AUSTERITY BUDGET. Faced with the prospect that Kyiv will be unable to finance any deficit by borrowing abroad, Finance Minister Igor Mityukov said on 12 December that the government will propose a new budget with a deficit of only 3.5 percent of GDP rather than 4.3 percent as envisaged in the draft budget approved by the parliament in the first reading, ITAR-TASS reported. Given Socialist opposition to the first draft, this second even tighter proposal is likely to exacerbate tensions between the parliament and the government. PG

UKRAINE, RUSSIA TO DROP VAT IN 1998. Following a meeting 12 December in Moscow, Russian First Deputy Prime Minister Anatolii Chubais and his Ukrainian counterpart, Serhiy Tyhypko, announced that the two countries will sign an agreement on 28 February 1998 ending the practice of levying value-added tax on goods exported to the other country, ITARTASS reported. But the two leaders failed to reach agreement on sugar quotas, according to the Russian news agency. Meanwhile, Ukrainian Prime Minister Valeriy Pustovoitenko said in Donetsk that Kyiv has approved a Donets development plan for the years 1998-2000. But both the estimated high costs of the plan and the absence of key Ukrainian officials raise doubts that the project will be implemented. PG

TIRASPOL SAYS ROMANIA WANTS ANNEXATION OF MOLDOVA. Separatist Foreign Minister Valerii Litskay says the "danger" of a Romanian annexation of Moldova is still not over. In an interview with Tiraspol television on 12 December, Litskay said it is "alarming" that Romania, which he claimed "will join NATO in the next five years," has not yet signed a basic treaty with Moldova but has signed such treaties with Hungary and Ukraine, BASA-press reported. Tiraspol Supreme Soviet chairman Grigorii Marakutsa told journalists in Tiraspol the next day that the separatists oppose the State Duma's ratification of the Moldovan-Russian treaty because the document makes no mention of its "political and economic prerogatives." He said a new treaty must be worked out and that Transdniester will demand Moldova accept full integration into CIS political and military structures, join the RussiaBelarus union,. and renounce "unification" with Georgia, Ukraine, and Azerbaijan. MS