KUCHMA COMMENTS ON FINANCIAL CRISIS... Ukrainian President Leonid Kuchma, visiting Donetsk Oblast on 16 July, said that Ukraine is facing a "severe financial crisis," Ukrainian Television reported. He noted that monthly budget revenues do not exceed 800-900 million hryvni ($400-$450 million), whereas Ukraine's monthly foreign debt obligations amount to 1.8 billion hryvni. Kuchma again appealed to the parliament to pass an amended version of this year's budget that would reduce the annual budget deficit to 2.3 percent of GDP. Such a budget would pave the way for a $2.5 billion loan from the IMF, which "will automatically resolve our problems," Ukrainian Television cited Kuchma as saying. JM

... DEPLORES SITUATION IN COAL MINING, METALLURGY. Kuchma also said that the situation of the coal mining industry will not improve as long as the mines do not receive cash payments for their output. He criticized the mines themselves for the barter trade, which, he said,. amounts to as much as 80 percent of business deals at some mines. He also criticized the industry for allotting only one-sixth of its budget subsidies for restructuring and spending the remainder on wages and social benefits. The president also noted a decline in the output of the metallurgical industry and criticized the industry's management for its lack of a "strategic line." JM

NATO PEACEKEEPING EXERCISES LAUNCHED ALONG LITHUANIAN COAST. Some 5,000 troops from the Baltic States, Hungary, Poland, the U.S. and western Europe are taking part in training exercises along the Lithuanian coast. Code-named "Baltic Challenge 98," the maneuvers are being coordinated by NATO as part of its Partnership for Peace program. Among those taking part are more than 2,000 U.S. soldiers as well as troops from the Baltic Battalion, whose members are trained specifically for NATO peacekeeping duties. Russian, Belarusian, and Ukrainian observers also reportedly are present. JC

POLAND, UKRAINE TO FIGHT SEX SLAVE INDUSTRY. Poland and Ukraine agreed on 16 July to cooperate in fighting prostitution and sex slave trafficking to the West, Reuters reported. "The Mafia has got engaged in [the trafficking of women].... We must take preventive measures together," a Ukrainian Interior Ministry representative commented on the agreement. According to the International Organization for Migration, more than 100,000 Ukrainian women are being forced to work as prostitutes in the West. JM

Unregulated cross-border trade, once the mainstay of commercial relations between many Central and East European countries, is declining.

That development was perhaps inevitable, given changes in the economies of the region. But it also reflects conscious moves by various governments to introduce stable rules into commercial activities, to tax profits, and to control the flow of currencies between countries.

The result has been a shift toward wholesale, largescale operations between big companies. This, however, adversely affects the interests of many small businesses and numerous individuals throughout the region.

The apogee of the unleashed cross-border commerce was in the years 1994-1996, following revolutionary upheavals in Eastern Europe and the subsequent dissolution of the Soviet Union.

The activity focused on Poland, the crossing point between the Germans, the Russians, the Lithuanians, the Belarusians, the Ukrainians, the Slovaks, and the Czechs. It led to the establishment of large, mostly private trading centers--the bazaars--on all Polish borders as well as in the country's center.

To illustrate the economic magnitude of this activity, it is sufficient to note that by 1997, the turnover of the 15 largest bazaars reached an officially confirmed figure equivalent to some $2.2 billion, with unofficial estimates putting that figure 25 percent higher.

More than half of the turnover came from the export of Polish-made products. In this way, the bazaar commerce, partly untaxed and unregulated, was a major source of Poland's export earnings. More than 120,000 people were employed last year by the 15 largest bazaars, while hundreds of thousands profited from businesses linked with the commercial activity itself (suppliers, hotels, restaurants, travel companies, and so forth).

According to a recent study by the Polish Institute of Market Research (IBGR), the scope and volume of trade at almost all bazaars have been declining during the last two years. And the institute says this decline is not only likely to continue but will almost certainly accelerate. This assessment is shared by the traders themselves.

The IBGR says that the decline has been prompted by economic changes in Poland and the neighboring countries. The Polish currency, the zloty, has been gradually gaining strength in relation to both the U. S. dollar and the German mark. This strength has also been a factor in the rapidly declining value of the Russian and Belarusian rubles as well as the Ukrainian hryvna. As a result, Polish products have become more and more expensive for the country's eastern neighbors.

At the same time, there has been growing demand for better and more sophisticated products, which can hardly be supplied by small firms catering to traditional bazaar clientele.

The IBGR says that policy decisions by several governments constitute another factor affecting trade. Belarus has introduced a steep duty on imported furniture, for example, while Russia has imposed higher duties on imports of almost all foreign-made products. Poland, meanwhile, enacted a law last year making it more difficult for Easterners to enter the country.

Recent figures on cross-border travel confirm the trend: a 37 percent decline on both the Polish-Russian (Kaliningrad) and the Polish-Belarusian borders. The Lithuanian and Ukrainian crossings have been less affected, but the trend is downward there as well.

The decline in the bazaar commerce has been particularly painful for small businesses and individual traders. They have constituted a large majority of suppliers (the IBGR estimates that about 65 percent of products sold at the bazaars came from small or medium-sized firms).

Public protests have been staged in Poland, Belarus, and the Russian exclave of Kaliningrad this year. But to no avail. The downward trend continues.

By contrast, large scale, tax-paying, and strictly regulated supermarkets and department stores are likely to profit from that trend. Networks of such supermarkets have recently appeared in the eastern parts of Germany, in Poland, and in border regions of the Czech Republic. There is every reason to assume that more will appear.