MOSCOW SEEKS DIPLOMATIC GAINS FROM THE YUGOSLAV CRISIS

Moscow seeks diplomatic gains from the Yugoslav crisis

Russian efforts to play an expanded role in the Yugoslav crisis,a banking crisis in Moscow and continuing problems in Chechnyaare likely to dominate the news of the region in the coming week.Under the guise of "humanitarian" assistance, Moscowwill almost certainly violate the international sanctions againstBelgrade this week; and in the absence of a forceful Western andAmerican response, the Russian government seems set to break thesanction regimes against Iraq and Libya too. German chancellorHelmut Kohl will come to Moscow on August 30 to discuss the Bosniancrisis, and Yeltsin is likely to press for the division of Bosnia–theAmerican plan–combined with the lifting of any sanctions againstBelgrade–which is at the center of Russia’s plans. Meanwhile,Russian diplomats will continue their shuttle diplomacy in theregion, and Russian politicians will further constrain Russiandiplomacy by playing up the historic ties between the two Slaviccountries.

Moscow’s decision to continue the soft peg of the ruble againstthe dollar until the end of the year will reassure the internationalfinancial community but hurt many Russian exporters, includingthe oil and gas conglomerates. More significantly, this decisioncame on the same day that news broke that Russian banks are introuble and have canceled most of their interbank exchange arrangements.These are the financial threads that tie the country’s economytogether. Unless the Central Bank can introduce new liquidityinto the system quickly, the banking crisis could spread and threatenthe country’s still shaky economic situation. The crisis evennow seems set to lead to new demands that Yeltsin name a new directorfor the Central Bank in order to reassure the financial communityand to cope with what prosecutors say is massive corruption there.Moreover, there are likely to be more charges that even this crisisis being manipulated by certain political leaders for their ownprofit, charges that will further inflame popular anger at Russia’snew rich.

Meanwhile, the war in Chechnya will be the subject of a specialRussian Security Council session August 30. Both sides in thewar are likely to maneuver both, at the negotiating table and,possibly, with new attacks like the one at Argun on August 20-21to press their cases. The Russian army will continue to try tobuy up Chechen arms, but most of the weapons will simply continueto be passed back to the Chechens in their new guise as regionaldefense forces allowed by the military accord between Moscow andthe forces of Chechen president Dzhokhar Dudayev. The appointmentof Oleg Lobov, a well-known advocate of force in Chechnya, asYeltsin’s man on the scene suggests that little progress is likelyany time soon in talks between the two sides on broader politicalissues.

Other events to watch include:

–The adoption of the final program of the "Russia is OurHome" political bloc on August 26. Premier Viktor Chernomyrdinhas signaled already that the document will contain sharp criticismof the Russian government’s past efforts to speed privatizationand a call for a more assertive Russian policy in the former Sovietrepublics and East European countries.

–Ukrainian and Russian reactions to Lukashenko charges. Kyivand Moscow are likely to provide important clues on their futurerelations as they react to Belarusian president Aleksandr Lukashenko’ssuggestion last week that the Slavic republic leaders who participatedin the creation of the CIS and the destruction of the USSR willbe damned in the future.

–Another Ukrainian-Russian meeting on the Black Sea Fleet. The premiers of the two countries are scheduled to meet at theend of next week to try to make progress on dividing up the BSF. Ukraine has recently hardened its position by demanding greatercompensation for the ships it is giving up and the bases it willlease, and Ukrainian president Leonid Kuchma has said that hedoes not expect an agreement until after the Russian Duma electionsin December.

–Reaction to the German defense minister’s comments on NATOexpansion. German defense minister Volker Ruehe’s statement inEstonia that the Balts should not expect to get into NATO anytimesoon has already drawn fire in the Baltic and German media. Itis likely to galvanize those who believe that NATO must includeas many of the East European countries as possible, and will likelylead Moscow to expand its efforts in Greece and elsewhere to blockexpansion.

–More political problems in Armenia. The revelations of governmentmisconduct that are surfacing during the Dro terrorist trial inYerevan will likely lead to more demonstrations and politicaldifficulties in Armenia during the coming week. The revelationshave already cost Armenia support in Moscow, whose media havebegun to criticize Armenian actions as authoritarian in the CentralAsian style, and in some Western countries. That could leaveYerevan more isolated in the upcoming Karabagh talks.