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Strategies & Market Trends : Investment in Russia and Eastern Europe -- Ignore unavailable to you. Want to Upgrade?

To: Rob Shilling who wrote (991)	4/22/1999 11:45:00 PM
From: CIMA	Respond to of 1301

Kosovo Crisis Divides Slovakia on Eve of Presidential Elections Summary: The Slovak government's cooperation with NATO during its campaign against Yugoslavia is polarizing the Slovak population in advance of the country's May 15 presidential elections. While NATO may affect the outcome of Slovak elections, the outcome of Slovak elections could equally impact NATO. Should former Prime Minister Vladimir Meciar -- a populist and nationalist -- be elected Slovak President, it could seriously threaten Slovakia's relationship with NATO and therefore limit NATO's current and future strategic viability. Analysis: On April 21, the Slovak government granted NATO permission to transport military equipment over Slovak territory for operations in Yugoslavia. Slovak assistance is crucial to support any substantial operations from NATO member Hungary. Hungary is the only NATO front-line state in the Kosovo crisis, yet it is totally isolated by land from other NATO members. The Slovak government's cooperation with NATO is, however, increasing polarization of its population, already divided over NATO's air strikes in Kosovo and the future Slovakia's membership in the alliance. A majority of Slovaks sympathize with the Yugoslav people. This is natural given their sympathy toward and concern over a Slovak minority living in Yugoslav region of Vojvodina. According to recent polls, 62.5 percent of the Slovak population approves neither of NATO air strikes in Yugoslavia nor of the decision to open Slovak airspace to NATO. Moreover, 50 percent of the population opposes plans for Slovakia to join NATO. In general, the Kosovo issue has sharply divided the Slovak population between supporters and opponents of Mikulas Dzurinda's pro- Western government in the run up to the May 15 presidential elections. Prior to granting NATO a general permission to use Slovak territory for transportation of military equipment, the Slovak government had opened, on March 24, the country's airspace to NATO combat aircraft. The government coalition has been strongly criticized for this decision by opposition parties, mainly by Jan Slota's Slovak National Party (SNS) and former Prime Minister Vladimir Meciar's Movement for Democratic Slovakia (HZDS). Following the decision to permit NATO to fly through Slovakia's airspace, the opposition in parliament attempted to pass a no- confidence vote against Slovak Minister of Foreign Affairs Eduard Kukan. The ruling coalition in parliament was able defeated the measure. Divided over the Kosovo issue, Slovakia is now entering presidential campaign period. Slovakia has been without a president since the expiration of Michal Kovac's term in office in early 1997, due deep political divisions which manifested themselves in several unsuccessful attempts by parliament to elect the president. For the first time, a direct presidential election will be held in Slovakia on May 15. There are ten registered presidential candidates, with five of them having a real chance to be elected. The April 13 poll conducted by "Ustav pre vyskum verejnej mienky" showed strong support for ruling coalition's candidate Rudolf Schuster (32.4%). Three non- partisan candidates -- Magda Vasaryova (19.1%), former president Michal Kovac (8.3%), and Juraj Svec (5.7%) -- agreed on April 20 that two of them would give up their candidacy ahead of the election to prevent former Prime Minister Vladimir Meciar (4.9%) from being elected a president. Note that at the time when the poll was conducted, Meciar had not as yet announced his candidacy. Well known for his ability to mobilize the population in his favor during periods of political controversies, Meciar has a potential to become one of the two candidates that will compete for the presidential post in the run off, second election scheduled for May 22. Moreover, it is likely that the leader of the nationalists, Jan Slota (5.3%), will give up his candidacy ahead of the election in favor of Meciar's candidacy. In the first round, Meciar will, therefore, compete against one strong non-partisan candidate and the former communist, now reformist candidate, mayor of the city of Kosice, Rudolf Schuster. The likelihood of populist and nationalist Meciar being elected Slovak President and re-entering Slovak political arena cannot be excluded. Vladimir Meciar's 1994-1998 government did not live up to Western principles of democracy, resulting in the country being sidetracked from joining the European Union and NATO. Although Meciar's HZDS always officially proclaimed its pro-Western orientation, its political behavior pulled the country in the opposite direction. Most recently, HZDS openly criticized Slovak government's decision to open its airspace to NATO. If elected president in May, Meciar would undoubtedly alter Slovakia's policy of supporting NATO in the Yugoslav crisis, likely denying NATO use of Slovak airspace and railways. In the short term, this would limit NATO's ground options against Yugoslavia. In the long term, it could perpetuate a geographic weakness in the alliance, with Slovakia as a potentially hostile salient between Poland and the geographically isolated Hungary. NATO should not take Bratislava's current gesture for granted, as without some reciprocal good will gesture it could be Slovakia's last friendly overture to the organization. ___________________________________________________ To receive free daily Global Intelligence Updates, sign up on the web at: stratfor.com or send your name, organization, position, mailing address, phone number, and e-mail address to alert@stratfor.com ___________________________________________________ STRATFOR, Inc. 504 Lavaca, Suite 1100 Austin, TX 78701 Phone: 512-583-5000 Fax: 512-583-5025 Internet: stratfor.com Email: info@stratfor.com

To: Rob Shilling who wrote (991)	4/26/1999 5:26:00 PM
From: Paul Berliner	Read Replies (3) \| Respond to of 1301

OPINION: Russia's economy will, at long last, start to grow (Hey Rob, I figured its about time that I post a positive article, though I'm still a ferocious bear on Russia - I also will announce here a prediction the VimpelCom will zero out by year's end (meaning become a penny stock). -------------------------------------------- THE BridgeNews FORUM: A series of viewpoints on an international market. -------------------------------------------- * The Recovery Remains Fragile, Unbalanced And Socially Painful From economic research by Ralph Suppel, J.P. Morgan Securities Ltd. LONDON--Evidence is gathering that Russia's economy will grow in 1999, belying widespread expectations of a prolonged sharp contraction. Industrial output has surged over the past six months and stood in March already 7 percent above its 1998 average level. The rise in unemployment has stopped and even tax collection has improved compared with last year. This rebound reflects the normalization of the payments system, a shift to a less restrictive fiscal policy and--most important--the ruble's 50 percent real devaluation. The recent oil-price surge will provide additional stimulus. THE RECOVERY remains fragile, unbalanced and socially painful, however. Competitiveness of manufacturers has surged, mostly at the expense of a plunge in real wages. Goods production is rising to substitute for imports in the shrinking home market. Neither exports nor investment are growing so far. And non-tradables output keeps contracting. Moreover, the "import substitution bounce" will taper off during the year. Gauging the chances for sustained growth over the rest of 1999 therefore requires a focus on investment data. THE SURGE in competitiveness has, in principle, paved the way for better capital spending. But uncertainty remains, for the ailing domestic banks have few means to finance investment, and the 1998 crisis has left foreign firms skeptical of Russia's economic and political stability. J.P. Morgan continues to call for 1 percent growth in real gross domestic product this year, dissenting from the average forecast of a 5 percent contraction. Prognoses differ widely not only for analytical reasons but also because no more GDP data were released after last summer. STILL, a close look at other output indicators available for 1999 strongly supports the assumption of a growing economy. This is most obvious in industry data, which have consistently posted gains over the past six months. Seasonally adjusted output surged a cumulative 19 percent from its crisis trough to what in March was its highest level since late 1997. The manufacturing bounce is corroborated by a fall in merchandise imports and a surge in the trade surplus. The economy outside manufacturing clearly is performing worse, as domestic demand is faltering and the firms concerned do not benefit from import substitution. BUT IMPORTANTLY, even indicators of nontradables production posted a clear improvement in early 1999. And the contraction in these areas at current annual rates is not large enough to offset fully the prospective 10 percent increase in industrial production in 1999. Over coming months, the bias of the trend in output growth will be up rather than down. An important new positive this spring is the jump in crude oil prices. The Urals spot price has surged from $9.50 per barrel in February to $14.50 today. Oil brings in roughly 20 percent of Russia's total export revenues. Natural gas, whose price is related to oil, makes up almost another 20 percent. Judging from past correlations, a $1 dollar rise in the Urals price lifts total merchandise exports by an annualized $3.5 billion. Together with a revival in Western Europe's domestic demand during the year, export revenues could thus surge by an annualized $15 billion to $20 billion. THE DIVERGENCE of output from real income and demand is extreme. While industrial production is already back at crisis levels, registered real personal income is still falling at a 30 percent annual rate, led by an almost incredible 40 percent contraction in official wages. The share of citizens living below the official subsistence level skyrocketed to 38 percent this past January from 22 percent a year earlier. Importantly, the income deterioration has not sparked social unrest nor discredited the current government. And this spring, the social pain should finally ease a bit, as the government plans to lift wages and pensions by 50 percent to 80 percent after a long standstill. At the same time, underlying consumer inflation has come down to around 50 percent. INVESTMENT is Russia's key variable from here. Except for a few months in late 1997, Russia's capital spending has contracted ever since the Soviet Union broke up. But conditions for investment both in manufacturing and in the natural resource sector have now improved, in the former thanks to the collapse in domestic production costs, and in the latter thanks to legislative reforms that facilitate foreign firms' participation in the exploitation of raw materials. Also, the desperate financial situation of many regions and municipalities--which play a critical role in local businesses--has awoken a new openness to foreign investors. But the odds are that, even with improved investment conditions, capital spending will take off only reluctantly. MOST commercial banks lost their equity capital last year, and few were lending to firms even before, as the government bond market offered a simpler way to earn interest. Thus, investment will rely mainly on the financial means of the firms themselves, government support and foreign direct investment. Interestingly, balance-of-payment data show a recovery in foreign direct investment in the fourth quarter of 1998, shortly after the financial crisis. But a fast and large-scale rise in the short run would be at odds with the negative international sentiment toward the country today. THE AUTHOR'S views are not necessarily those of Bridge News. End By Bridge News Please see news.bridge.com for a complete list of Bridge media rewrites.