatization agency was created, modelled on Germanys Treuhandanstalt andwith an emphasis on tenders involving both domestic and foreign strategicinvestors. In November tenders began to be combined with public share offer-ings for residual shares. The agency more or less completed its work by the endof 1995. Since then attention has turned to the utilities and other infrastructuremonopolies (including the railways).

The approach used by the Estonians [involves] limiting the exchange ofvouchers to minority stakes in firms in which a controlling majority sharehad already been sold to a core investor. This increases the chances ofturning a firm over to a good owner that has the incentives to look after anddevelop the health of the firms assets, and it also increases the chances thatvoucher holders will obtain shares that will maintain or increase their value.Indeed, the Estonians applied this procedure to a small number of thehigher-potential firms, further increasing the prospects for the new minorityshareholders.

(Nellis 2002: 21)

In post-communist Eastern Europe only Hungary has attracted more percapita foreign investment By selling out controlling company stakeswithout discrimination toward foreigners, Estonia started a trend that its twoBaltic neighbours with various success have copied several years later Asin Latvia, tax holidays were taken away in 1994.

(Bjorn Linderfalk, Baltic Times, 1521 August 1996, pp. 1415)


On 15 April 1993, however, Estonia became the first republic of the formerSoviet Union to allow foreigners to buy land (subject to purchases being part of amajor enterprise) (Business Europa, AugustSeptember 1993, p. 35). Since April1993, foreigners have been allowed to buy land, but only in the sense of a partic-ular land use connected with their investment (FT, Survey, 19 April 1994, p. 30).

Land privatization has been much slower owing to factors such as restitution(physical restitution where possible, based on the 1940 land register). Theproportion of land farmed privately is still only 14 per cent (FT, Survey, 19 April1994, p. 32). The amount of privatized land rose to about 25 per cent of all agri-cultural land by May 1999, up from 15 per cent in 1997. The sale of another 25per cent is expected within the next two years. This would complete the privati-zation process, since 50 per cent is to remain in public hands (EBRD 1999b:214).

On 31 July 1995 the government agreed to introduce agricultural subsidies inorder to placate farmers angry that it had failed to fulfil an election pledge tointroduce protective tariffs (Baltic Observer, 27 July9 August 1995, p. 3). TheOECD has praised Estonia for having the worlds most liberalized agriculturalpolicy (Baltic Times, 713 November 1996, p. 15).

Estonia did not create a lean farming sector but an uneven playing fieldwith the EU. The EUs markets are closed to Estonians, yet its subsidizedexports flood the country. And as a result a third of Estonian farmland issimply uncultivated.

(Business Central Europe, June 1998, p. 5)

The governments new pre-accession economic programme waspresented to the EU last month [May 2001] The government is reintro-ducing subsidies for farmers, which were all but eliminated in the early1990s.

(Business Central Europe, June 2001, p. 46)

Latvia: a summary

Latvia has stayed on a pro-EU, pro-Nato and pro-economic-reform coursedespite having a succession of coalition governments. On 12 July 1999 theeighth government was formed since regaining independence. That governmentfell apart on 12 April 2000. On 5 October 2002 Latvians opted for new leadersbut old policies (Baltic Times, 1016 October 2002, p. 1). The new primeminister, Einars Repse, was formerly the governor of the central bank.Corruption was a major campaign theme.

Progress along the path towards EU membership can be seen from thefollowing:

13 October 1999: the European Commission recommended that EU leaders atthe December 1999 meeting in Helsinki allow Bulgaria, Latvia, Lithuania,Malta, Romania and Slovakia to begin accession negotiations in 2000. The


principle of differentiation for entry date would apply to each of the twelvecandidates, reflecting differing states of readiness for EU entry. Each countrywill be able to proceed on merit, including the possibility for those which join thenegotiations from 2000 to catch up with the others.

The EU report highlighted some of Latvias main achievements and prob-lems since independence was regained. Latvia has made good political progressbut falls short of international standards on the protection of the linguistic rightsof minorities. Latvia has made significant and sustained progress towardsmeeting market economy criteria and in regards to its ability to withstandcompetitive pressures. Latvia has a good chance of catching up with the groupled by Hungary, with Lithuania not far behind. Latvia joins Malta and Cyprus,Hungary, Poland, Estonia and Slovenia in having functioning market economies.Lithuania could become a functioning market economy in 2000 if it pushesahead with promised reforms.

The European Commission ranked Latvia, along with Malta, as one ofthe best prepared candidates in the second wave of applicants The ECsaid the Baltic country can now be considered a functioning marketeconomy that can withstand the winds of competition that blow inside theEU. The report said that prices and trade have been liberalized and barriersto enter and exit markets are few. It also lauded Latvia for continuing toattract foreign investment and for increasing its trade with the EU in thewake of last years Russian crisis. Some areas, however, still need work Latvias judicial system must be strengthened with additional judges andtraining in EC judicial law. Corruption is still a large problem Latviamust harmonize its legislation in the areas of telecommunications, agricul-ture and fisheries, data protection, mutual recognition of diplomas, healthand safety, and customs policy. Another question mark is the pendinglanguage law.

(Baltic Times, 2127 October 1999, pp. 12)

November 2000: the EU report continued to place Estonia at the front of theBaltic field for future EU membership.

13 November 2001: the EU published its progress reports on the twelve EUapplicants for EU membership with which negotiations have begun. There arethirteen applicants in all (including Cyprus, Malta and Turkey), but negotiationshave not yet begun with Turkey. Estonia, Latvia and Lithuania received gener-ally very favourable reports, but what was different this time was that the EUindicated that it might admit up to ten new members at once. Gnter Verheugen(EU enlargement commissioner): The aim of achieving the first accessionsbefore the European Parliament elections in 2004 remains a demanding one. Butit is not a utopian dream; it is a realistic and feasible challenge (FT, 14November 2001, p. 12). Bulgaria and Romania were excluded from early entry.

1213 December 2002: at the EU summit held in Copenhagen, 1 May 2004 wasset as the target date for accession of the ten countries mentioned above (a


ratification process being required). The EU progress report on Latvia, publishedon 9 October 2002, was not free of criticism (e.g. mention was made of corruption,administrative capacity and the integration of non-citizens into Latvian society).

Nato was very wary of extending membership to the Baltic States, mainlybecause of Russias particular sensitivity. But the 11 September 2001 terroristattacks in the United States improved relations between the USA and Russia andthus the prospects for Nato expansion. Indeed, on 21 November 2002 formalinvitations were extended to seven countries to join Nato with a view to thembecoming full members in May 2004: Estonia, Latvia, Lithuania, Bulgaria,Romania, Slovakia and Slovenia.

Vaira Vike-Freiberga was elected president by parliament on 17 June 1999.She succeeded President Guntis Ulmanis on 8 July 1999 when he finished hissecond and final term of office. She was then a little-known CanadianLatvianacademic, but was the first woman elected president in the former Soviet Union.Vike-Freiberga:

I think I have moral authority. I think I represent the fact that not everyonecan be bought [An unfortunate by-product of Latvias newfoundfreedom is the idea that] power is money and that everything can be boughtand sold, even people I have spent a great part of my life being part of aminority in this country or that. I know how it feels.

(Baltic Times, 17 July 1999, p. 7)

At the same time as urging ethnic Russians to learn Latvian, she has alsoannounced her intention to learn Russian (FT, 9 July 1999, p. 3).

Latvias citizenship and language laws have been amended, criticism from theWest being an important factor (especially since Latvia, all going to plan, willbecome a member of both Nato and the EU in May 2004). It goes withoutsaying that Russia has been highly critical. But the approach is still a tough one,the basic problem being the high proportion of ethnic Russians in the popula-tion. The 1935 census split the population into 73 per cent Latvians and 12.5 percent Russians. In 1989 only 52 per cent of the 2.7 million population wereLatvians, while 34 per cent were Russians. In 1993 the respective proportions inthe 2.6 million population were 54.2 per cent and 33.1 per cent. In 2000 therespective proportions were 57.6 per cent and 29.6 per cent. [Some] 22 per centof Latvias 2.35 million [people] remain non-citizens, most of them ethnicRussians (Baltic Times, 1723 October 2002, p. 2). According to a censuspublished in 2001, the population fell to 2.38 million.

An unremarkable ceremony in Skrunda last week marked the symbolicend to Russian occupation of the Baltics Russia pulled its last handful ofsoldiers from the Skrunda radar site The pullout was completed well ahead ofthe February 2000 deadline (Baltic Times, 28 October3 November 1999, p. 2).An agreement had been reached on 31 August 1998.

Latvia has also attracted international criticism for its disparity of treatmentas regards the prosecution of individuals from the Soviet era compared with


individuals from the Nazi era. Latvian Legion anniversaries have aroused contro-versy because it was a division of the Waffen SS that fought with the Nazisduring the Second World War against the Soviet Army. Latvia has been singledout by Russia partly over its treatment of Soviet-era suspected war criminals.Estonia has given them suspended sentences, while Latvia has handed ownprison terms (FT, 5 May 2000, p. 8).

Latvia is supportive of the United States over the issue of internationalterrorism. The government also approved of the US-led war in Iraq in 2003.

Output fell heavily in 1992 (-34.9 per cent) and in 1993 (-14.9 per cent). TheGDP growth rate turned positive in 1994. But output fell once again thefollowing year before returning to positive growth in 1996. Thereafter GDPgrowth was encouraging. The Baltic States have been affected much moreseverely by the Russian crisis than the other CEE countries, due in part to theircloser trade and financial links to Russia (EBRD 2000a: 5). In 2001 GDP, as apercentage of the 1989 level, was an estimated 90 per cent in Estonia, 75 percent in Latvia and 72 per cent in Lithuania (EBRD 2002b: 58). Agriculturaloutput fell heavily in 1996, 1998 and 1999. The annual inflation rate reached apeak of 951.2 per cent in 1992, but a rate in single figures was achieved by 1997.

There has been a rapid shift in trade away from Russia and other CIS coun-tries and towards the West, especially the EU. This trend was marked after theAugust 1998 financial crisis in Russia. On 14 October 1998 the WTO approvedentry terms for Latvia, the first Baltic State to achieve this. Membership followedin February 1999.

The exchange rate was freely determined on the market until February 1994.The lat has been informally pegged to Special Drawing Rights since February1994 via central bank intervention in foreign exchange markets. Base money isfully backed by net international reserves. There is complete and effectivecurrent and capital account convertibility, with no repatriation or surrenderrequirements (EBRD 1994: 29, 109; 1996b: 160). Trade policy remains liberal(EBRD 2001b: 166).

In 1995 a series of financial scandals badly dented the image of the Latvianbanking system. The Latvian banking system was highly exposed to Russianassets and this led to further bankruptcies after August 1998.


Small-scale privatization was carried out speedily. But large privatization hasproven to be more complex. The 19924 period was characterized by the decen-tralization of decision-making to branch ministries (amid concern about the lackof transparency and insider deals). There was a radical change in 1994 with theintroduction of a more centralized and comprehensive privatization policyinvolving, for example, vouchers and sales. The privatization agency (whichhandled sales) and the state property fund (which managed the state portfolio)were set up in that year. On 14 January 1994 a British-led consortium took a 49per cent stake in Lattelekom. This was the first internationally tendered privati-zation of a state telecommunications company in any country of the former


Soviet Union. Since December 1994 various tenders have taken place, appealingto both domestic and international strategic investors. Public auctions and offer-ings are used to sell residual shares. Large privatization is largely complete(although there were delays in 1999 and the privatization of the LatvianShipping Company proved to be a marathon with political consequences).Privatization has increasingly involved tenders seeking strategic investors for utili-ties and other infrastructure monopolies.

Political tensions and conflicting objectives have delayed large-scale privatiza-tions (EBRD 2000a: 64).

The privatization of four remaining large-scale enterprises (LatvianShipping Company, Ventspils Nafta, Latvenergo and Lattelekom) has beenconsistently delayed. Delays have been due mainly to the influence of rivalindustrial groups in Latvia that have considerable sway in the domesticpolitical process, the at-times conflicting objectives of retaining domesticcontrol over major enterprises and attracting foreign strategic investors tomaximize revenues for the state budget and to enhance enterprise perfor-mance.

(EBRD 2000b: 182)

The privatization of remaining large-scale enterprises has been consistentlydelayed, due to the conflicting objectives of retaining domestic control andattracting foreign strategic investors (EBRD 2001a: 74). Privatization of theremaining large enterprises has had limited success (EBRD 2002a: 68).

The government undertakes to complete privatization of the remainingstate-owned companies by the end of March 2001 (Baltic Times, 612 July 2000,p. 7). On 3 August 2000 parliament voted to withdraw Latvenergo from theprivatization list and to retain it as a single, vertically integrated energy company(Baltic Times, 1016 August 2000, p. 11).

Although the coalition partners agree on the need to sell the handful of bigstate enterprises still in state hands, the process has been mired in infighting andcorruption allegations (FT, Survey, 15 June 2001, p. 29).

Restitution has played a significant role in agriculture. According to Davis(1997: 1415), by the beginning of 1995 around 80 per cent of agricultural landwas either used or managed privately.

Latvias parliament on 3 April [2003] approved a seven-year ban onforeigners buying rural land in preparation for EU membership (Baltic Times,1016 April 2003, p. 4).

Lithuania: a summary

Lithuanias citizenship law has generally been praised internationally, a situationhelped by the preponderance of Lithuanians in the population. The 1923 censussplit the population into 84 per cent Lithuanians and 2.5 per cent Russians. In1989, 79.6 per cent of the 3.7 million population were Lithuanians and 9.4 per


cent were Russians. In 1993 the split was 80.3 per cent Lithuanians and 9.1 percent Russians.

The last census was conducted [in 1989] The latest census [held in 2001]highlights a disturbing 5 per cent population decline, though this is less thanin Latvia or Estonia Lithuanias population now stands at 3.48 million Russian Lithuanians (6.3 per cent of the population) are no longer thesecond largest ethnic group but the third largest, having been supplanted byPolish Lithuanians, who amount to 6.7 per cent. Ethnic Lithuanians nowconstitute 83.5 per cent In contrast to Latvia and Estonia, which bothhave large populations of resident non-citizens, 99 per cent of Lithuaniaspopulation are citizens.

(Baltic Times, 410 July 2002, p. 6)

The 10 December 1991 citizenship law stipulated that applicants have toprove ten years lawful residence and take an oral and written language test. Butall residents of the former Soviet republic were given citizenship (Newsbrief, 1993,vol. 13, no. 9, p. 65). Citizenship also requires the signing of an oath of loyalty(Gwiazda 1994: 79).

The citizenship law has helped Lithuanias relationship with Russia, whichhas generally been the smoothest of the Baltic States. The issue of the Russianenclave of Kaliningrad has been generally well managed. Final agreement wasreached on 11 November 2002 as regards transit arrangements after Lithuaniasentry into the EU. Russian troops withdrew from Lithuania by the 31 August1993 despite some friction over this issue. Nevertheless, Lithuania has firmlypointed itself in a pro-Nato, pro-EU and pro-economic reform direction despitesignificant changes of government and a general air of sleaziness (such asduring the banking crisis of 1995). Quarrels within the shaky coalition govern-ment that emerged after the October 2000 general election involved issues suchas privatization.

Progress along the path towards EU membership can be seen as follows:

1 On 13 October 1999 the European Commission recommended that EUleaders at the December 1999 meeting in Helsinki allow Bulgaria, Latvia,Lithuania, Malta, Romania and Slovakia to begin accession negotiations in2000. The principle of differentiation for entry date would apply to each ofthe twelve candidates, reflecting differing states of readiness for EU entry.Each country will be able to proceed on merit, including the possibility forthose which join the negotiations from 2000 to catch up with the others.Latvia has a good chance of catching up with the group led by Hungary,with Lithuania not far behind. Lithuania, it was said, could become a func-tioning market economy in 2000 if it pushed ahead with promised reforms.

The report praised the Baltic country for implementing judicial reforms,increasing trade with the EU countries and continuing to make progress


in establishing a functioning market economy The EuropeanCommission also praised parliaments decision to shut down the first ofthe two nuclear reactors but stressed the second should be taken out ofoperation by no later than 2009 Lithuania relies on Ignalina for 80 percent of its energy But the report was hardly all praise. Lithuania wastold it must cut its fiscal deficit, trim the current account deficit, continuewith agricultural reforms and increase efforts in fighting corruption.Lithuania was also ranked slightly behind leaders Latvia and Malta andwas criticized for not handling the fallout from last years Russian crisis aswell as it could have, largely because of Lithuanias historical trade linkswith Russia and its dependence on the Russian market.

(Baltic Times, 2127 October 1999, p. 2)

2 [The] economy minister announced on 27 April [2001] that Lithuaniawill postpone the decommissioning of the Ignalina nuclear power plant Lithuania has its own arguments for not closing the second block in 2009,the year that has been suggested to us, and seeking the postponement of thisterm. This means that it could continue to run until 2012 or 2015 Theminister said he had made his position clear to European Commission offi-cials In the opinion of the European Commission the second reactorblock of the Ignalina nuclear power plant should be closed by 2009. Theclosure of the first reactor block is scheduled for 2005 The Ignalinanuclear power plant produces over 70 per cent of Lithuanias electricity The West considers Ignalinas two Soviet-made RBMK-type reactors oper-ating in the plant to be generally unsafe. These are the same type of reactorsas the one that exploded at Chernobyl on 26 April 1986 (Baltic Times, 39May 2001, p. 1). On 11 June 2002 Lithuania and the EU reached prelimi-nary agreement to close Ignalina by 2009. The exact amount of EU financialassistance was left to future negotiations. (Lithuania puts the closure figure ataround $2.4 billion, a sum it claims it could not afford on its own.)

3 The November 2000 EU report continued to place Estonia at the front ofthe Baltic field for future EU membership.

4 On 13 November 2001 the EU published its progress reports on the twelveEU applicants for EU membership with which negotiations have began.There are thirteen applicants in all (including Cyprus, Malta and Turkey),but negotiations have not yet begun with Turkey. Estonia, Latvia andLithuania received generally very favourable reports, but what was differentthis time was that the EU indicated that it might admit up to ten newmembers at once. Gnter Verheugen (EU enlargement commissioner): Theaim of achieving the first accessions before the European Parliament elec-tions in 2004 remains a demanding one. But it is not a utopian dream; it is arealistic and feasible challenge (FT, 14 November 2001, p. 12). Bulgariaand Romania were excluded from early entry.

5 At the EU summit held in Copenhagen on 1213 December 2002, 1 May2004 was set as the target date for accession of the ten countries mentioned


above (a ratification process being required). The EU progress report onLithuania, published on 9 October 2002, was not without criticism (e.g.mention was made of unemployment, the management of public financesand administrative capacity).

On 27 January 1994 Lithuania became the first country of the former SovietUnion to sign a Partnership for Peace agreement with Nato. Nato was verywary of extending membership to the Baltic States, mainly because of Russiasparticular sensitivity. But the 11 September 2001 terrorist attacks in the UnitedStates improved relations between the USA and Russia and thus the prospectsfor Nato expansion. Indeed, on 21 November 2002 formal invitations wereextended to seven countries to join Nato with a view to them becoming fullmembers in May 2004: Estonia, Latvia, Lithuania, Bulgaria, Romania, Slovakiaand Slovenia.

The 71-year-old Valdas Adamkus narrowly won the presidential run-off on 4January 1998. He had left Lithuania for the USA in 1944 when the SovietUnion reoccupied the country. He had resisted both Nazi and Soviet occupation.But the relationship between president and members of the government has notalways been smooth. For example, prime minister Gediminas Vagnorius resigned(effective 3 May 1999). Prime minister Rolandas Paksas resigned in October1999 because he disagreed with government and presidential support for the saleof a stake in the Mazeikiu Nafta oil refinery to the US oil company WilliamsInternational. Adamkus, then 76, won the first round of the presidential electionon 22 December 2002. But he surprisingly lost, in the rerun held on 5 January2003, to 46-year-old Rolandas Paksas.

Lithuania is supportive of the United States over the issue of internationalterrorism. The government also approved of the US-led war in Iraq in 2003.

The GDP growth rate turned positive in 1995. Output fell heavily in 1992 (-21.3per cent) and in 1993 (-16.2 per cent), 1994 (-9.8 per cent) and 1999 (-3.9 per cent)(EBRD 2001b: 173). The Baltic States have been affected much more severely bythe Russian crisis than the other CEE countries, due in part to their closer trade andfinancial links to Russia (EBRD 2000a: 5). GDP growth was very encouraging in2000 and thereafter. In 2001 GDP, as a percentage of the 1989 level, was an esti-mated 90 per cent in Estonia, 75 per cent in Latvia and 72 per cent in Lithuania(EBRD 2002b: 58). The annual inflation rate in Lithuania reached a peak of 1,020per cent in 1992, but a rate in single figures was achieved by 1997 and consumerprices were more or less stable by 1999.

Lithuanian banks are less exposed directly to the Russian crisis than theirrivals in the other Baltic States, notably in neighbouring Latvia. They hadjust 1.4 per cent of assets in Russia, compared with 8 per cent for Latviasbanks Bankers have much greater concern about their indirect exposureto Russia via Lithuanian companies exporting to the country since Russiaaccounts for a higher percentage of exports than in other Baltic States.

(FT, Survey, 25 November 1998, p. v)


The direct damage to banks is limited because, with just 1.4 per cent ofassets in Russia, Lithuanian banks were far less active in Moscow than someothers in the region. The real concern is about the effect on Lithuanianexports to Russia. Before the crisis Russia accounted for about 20 per cent oftotal exports, with almost a further 20 per cent going to Ukraine andBelarus, which are also suffering economic difficulties. With total exportsaccounting for 55 per cent of GDP the numbers paint a grim picture.Roughly a fifth of the economy is in some way dependent on theCommonwealth of Independent States.

(p. iii)

Russia took 20 per cent of exports last year [1997] but the EU bought morethan 30 per cent And the crisis could force restructuring in an economywhich has been slow to modernize (p. i). By the middle of 1998 only 36 percent of 288 cases filed under bankruptcy had been completed (p. vi).

Following the Russian crisis, import tariffs on refined oil, fertilizer and agricul-tural products were increased to protect domestic producers in 2000 (EBRD1999b: 242).

On 1 April 1994 Lithuania switched from a managed float to a currencyboard, with the litas pegged by law to the US dollar (EBRD 1995a: 7). The litasmust be fully backed by foreign reserve currencies and gold and is freelyconvertible at a fixed rate of four litas per US dollar (Steve Hanke, FT, 5 May1994, p. 24).

In June 2001 the central bank announced that it would repeg the currencyfrom the US dollar to the Euro on 2 February 2002. The central bankintends to maintain the currency board arrangement until Lithuaniaaccedes to the EU The share of trade with the EU and EU candidatemembers has steadily increased in recent years to almost 75 per cent of totalexports.

(EBRD 2001b: 170)

Lithuania repegged its currency to the Euro [on] 2 February Thechange is part of political and economic integration with the EU and prepa-ration for likely making the Euro Lithuanias national currency in a fewyears Some 80 per cent of Lithuanian exports now go to EU membersand accession states. A similar share of imports come from there Peggingthe litas to the dollar in April 1994 accompanied the introduction of acurrency board in Lithuania, which required the Bank of Lithuania to holdenough foreign assets to fully cover the base money supply.

(Baltic Times, 713 February 2002, p. 3)

With government approval the Bank of Lithuania issued a decree on 1February setting the new official fixed exchange rate at 3.4528 litas to one Euro(p. 7).


The currency was repegged from the US dollar to the Euro on 2 February2002 at 3.4528 Lithuanian litas to one Euro The Bank of Lithuaniaintends to maintain the currency board arrangement until the countryaccedes to the EU and joins the Exchange Rate Mechanism II.

(EBRD 2002b: 172)

There is virtually full convertibility of the litas on both the current and capitalaccount (EBRD 1995b: 50). Lithuania has not in practice applied capitalcontrols (IMF, World Economic Outlook, May 1997, p. 95).


Small privatization has been rapid. As regards large privatization, in the firstphase of voucher privatization preference was given to insiders. Since mid-1995cash sales have been stressed, including tenders for utilities open to foreignstrategic investors. Large privatization accelerated after mid-1995, but Lithuanialagged behind Estonia and Latvia.

Large-scale privatization is close to completion (EBRD 2001b: 170).On 5 June 1997 parliament passed a law on the restoration of property rights

which grants prewar owners the right to property which was nationalized in1941 by the Soviet authorities (Baltic Times, 1218 June 1997, pp. 1, 8; and 39July 1997, p. 3). In July 1997 parliament adopted a new restitution law, which,among other things, broadened the application of the previous law to non-resi-dent owners (EBRD 1997b: 184).

On 25 June 1998 a Swedish/Finnish consortium was selected to take a 60 percent stake in Lithuanian Telecom, with a commitment to invest $221 millionover the next two years. In May 1999 the government sold its 70 per cent stakein the state insurance company to a Danish company. In 1999, amid consider-able controversy, the US company Williams International formally received a 33per cent stake in the Mazeikiu Nafta oil company (comprising the Birzaipipeline, the Mazeikiu refinery and the Butinge terminal) and the governmentalso handed over operational control to Williams International. Even morecontroversial, given the wariness about Russian capital in the Baltic States ingeneral, was the increasing involvement of the Russian oil company Yukos (albeitone of the better managed Russian companies). In 2002 Yukos at first bought a26.85 per cent stake (with Williams International retaining managerial controldespite seeing its stake fall to 26.85 per cent). Then Williams International soldout to Yukos, bringing the latters stake up to 53.7 per cent and thus gainingmanagerial control. The state has a 40.66 per cent stake in the Mazeikiu Naftaoil company.

Significant progress in large-scale privatization has been marred by the lackof transparency in some transactions, although the recent disclosure of thefull terms of transactions is a step in the right direction In the past yearthe government privatized a number of large-scale enterprises to foreignstrategic enterprises In June 2000 a 25 per cent stake in the partially


privatized Lithuanian Telecom was sold through a global IPO The saleleaves the state with a 10 per cent residual holding.

(EBRD 2000b: 1867)

Between 1993 and 2001 Lithuanias cumulative FDI net inflows per capita wereone of the lowest among the ten accession countries of the region Thegovernment is taking steps to improve the investment climate [For example]in January 2002 parliament adopted a national anti-corruption programme.

(EBRD 2002b: 174)

Legislation introduced in 1991 allowed former landowners or their heirs theright to receive land expropriated during the Soviet era. The resident citizenswere able to claim up to 80 ha of land, of which 50 ha could be arable. The1940 land register was used as a basis. The non-assets of collective and statefarms were privatized (not restituted) by means of a voucher system based onwage and length of service (Davis 1996: 39). Where it has not been possible toreturn land to previous owners, compensation in the form of special certificatesor cash is employed (p. 41).

By the end of 1994 Lithuania had privatized 85 per cent of all agriculturalland and assets (Baltic Observer, 28 March 1995, p. 8).

At the end of 1993 individual private farmers, partnerships and householdsheld 80 per cent of agricultural land (EBRD 1994: 30). By mid-1995 the privati-zation of farmland had been largely completed (EBRD 1995b: 50).

Land restitution is close to completion (EUs report on Lithuania, ProgressTowards Accession, 8 November 2000, p. 97).

A constitutional amendment allowing foreign companies to purchase agricul-tural land was initiated on 30 October [2001]. The government looks set to winthe two-thirds majority necessary to pass the amendment, thus bringingLithuania into line with the EU (Baltic Times, 814 November 2001, p. 13).

On 23 January [2003] the Seimas adopted an amendment to Article 47 of theconstitution, which allows foreign entities and individuals the right to purchaseland intended for agricultural cultivation In a complementary piece of legis-lation the Seimas passed on 28 January a law outlining the rules for thepurchase of land. According to the new laws, nationals of countries that belongto the EU or to Nato will be allowed to acquire agricultural land beginningseven years after Lithuania officially joins the EU. Foreigners who have beenliving in Lithuania for at least three years will be allowed to buy the land imme-diately Only seventy-three such persons exist, farming a total of 1,100 ha ofland. The law also sets limits on the amount of land that can be purchased Right now only 30 per cent of farmers in Lithuania own their own land Lithuania has yet to complete the sale of state-held land to farmers.

(Baltic Times, 30 January5 February 2003, p. 5)

Problems include the small size of private farms.


Belarus: a summary

The authoritarian president Alexander Lukashenko dominates events in Belarus,popular among large swathes of the population but generally reviled in the West.He won over 80 per cent of the vote in the second round of the presidential elec-tion held on 10 July 1994 on a platform including anti-corruption/crimemeasures and populist economic promises. [There is] a belief among manyvoters that Mr Lukashenkos economic management style has protected themfrom the pain of transition felt in neighbouring Russia (Andrew Jack, FT, 26September 2002, p. 9).

A cooling of relations could be sensed as soon as Putin replaced Yeltsin For Lukashenko, who was already imagining himself as president or at leastprime minister of the Union State, it was like a cold shower (YekaterinaGrigoryeva and Yelena Daneiko, Izvestia, 19 June 2002, p. 4; CDSP, 2002, vol.54, no. 24, p. 5). Lukashenko has fiercely rejected Putins proposal to, ineffect, integrate Belarus into Russia. Putin would prefer this or an EU-typearrangement to the idea of working along the lines of the present Uniontreaty.

Indeed, political deeds have always lagged far behind an ocean of words.But economic deeds are more in evidence and the idea of union is a spur todomestic economic reform in Belarus. Compliance with the policy require-ments of the Union Treaty with Russia calls for increasing alignment withRussian market regulations, which may give a boost to reforms (EBRD2001b: 118).

Western countries and international organizations are deeply concernedby Lukashenkos actions, which include control of the media, control on theregistration of churches (a major aim being to protect the supportiveOrthodox Church) and the disappearance of some of those opposing him(even a former governor of the central bank). Although Lukashenko hasconsiderable popular support and does well in elections (as in the 9September 2001 presidential election) and referenda, much concern hasbeen expressed in the West about the fairness of these tests of publicopinion. The referendum on a new constitution held in November 1996approved an increase in the presidents term of office, an increase in presi-dential powers and approval of the presidents idea of a bicameralparliament. On 26 November 1996 Lukashenko supporters set up a break-away parliament and the following day Lukashenko signed a decree creatinga new lower house; the first law passed by it terminated the powers of theformer Supreme Soviet. Nevertheless, the West was relieved by the sendingof all nuclear weapons to Russia by November 1996, slightly ahead of thescheduled end-of-year deadline.

Belarus is supportive of the United States over the issue of internationalterrorism, but was very critical of the US-led war in Iraq in 2003. (TheUnited States had accused Belarus of aiding Iraq in her missile defences.)

GDP growth has been positive since 1996: -9.6 per cent in 1992; -7.6 per centin 1993; -12.6 per cent in 1994; and -10.4 per cent in 1995 (EBRD 2001a: 15).


In 2001 GDP was an estimated 91 per cent of the 1989 level (EBRD 2002b: 58).Belaruss heavy dependence on trade with Russia is reflected in the muchreduced figure for 1999 following the financial crisis of August 1998 in the lattercountry. (In 1998 Russia accounted for 65.5 per cent of exports the CIS as awhole 73.7 per cent and the EU for 9.2 per cent. The respective figures forimports were 53.8 per cent 66.9 per cent and 18.0 per cent: BET, QuarterlyIssue, JulySeptember 1999, p. 75. Russia is Belaruss main trading partner,accounting for 61 per cent of its trade turnover Ukraine is the second largesttrading partner for Belarus: BET, Monthly Update, August 1999, p. 75. Belarusis continuously struggling to pay off its arrears for energy supplies from Russia,especially gas.)

But doubts have been cast on the meaningfulness of the seemingly impressiveGDP growth figures in general since 1996:

1 Output has been essentially driven by administrative fiat, backed by accessto cheap credit, and bartered for energy debt, thus plugging the financinggap on the balance of payments given lack of external financing (BET,Quarterly Issue, JanuaryMarch 1998, p. 11). The level of inventories as apercentage of industrial production is very high by international standards(BET, Quarterly Issue, August 1999, p. 10).

2 Leaps in output [in 1997] partly reflect government directives to increaseproduction, monetary expansion and soft central bank credits to theconstruction and agricultural sectors (Business Central Europe 1997: 48).Most companies remain state-owned, taking their orders from a slew ofministries according to a central plan. Central planning has maintainedgrowing production, though that just means more and more Soviet-eragoods, which fewer and fewer people want to buy (Business Central Europe2000: 43).

3 Belaruss rapid growth has been fuelled by inflationary and unsustainabledirected credits to state enterprises (EBRD 1999a: 6). Industry is beingsustained by state orders and the accumulation of unsold products andenergy arrears (EBRD 1999b: 1945). Pervasive directed credits, as well asexplicit and implicit subsidies, allow non-viable enterprises to avoid restruc-turing Industrial enterprises are heavily dependent on subsidized inputs,particularly energy (EBRD 2000a: 42). The phasing out of the system ofdirected credits as a condition before the [IMFs April 2001] SMP [Staff-Monitored Programme] could be initiated has been a notable positivedevelopment. Other important policy steps include the maintenance ofpositive real interest rates since February 2000 (EBRD 2001b: 119).

Performance as regards open inflation has been relatively poor. There was even amarked resurgence in 1999, despite pervasive price controls. The inflation ratedeclined thereafter, but inflation is still a problem.

The Lukashenko economy is still heavily regulated by the state, althoughthere are glimmers of change:


1 Firms are constrained from reacting to price signals because they have littleincentive to cut costs, shed labour or restructure. The lack of the threat ofcorporate insolvency or takeover is one constraint there has been nobankruptcy and only fifteen cases have come to court (BET, QuarterlyUpdate, December 1996, p. 64). Not one enterprise has been declaredbankrupt under the 1991 bankruptcy law. The government continues tosupport state enterprises by means of directed credits and budgetary fundsto write off arrears (EBRD 1998b: 155).

In the context of ongoing negotiations with the IMF on a staff moni-tored programme, the authorities made a commitment to phase outdirected lending There has also been some modest progress inphasing out or easing administrative control mechanisms in manyareas, including in business registration.

(EBRD 2001a: 50)

2 Food rationing for some basic products was introduced in early 1995 (EBRD1995a: 1718, 53). Since late 1996 the government has gradually reversedthe process of price liberalization, replacing informal controls with adminis-trative measures (EBRD 1999b: 194). The authorities have resorted todirect administrative controls on most prices (EBRD 2000b: 138). Belarushas in place an extensive network of both direct price controls and controlson margins (BET, Quarterly Update, December 1996, p. 31). Price anddistribution controls are applied to products such as sugar, meat and oil and,where not officially, informally (p. 64). After a period of liberalization in1994 and 1995 price ceilings were introduced in late 1995 and 1996,partially weakened in January 1997 and tightened again thereafter (BET,Quarterly Issue, JanuaryMarch 1998, pp. 16, 64). Rationing of basic goodswas introduced on 10 September 1998 (BET, Monthly Update, September1998, p. 10). Throughout 1998 the government increased its control overthe economy through restrictions on domestic and external trade andthrough extensive price controls, leading to shortages of goods in domesticmarkets and the introduction of food rationing in several Belarussianregions (EBRD 1999a: 334). The scope of administrative price controlswas reduced in early 2001 and again under the terms of the IMF Staff-Monitored Programme, which began in April 2001 (EBRD 2001b: 118).

3 Foreign trade has been heavily regulated, foreign exchange controls havebeen extensive and a multiple exchange rate system has been employed. Butsome liberalization has occurred. In September 2000 the multiple exchangerate system was abolished and a unified market-based exchange rate wasintroduced. Since the beginning of 2001 the currency has been pegged tothe Russian rouble (EBRD 2001a: 50).

Following liberalization of the foreign exchange market in late 1999and early 2000, the National Bank further liberalized the market by


July 2001. The new measures include ending both a ban on foreignerstaking part in interbank trade and a $200,000 per month limit on theamount of hard currency that market participants can buy. The exportsurrender value regime (which does not apply to all exports) remains at30 per cent, although the effective rate is lower owing to numerousexemptions In early 2001 the National Bank introduced a crawlingpeg exchange rate regime, linking the Belarussian rouble to the Russianrouble The national currency will be permitted to depreciate by 2.5to 30 per cent per month against the Russian rouble. The band may beadjusted Under the terms of the Union Treaty, the Russian rouble isto be used as the common currency from the beginning of 2005 and isto be replaced by a common currency in 2008.

(EBRD 2001b: 118)

Progress in the liberalization of the foreign exchange market made underthe IMFs staff monitored programme in 2001 allowed Belarus to acceptsome of the obligations of Article 8 (Sections 2, 3 and 4) in November2001. However, many restrictive practices remain in place, including pricecontrols and a surrender requirement on foreign exchange transactions.

(EBRD 2002a: 44)

4 Privatization has been very slow. The private sector accounted for roughly 5per cent of GDP in mid-1990. In mid-2001 the figure was still only 20 percent (EBRD 1999b: 24, 196; and 2002b: 20, 124).

Large-scale privatization under the 1993 law began in June that year. A voucher-based programme was launched in July 1994 (for small-scale privatization aswell) (EBRD 1994: 18). No property restitution has taken place to date (EBRD1996b: 1401). The privatization process stalled in 1997. Most privatizations oflarge enterprises have been to management and employees. Small privatizationhas progressed somewhat faster (EBRD 1997b: 155).

The privatization of communal enterprises, mainly small and medium-sizedenterprises, has been considerably faster than that of republican assets,mainly large industrial and agricultural enterprises In May 1999 parlia-ment decided that utilities, local infrastructure and energy companies willremain under state control.

(EBRD 1999b: 1945)

Under the terms of the Union Treaty with Russia, Belarus has agreed toaccelerate large-scale privatization in 2001 (EBRD 2001a: 50).

Progress in privatization remains stalled and there have been no true privati-zations this year Few companies have been truly privatized (defined as areduction in the state share to less than 50 per cent), with the majority


having been sold from one state entity to another In line with [the April2001] SMP [Staff-Monitored Programme] commitments to the IMF, thegovernment has recently announced its intention to restart the privatizationprocess for small and medium-sized enterprises. However, the governmentalso believes that large-scale enterprise privatization would be premature inthe present environment, given depressed asset prices and lack of interestfrom foreigners Persistent soft budget constraints for privileged enter-prises, little genuine privatization and stifling government controls impedenew investment and the restructuring of industry and agriculture.

(EBRD 2001b: 119)

Privatization remains stalled, although the corporatization of some stateenterprises is under way, for example in the petrochemicals sector (EBRD2002a: 44). The government has recently stated that it intends to retain acontrolling interest in certain, as yet undefined, strategic enterprises Theinvestment climate has been weakened by the authorities introducing goldenshares into enterprises that have already been privatized (EBRD 2002b: 122).

On 16 March 1999 the minimum statutory fund for company registration wasincreased. The edict virtually abolishes limited liability as the private property ofcompany founders of limited and joint stock companies can be confiscated in thecase of bankruptcy (BET, Quarterly Issue, JanuaryMarch 1999, p. 91).

In September 1998 a presidential decree suspended the registration of newenterprises on the grounds that around 17 per cent of registered businesseswere idle or used to evade taxes. The new reregistration procedures,adopted in March 1999, oblige all firms and banks to reregister by January2001 and to increase their statutory capital in accordance with the growth ofthe minimum wage. The decree holds owners and shareholders of insolventcompanies personally liable for corporate debts, practically eliminating theconcept of limited liability.

(EBRD 1999b: 1945)

The mid-November [2001] repeal of presidential decree No. 40, whichempowered the state to confiscate property of individuals and legal entities thatcause (undefined) damage to the state, was a further welcome improvement inthe investment climate (EBRD 2002a: 44).

On 1 January 1998 there came into force a decree whereby the state has aveto on the most important questions concerning the development of joint stockenterprises (BET, Quarterly Issue, JulySeptember 1997, p. 11). In effect thedecree gives the state total discretion in controlling the management and restruc-turing of enterprises and any joint ventures, even where nominally the state is aminor shareholder with a 1 per cent share (pp. 56, 656). A presidential goldenshare decree, effective 1 January 1998, gives state representatives in joint stockcompanies a veto right on main decisions (EBRD 1998a: 25).

As regards agriculture:


1 Households grow, consume and sometimes sell up to 40 per cent of food onprivate plots (BET, Quarterly Update, September 1996, p. 33). A presiden-tial decree of 2 September 1998 implied recognition de jure of private landownership (BET, Monthly Update, September 1998, p. 9). In 1998 statefarms accounted for 22.1 per cent of agricultural land, collective farms for60.2 per cent and private farms for only 0.6 per cent. In 1997 the privatesector accounted for 40 per cent of gross agricultural output, comparedwith a peak of 45 per cent in 1996 (BET, Quarterly Issue,OctoberDecember 1998, pp. 634).

Agricultural production in Belarus continues to remain predominantlywithin the large state-owned and collectively-owned farms (sovkhozesand kolkhozes, respectively). The share of the private sector in agricul-ture [output] increased in 1998 compared with 1997 (to 38.5 per centfrom 37.4 per cent), though it was significantly lower than the 1996figure of 48.9 per cent.

(BET, Quarterly Issue, JanuaryMarch 1999, p. 67)

2 Collective farms continue to receive large subsidies (EBRD 1997b: 155).The government continues to subsidize agriculture. Production remainsmostly within the large state or collective farms, 40 per cent of which areestimated to make losses (EBRD 1999b: 195). Agricultural producers areheavily subsidized as the government maintains low administered foodprices (EBRD 2000a: 42). Private farms accounted for 38 per cent of agri-cultural output in 1998 despite cultivating less than 1 per cent ofagricultural land. A new land code adopted in January 1999 allowed legaland physical entities to acquire property rights on land, subject to case-by-case approval by the president (EBRD 1999b: 195).

The presidential decree on private ownership of land signed inFebruary 2000 excludes agricultural land. The agricultural sectorremains largely unreformed and production has fallen in recent years,but the president has reiterated that collective farms and state enter-prises should remain the foundation of the agricultural sector.

(EBRD 2000b: 139)

3 Virtually no changes have been made in the structure and organization ofproduction (CDSP, 1999, vol. 50, no. 50, p. 19).

4 In Belarus only private ownership of household plots is allowed(Macours and Swinnen 2002: 377).

5 The share of peasant farms in agricultural land increased from 0.2 per centin 1992 to 0.7 per cent in 1999 (Spoor and Visser 2001: 888). The share ofprivate farms and household plots in agricultural production increased from33 per cent in 1991 to 40 per cent in 1998 (p. 890).


Belarus has the lowest rate of per capita US dollar foreign direct investmentamong all the countries in transition (BET, Quarterly Update, December 1996,p. 75).

Moldova: a summary

Moldova is a very poor and heavily indebted country.

The Republic of Moldova is an agrarian country with 54 per cent of itspopulation living in rural areas. When allowance has been made for theimportant food-processing industry, well over 50 per cent of employment inMoldova is, directly or indirectly, dependent upon agriculture.

(MET, Quarterly Issue, OctoberDecember 1998, p. 11)

Politics is deeply coloured by the problem of the Dniestre region (which iseconomically poor) and by relations with Romania and Russia:

1 The self-proclaimed Republic of Transdniestre covers about 12 per cent ofMoldova. The 600,000 population of the former is divided betweenMoldovans (40 per cent), Ukrainians (28 per cent), Russians (26 per cent)and miscellaneous (6 per cent) (EEN, 1995, vol. 9, no. 12, p. 5).

2 Moldovas biggest problem is not so much the lingering Transdniestre issueas its own lack of direction Looking to its past some of the territorywas part of eastern Romania until 1940 and then joined to SovietMoldavia Moldova has little idea of precisely what sort of country itreally is now, let alone what strategy

[Ian Jeffries] the Countries of the Former Soviet (BookFi.org)

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