YEAR IN REVIEW 1997: WORLD-AFFAIRS

RUSSIA Affairs. The first six months of 1996 in Russia were dominated by the presidential election campaign. There was alarm inside and outside Russia that incumbent Pres. Boris Yeltsin would be defeated by Communist challenger Gennady Zyuganov. (See BIOGRAPHIES.) Russia bucked the post-Soviet trend to elect reformed communists, however, and Yeltsin was reelected. (See SIDEBAR.) The election confirmed that Russia remained on track to implement a market economy and a democratic society. The effort of campaigning proved so strenuous, however, that in June, between the first and second rounds of the election, Yeltsin suffered a heart attack, his third in 15 months. He underwent heart bypass surgery in November; immediately before and after the operation, he was a virtual lame duck. Prime Minister Viktor Chernomyrdin was given state power while Yeltsin was incapacitated. As a result, the period until the summer was characterized by political uncertainty, which discouraged investment and held back economic growth, while the second half of the year was marked by a covert power struggle as Kremlin leaders maneuvered for position in the Yeltsin succession stakes. On one level the struggle took the form of a clash of personalities. On a deeper level it was a power contest between Kremlin clans representing influential financial groups, oil and gas producers, heavy industry, and arms manufacturers. Losers in the struggle were Defense Minister Pavel Grachev and longtime Yeltsin confidant Aleksandr Korzhakov, who were ousted from power in June. A comeback was staged by Anatoly Chubais, who had been dismissed from the government in January and was appointed chief of the presidential staff in July. By year's end, with Yeltsin convalescing from his heart operation, Chubais, if not universally loved, was recognized as the driving force behind Kremlin policy. The brightest meteor in the Kremlin firmament was the retired general Aleksandr Lebed (see BIOGRAPHIES), who captured the public imagination when he placed third in the presidential election in June. The ambitious Lebed was then co-opted by the Yeltsin campaign and appointed secretary of Russia's influential Security Council. Almost single-handedly, Lebed brought an end to Russia's war against the breakaway republic of Chechnya, where federal troops had been engaged in a bitter and bloody struggle since December 1994. Officials put the number of casualties at 30,000, Lebed at three times that figure. In April separatist leader Dzhokhar Dudayev was killed (see OBITUARIES), probably by a Russian missile. Dudayev's departure from the scene, followed by Lebed's appointment to the Kremlin, facilitated a rapprochement between the warring sides. A cease-fire signed in August postponed a decision on Chechnya's status vis--vis the Russian Federation for five years and made it possible for federal troops to withdraw from Chechen territory and for elections to be planned. By the end of the year Chechnya was, in all but name, an independent state. Lebed's abrasive personality won him powerful enemies, and in October Yeltsin sacked him. Lebed left with his popularity and the trust of the electorate intact, however, and his chances of replacing Yeltsin as Russia's next president appeared strong. The year was marked by little progress toward achieving a functioning multiparty system. Only the Communist Party of the Russian Federation, with half a million members, could boast a nationwide organization. Its support, at about one-third of the electorate, had remained more or less constant since 1991 but showed no sign of growing. Other parties were weak and confined to Moscow or St. Petersburg. The federal government was also weak, especially in comparison with the leaders of Russia's increasingly autonomous and differentiated regions. Fall elections gave many voters their first opportunity to elect local governors, who had until then been appointed by the president; this further enhanced the autonomy of regional leaders, some of whom ruled virtually private fiefdoms. The Economy. Rumours of imminent economic crisis recurred throughout the year, and the long-awaited turnaround in the economy did not materialize. Gross domestic product (GDP) continued to decline, with output for the year as a whole 6% lower than in 1995. Although by year's end an increasing number of foreign investors seemed ready to commit funds to Russia, overall investment was too low to spark economic growth. The budget deficit remained a problem and threatened to be greater than planned. Nonetheless, Russia moved significantly closer to financial stabilization in 1996. Thanks to strict government austerity policies, the inflation rate fell steadily throughout the year and totaled 21.8% for the year as a whole. The economic year began inauspiciously when, in January, President Yeltsin sacked Chubais, who had been the standard-bearer of market reform. Contrary to expectations, however, Chubais's ouster was not accompanied by a reversal of government economic policy, and, after Yeltsin's reelection in July, the balance tipped back to the reformers. During the election campaign Yeltsin made lavish populist spending promises and tax concessions. These helped him win reelection but were almost all rescinded within a month of his inauguration. This did not make the government popular with the public. Austerity was offered as the reason for the late payment of wages and pensions and the axing of subsidies to industries, which in turn stoked unemployment. The most comprehensive figure for unemployment and underemployment (non-full-time workers and those on enforced leave) was 15% of the workforce by the summer of 1996. There were frequent strikes throughout the year. Support for Russia from the West continued to flow as economic reforms were maintained. In February the government negotiated a three-year, $10.2 billion loan with the International Monetary Fund. The second largest loan in the IMF's history, this action signaled Western confidence in Russian economic reforms and support for Yeltsin's candidacy. Nonetheless, the IMF obligated Russia to meet a string of conditions concerning inflation levels, budget deficit, and removal of export tariffs. The loan was payable in monthly installments that could be withdrawn whenever (as happened in July and again in October and November) the IMF believed that Russia was not meeting its targets. In April Russia made an important move toward entering international capital markets when it signed a rescheduling agreement on about $40 billion of its inherited (that is, ex-Soviet) debt to Western governments within the framework of the Paris Club of creditor governments. The hoped-for rescheduling of Russian debt to the London Club of Western creditor banks was not, however, finalized. Considerable trade liberalization, including the abandonment of most direct administrative controls on exports and imports, took place during the year. The government announced its intention to make the ruble fully convertible for current-account transactions. The stronger ruble that resulted was one of the main planks of the government's stabilization program aimed at attracting investment. In the short term, however, the strength of the ruble was felt to work against domestic producers. One branch of industry that seemed unaffected was arms exports, which increased sharply. The government successfully launched Russia's first Eurobond issue at the end of the year. As a precondition for the bond issue, U.S. and European agencies in October awarded Russia its first long-term credit rating since the 1917 revolution. Russia's higher-than-anticipated BB grading allowed the government to borrow at rates more favourable than the treasury bill market that had until then been Moscow's main source of financing. Tax collection emerged as the government's main headache in the fall. Federal government tax receipts dropped in the first half of the year to half their 1995 levels. The decline in tax revenue relative to GDP was a long-term trend that partly reflected the disorganization and ineffectiveness of the government, and large firms with influential political patrons often got away without paying taxes. President and the parliament waged an ongoing battle over private land ownership. The parliament introduced a land code explicitly designed to outlaw the free sale of arable land. This was vetoed by President Yeltsin, who signed a decree of his own giving farmers the right to freely sell and lease agricultural land. The presidential edict required supporting legislation that was not in the president's gift, however, and the impasse continued to impede agricultural reform. AUSTRALIA Affairs. For the first time in more than a decade, Australian voters chose a conservative administration to run the nation. At the general election on March 2, 1996, the Australian Labor Party (ALP), which had held office continuously since 1983, was swept away. Prime Minister Paul Keating and his policies were overwhelmingly rejected by the electorate, who chose the centre-right coalition under Liberal Party leader John Howard (see BIOGRAPHIES) and his National Party lieutenant, Tim Fischer, to lead the nation. This followed a bitter contest distinguished by the way in which both Keating and Howard scrupulously avoided direct contact with the average voter. Instead, both party leaders preferred to maintain a disciplined campaign, during which they spoke almost exclusively to handpicked groups of their own supporters, in carefully orchestrated set pieces designed to maximize their television impact. As the incumbent, Keating faced an electorate weary of broken promises and disillusioned with the ALP's numerous policy changes. When the vote was counted, the unexpected size of Howard's majority was so great as to leave him unchallenged and facing a routed and humiliated ALP opposition. (For detailed election results, see Political Parties, above.) Howard's three key Cabinet colleagues in the new administration were as foreseen; Peter Costello became treasurer, former opposition leader Alexander Downer was appointed foreign minister, and Fischer took up the post of deputy prime minister. Within days, Keating stepped down as leader of the ALP and was replaced by Kim Beazley, whose job of rebuilding the party was made all the more difficult after the defection of Queensland ALP Sen. Malcolm Colston to sit as an independent. During 1996, public opinion in Australia was preoccupied with other issues besides the general election, notably the impending budget cuts, the shooting massacre in April of vacationers at Port Arthur in Tasmania, and Australia's prowess as a sporting nation as Sydney prepared to serve as host of the Olympic Games in the year 2000. The Port Arthur massacre, during which 35 people were killed, deeply disturbed Australia in that it showed that nowhere was safe from random catastrophic events. Port Arthur had transformed itself from a gruesome role in Australian history as a place of convict transportation in a savage penal colony into an idyllic tourist destination, traditionally chosen by Australians wishing to make a lifestyle change and get away from big-city crime, unemployment, and social evils. The Port Arthur shootings gave Howard overwhelming popular support for his policy of an end to the right to own semiautomatic firearms. Unprecedented interest was shown by Australians in the Centennial Olympic Games in Atlanta, Ga. Since Sydney had been chosen to be the host of the 2000 Olympics, sports administrators and political leaders flew to the U.S. with the Australian athletes. Australian Olympic organizers watched with keen attention for ways in which to improve on the Atlanta Olympics. They took home some sobering lessons about the difficulties in staging such a huge event and intensified their planning, especially in regard to areas of special vulnerability, such as security and urban transport. The athletes themselves were almost lost sight of in the focus on the year 2000, but after a shaky start, Australia's Olympians produced 41 medals, which ensured a warm welcome on their return home. Legal issues in several states had national repercussions during the year. Despite the High Court's 1995 ruling in favour of the Native Title Act, Western Australian Premier Richard Court and others continued to protest the way in which Aboriginal land claims were being handled by the Native Title Tribunal. In a Queensland case in December, the High Court ruled that pastoral leases do not necessarily extinguish native titles to traditional lands. Controversy intensified as the world's first voluntary euthanasia law took effect on July 1 in the Northern Territory. The first legal assisted suicide took place in September after challenges failed in the territory's high court. In October the federal Parliament, by referring the issue to a parliamentary committee, ended debate on moves to overturn the law. The Economy. As part of its election campaign, the conservative Coalition had promised to sell off one-third of the telecommunications monopoly Telstra to private investors (to which the Senate gave its support in December) and thereby raise funds to retire public debt and to spend on environmental projects. Accordingly, the Howard government went into office with a new broom, cutting away fat in institutions that the Cabinet considered had become established gravy trains under a decade of ALP rule: the Australian Broadcasting Corporation, the state-run universities, the Aboriginal and Torres Strait Islander Commission (ATSIC), and the overseas foreign aid budget, known as the Development Import Finance Facility (DIFF) scheme. The government gave priority to building a close relationship with the Reserve Bank of Australia on the understanding that the bank would concentrate its efforts on containing inflation. The governor of the Reserve Bank, Bernie Fraser, had announced that he would retire as soon as the Keating government was defeated. He was replaced by his long-serving deputy, Ian Macfarlane. The secretary of the Australian Council of Trade Unions (ACTU), Bill Kelty, also resigned from the board. His seat was taken by Hugh Morgan, the chief executive officer of the Western Mining Corp. Costello delivered his first budget on August 20, aiming to cut government spending. As the first conservative treasurer in 14 years, Costello blamed the need to slash government expenditure on his ALP predecessors. Conjuring up a frightening picture of a financial disaster hidden from the electorate by the Keating government, the conservatives concentrated on what they called "Beazley's Black Hole"--an $A 8 billion deficit that was not out in the open before the election. In a break with tradition, the administration decided to release the bad news before the budget, although admittedly its hand had been forced by the leakage from government departments of some of the bad news coming up. A week before the budget announcement, the minister for Aboriginal affairs, Sen. John Herron, said that ATSIC was to have its budget of about $A 1 billion cut by $A 380 million over four years. ATSIC chairwoman Lois O'Donoghue labeled the cuts a blow to self-determination and warned that ATSIC would be forced to cut programs aimed at reducing the number of deaths of prisoners in custody. Herron replied to criticism by observing that resources had to be targeted to areas of greatest need so that health and education would be guaranteed. Aborigines protested that legal services, arts, and culture (including radio and television stations in the Northern Territory) would be destroyed. Meanwhile, the federal government announced its intention to cut $A 1.8 billion from the funding of higher education. The minister in charge, Amanda Vanstone, was burned in effigy after she defended the decision to force students--some of whom she described as "stuck pigs"--to repay their debt for the cost of their higher education faster than under the previous ALP government and at substantially lower income levels. The Higher Education Contribution Scheme (HECS) repayment threshold was lowered from $A 28,495 to $A 20,701. Vanstone also announced a three-tier HECS system for new students from 1997 under which courses that would enable graduates to earn higher salaries would cost more. The Advertiser, Adelaide's daily newspaper, explained the Vanstone agenda under the headline "Buy your way into uni," a reference to the decision to allow students who had not achieved academic entry requirements to get into the degree program of their choice by enrolling as a full-fee student. A leading opponent of the changes was the Australian Democrats' spokeswoman for education and youth affairs, 27-year-old Sen. Natasha Stott Despoja, the youngest woman ever to serve in the federal Parliament. (See BIOGRAPHIES.) Although the government claimed that its election victory gave it a mandate for industrial relations reform, there was an unprecedented violent response to the new economic policies. In August, during a protest rally of some 15,000 people, including trade union groups, Aborigines, and students outside Parliament House, about 1,000 people marched to the front doors to deliver their protest inside the building. An angry riot developed that left injuries on both sides and a damage bill running to about $A 75,000. Because Beazley had earlier addressed the rally, before it got out of control, the ALP lost considerable public support. More serious to the trade union cause were the attacks on ACTU Pres. Jennie George, who declined to accept responsibility for the riot, leaving it to Gareth Evans, ALP front bench MP, to sum up the damage as having been done by "crazy self-indulgent bastards." The budget received popular support from the country electorates, as the government decided not to go ahead with the policy of ending the diesel fuel rebate, under which miners and farmers in Australia's outback were shielded from paying the same price as city dwellers for their energy costs. CANADA Affairs. The threat of the separation of Quebec receded in 1996 as Lucien Bouchard, the leader of the secessionist forces and now installed as premier of Quebec, made it clear that his first priority was the strengthening of Quebec's economy. Another referendum on Quebec's future would be delayed until after the next provincial election, not expected before 1998 or 1999. The federal government in Ottawa, led by Prime Minister Jean Chrtien, was still recovering from the shock of the near victory of secession in the 1995 referendum and moved cautiously to counter the independence movement among French-speaking Quebeckers. Bouchard left the Bloc Qubcois, the party he had founded to promote secession in the federal arena, to become premier of Quebec on January 29. He replaced Jacques Parizeau, who had resigned after the defeat of the sovereignty option in the referendum. Under Bouchard, Quebec embarked on a program of austerity in public expenditures. Estimates for 1996-97 revealed projected cuts of Can$1,170,000,000, the first real reduction in Quebec's spending in 25 years. Expenditures on education would be reduced, and hospitals and health care would face a large decline in public grants. The provincial budget, announced on May 9, placed the province on a course to eliminate its deficit by 1999-2000. In so doing, Quebec was following other provinces that had taken similar action. The budget failed to mention the prospect of secession, in contrast to statements made by the previous Parizeau government. Its message was directed to business interests, which were urged to show confidence in the province through investment and job creation. Bouchard trod carefully around the sensitive issue of language, a symbol of identity for the 80% of Quebec's 7.3 million people for whom French is the mother tongue. Resisting calls from militant separatists to toughen Quebec's language laws, he proposed no change in the regulations governing bilingual commercial signs, a stand that added fuel to the debate between nationalists demanding the supremacy of French and anglophones convinced that the observance of bilingualism was essential to their work and survival. Chrtien's strategy to counter secession took two forms, labeled Plan A and Plan B. Plan A represented a soft approach: to appease nationalism in Quebec through transferring more powers to the provinces. A looser Canadian federation would prove more attractive to Quebec. Plan B was a firmer stance: to challenge the legality of moves that Quebec might make toward independence and to lay down terms acceptable to Ottawa and the rest of Canada should Quebec decide on secession. Devolution, a process that the Chrtien government called "rebalancing" the federation, was discussed at a meeting of first ministers (provincial premiers) held in Ottawa on June 20-21. To the surprise of many, Premier Bouchard attended and took part in the discussions. The federal government announced that it was prepared to transfer responsibility for labour-market training, mining, forestry, tourism, recreation, and social housing to the provinces. The withdrawal from job training, a concession long demanded by Quebec, would take place over the next three years and would be accompanied by a grant of $2 billion to the provinces to support their efforts. Although the Chrtien government regarded devolution of authority as a major thrust, it emphasized that it was not prepared to give up its responsibility to manage social programs such as universal medical care. Seen as vital to the quality of life in Canada, single-payer medical insurance was regarded by most Canadians as a defining quality marking the difference between their society and that of the United States. Chrtien brought two new recruits into his Cabinet to shore up its Quebec wing. Stphane Dion was a Montreal academic, a well-known spokesman for federalism in Quebec. He assumed the critical post of minister for intergovernmental affairs. Pierre Pettigrew, an experienced political adviser from Quebec, received the minor post of minister for international cooperation in the Cabinet shuffle on January 25. On October 4 he was promoted to the more important portfolio of human resources, with responsibility for managing federal health and welfare policies. The new ministers gained seats in Parliament in by-elections arranged for March 25. Four other new members were also elected on that day. The results left party standings in the House of Commons as follows: Liberals 177; Bloc Qubcois (the official opposition) 53; Reform Party 52; New Democratic Party 9; Progressive Conservatives 2; independents 2; total 295. Plan B was unveiled by Chrtien's minister of justice, Allan Rock, on September 27. It did not question the right of Quebeckers to vote for separation but challenged the Quebec government's claim that it could unilaterally declare independence. The federal government insisted that in any future referendum the question asked be explicit. Sovereignty would have to be plainly defined as independence. There could be no implication that it would automatically involve a partnership with the rest of Canada, as had been held out in the 1995 referendum. Quebeckers had to be made aware that the consequences of secession--sharing the national debt, an acceptable system of currency, the use of passports, the question of borders, the fate of the province's aboriginal population--would have to be negotiated with the federal government and the provinces before separation could occur. In a future referendum campaign, all Canadians would have to be free to participate. The issue of secession was not one to be decided solely by Quebec. As a preliminary to the consideration of the terms of divorce, Rock stated that the federal government proposed to ask the Supreme Court of Canada, the country's highest court, to pronounce on the legality of secession. The court would be asked to decide on three questions: Since Canada's constitution contains no provision for separation, is it legal for Quebec to declare its independence unilaterally? Does self-determination, affirmed by Quebec as a basis in international law for independence, give the province the right to secede? If domestic and international law were in conflict over Quebec's secession, which should take precedence? The referral to the Supreme Court was considered politically risky since it might alienate moderates in Quebec. Daniel Johnson, the leader of the provincial Liberal Party, and Jean Charest, leader of the Progressive Conservative Party and a strong Quebec federalist, each held back from endorsing it. They preferred Plan A, reforming the existing federal system, as a more constructive alternative. Bouchard's Parti Qubcois government denounced the reference to the Supreme Court, saying it would not participate in the hearing and would ignore any ruling made by the court. Rock's intention appeared to be to deter a majority of Quebeckers, moderate in their views on secession, from endorsing a course of action that the Supreme Court might decide was illegal. Quebec's chances of winning international recognition for its new status would also be jeopardized by an adverse ruling on secession from the court. A final consideration was the future of Quebec's Indian and Inuit population. They did not want to become part of an independent Quebec. A Supreme Court ruling questioning the province's claim to secession would strengthen their case to remain part of Canada. It was expected that a court ruling would not be delivered for at least a year. The Economy. Although the economy grew in 1996, the high unemployment rate continued to discourage consumer confidence. Exports mounted to record levels, especially automotive products and lumber to the U.S. Gross domestic product (GDP), seasonally adjusted at market prices, was estimated at midyear to be Can$789.5 billion. Interest rates fell, the Bank of Canada prime rate reaching 4.75% in November, the lowest level since 1956. The Canadian dollar strengthened against the U.S. currency, and inflation continued at a low level. In August the consumer price index stood at 1.4%, well within the Bank of Canada's target of 1% to 3%. Unemployment, which had remained at more than 9% of the labour force for six years, continued to be a major drag on the economy. In October it rose to 10%, erasing a slight decline earlier. Finance Minister Paul Martin's third budget, delivered on March 6, showed steady progress in reducing Canada's deficit on government operations. Martin had set himself the goal of reducing the deficit in 1996-97 to Can$24.3 billion, or 3% of GDP, when he took over the finance portfolio in 1993. He was on course to realize this goal and predicted a further decrease of the deficit, to $17 billion, or 2% of GDP, for 1997-98. In a statement issued on October 9, Martin promised further progress. By 1998-99 the deficit should fall to $9 billion (1% of GDP), at which time the government would no longer have to use financial markets to borrow new money. Borrowing could instead be handled by rolling over the existing debt. Martin's task of deficit reduction had been made easier by the fall in interest rates, which reduced the cost of borrowing. The budget, taking note of a general election likely to be held within about a year, contained a minimum of tax increases and few large cuts in government expenditures. It did, however, announce the end of Canada's universal old-age security program by 2001. In that year wealthier senior citizens would see their government pensions (since 1951 paid to every resident regardless of income) reduced or eliminated. Single taxpayers would lose their state pensions at an income of Can$52,000; for couples a combined income of Can$78,000 would mean the loss of the pension. For seniors with middle-range incomes, the pension would be proportionately reduced. Lower-income seniors would receive additional support through a new Seniors Benefit to replace their old-age security and guaranteed income supplement. It was estimated that about 75% of retirees would receive the same or higher benefits. Seniors 60 years of age or older at the end of 1995 would not be affected by the changes, but those younger, the so-called baby boomers, would be directly affected. UNITED KINGDOM Affairs. For the U.K.'s ruling Conservative Party, 1996 was a frustrating year. Despite low inflation, declining unemployment, rising house prices, and steady economic growth, the party remained unpopular with the voters. It also saw its majority in the House of Commons disappear. The general election in April 1992 had given the party a majority of 21 in the 651-seat Commons. Defections and by-election defeats, which had reduced the figure to five by the beginning of 1996, continued to take their toll. On February 23 it was cut to just two when one Tory MP, Peter Thurnham, resigned from the party and decided to sit as an independent; in October he joined the opposition Liberal Democrats. On April 11 the Conservative majority slipped to just one when the party lost the Midlands seat of Staffordshire South East to the Labour Party in a by-election. On December 13 the majority disappeared altogether following the death of Barry Porter, Conservative MP for Wirral South, and Labour's successful defense of a seat in a by-election in Barnsley. The Conservatives found themselves consistently on the defensive throughout the year, facing charges of malpractice (or "sleaze") and incompetence. On February 15 Lord Justice Sir Richard Scott published his long-awaited report, which had been commissioned by the government, regarding the sale of British arms to Iraq in the 1980s. Although Scott acquitted government ministers of deliberately lying to Parliament, he did conclude that they had misled the MPs and the general public by concealing a change in policy; Britain had supplied some arms to Saddam Hussein's regime even though the declared policy of the British government at the time was to maintain a strict arms embargo. In a heated Commons debate on the Scott report on February 26, the government narrowly survived censure, winning by 320 votes to 319. The government faced further embarrassment three weeks later, on March 20, when Stephen Dorrell, the health secretary, admitted that new scientific evidence established a "probable link" between bovine spongiform encephalopathy (BSE, or "mad cow" disease), which affected cattle, and Creutzfeldt-Jakob disease (CJD), which affected humans. This was the first official admission that BSE might have crossed the "species barrier." Sales of British beef plummeted as ministers faced accusations that they had done too little during the late 1980s and early 1990s to halt the spread of BSE in British herds. The government announced new measures to slaughter older cattle and to make sure that their flesh and carcasses would be incinerated and not allowed to enter the food chain. Consumer confidence in British beef remained low, and opinion polls showed that most voters distrusted government statements on the issue. Britain found itself in conflict with the rest of the European Union over an EU decision to ban the export of British beef. In October the House of Commons voted to launch an inquiry into allegations against one current and one former government minister. These allegations arose from inquires by The Guardian, which had alleged that the former trade minister, Neil Hamilton, had violated the rules of Parliament by receiving cash and other benefits secretly from the owner of Harrods department store in London, Mohammed Al Fayed. Hamilton had launched a libel action against The Guardian's initial report two years earlier. On September 30 Hamilton dropped it, however. The Guardian's front-page headline the following day branded Hamilton a "a liar and a cheat." Six days later new evidence emerged of attempts by a current minister, David Willetts, to persuade the Conservative majority on the all-party House of Commons Committee on Standards and Privileges to block an inquiry into the original allegations. This revelation embarrassed the Conservative leadership and provoked the speaker of the House of Commons, Betty Boothroyd, to make an unusually forthright statement to the MPs on October 14, demanding a full and speedy inquiry into the full range of allegations prompted by the newspaper's reports. Following a short debate on October 16, the Commons agreed to her request. The inquiry reported on December 11. Its strongly worded criticisms of Willetts forced him to resign from the government. Meanwhile, Labour continued to lead the Conservatives by more than 20 points in the opinion polls. In July, with the general election due by May 1997 at the latest, Labour leader Tony Blair launched a preelection manifesto, "New Life for Britain." This shed the last remnants of Labour's historic devotion to public ownership and high government spending. It promised to keep inflation and interest rates down and to reduce government borrowing. The Tories sought to counter Blair's popularity by launching an aggressive poster and newspaper advertising campaign in August, using the slogan "New Labour, New Danger." Labour complained that one of the advertisements, which portrayed Blair smiling but with his eyes coloured red and set behind a mask, was designed to make Labour's leader look like the devil. The Conservatives disputed this interpretation, but the Advertising Standards Association banned its future use. The Conservatives, however, repeated the "demon-eyes" motif in other advertisements, without associating them personally with Blair. Labour launched its own anti-Conservative advertisements, containing the slogan "Same Old Tories, Same Old Lies." Although Labour remained well ahead of the Conservatives, the party encountered problems of its own. In January Harriet Harman, Labour's shadow cabinet health minister and one of Blair's closest senior allies, announced that she would send one of her sons to a selective grammar school, despite the fact that Labour's education policy was to oppose such schools. Blair backed Harman's right to make this decision, but it was criticized by many Labour MPs and seized on by the Conservatives as an example of Labour hypocrisy. Labour also attracted fire from its opponents and some of its own MPs for changing its policy on Scottish devolution three times during the year. Labour had long advocated a new parliament for Scotland with wide legislative and limited tax-raising powers. Faced with Conservative charges that Labour was planning to impose an extra "tartan tax" on Scottish taxpayers, Blair and George Robertson, his shadow cabinet Scottish minister, promised a referendum on the party's plans for devolution should Labour win the next U.K.-wide general election. The details of their referendum strategy kept changing, however. Finally, on September 6, Labour announced that it would hold one referendum, in which Scottish voters would face two questions: Did they want Scotland to have its own parliament, and should that parliament have the power to adjust tax rates relative to the standard national rates? Outside politics, Scotland provided the year's grimmest headlines. On March 13 Thomas Hamilton, a former youth club worker, shot dead 16 young children, their teacher, and, finally, himself at the primary school in Dunblane, a small town 32 km (20 mi) north of Glasgow. The horrific attack prompted a debate about Britain's gun-licensing laws. Despite a well-documented history of mental instability, Hamilton had been able to obtain a license for the handgun he used in the shootings. The government established an inquiry into the country's gun laws. The inquiry, which reported on October 16, recommended the banning of the private ownership (outside strictly controlled gun clubs) of handguns over .22 calibre. The home secretary, Michael Howard, announced that the government would ban the private ownership of all such guns, including those held at gun clubs, and that privately owned single-shot .22-calibre guns and smaller pistols would have to be kept on gun club premises, not at home. These proposals, he said, would give the U.K. some of the tightest gun-control laws of any country in the world. Opposition MPs and some Conservatives urged the government to extend the total ban to .22-calibre guns. The royal family continued to make news, to the despair of its supporters but to the delight of millions of tabloid newspaper readers. On April 17 Andrew, duke of York (the third of the queen's four children), obtained a divorce from Sarah, duchess of York, following widespread reports of her varied and exotic private life. The duchess, who lost the title "Her Royal Highness," continued to make news as former lovers found they could make money by giving their accounts of their affairs with her. On August 28 the divorce was also finalized between Charles and Diana, prince and princess of Wales. She, too, lost her right to be described as "Her Royal Highness." She was widely reported to have received 20 million as a divorce settlement. The divorce led to speculation that Charles might marry his mistress, Camilla Parker-Bowles (who had divorced her husband in 1995). While no formal announcements were made on the subject, Buckingham Palace officials advised the media that the prince would not marry again for the foreseeable future. The Economy. For the fourth year in succession, the U.K. had the fastest economic growth of any major economy in Western Europe. The 2.5% growth rate was, however, less than the government had expected at the beginning of the year, although in November unemployment fell below two million for the first time since 1990. For those at work the improvements in the economy were clear enough. Consumer price inflation remained subdued, fluctuating within the range of 2-3%. Interest rates fell to their lowest in 30 years; the Bank of England's base rate, which was 6.5% at the beginning of the year, was reduced in quarter-point stages to 5.75% by June. The last reduction was opposed by Eddie George, the governor of the Bank of England, but was insisted upon by Kenneth Clarke, the chancellor of the Exchequer, who wanted to prevent the economic growth rate from slipping too far and also to maximize public support for the Conservative Party. In October, however, Clarke conceded a little ground to George and agreed to a slight increase; at the end of 1996, the base rate stood at 6%. The combination of low inflation, falling interest rates, and declining unemployment had a marked effect on consumer confidence. Retail sales increased by more than 3% during the year, while house prices rose by 6-7%--the first significant increase since 1989. During the early 1990s up to two million homeowners had lived under the cloud of "negative equity"; that is, their mortgage debt exceeded the value of their home. In 1996 that cloud began to lift. BRAZIL Affairs. Contrary to the climate of optimism prevailing when Pres. Fernando Cardoso began his term a year earlier, the start of 1996 was overshadowed by political controversies that had erupted in late 1995: the award of a contract for a surveillance project in the Amazon region to the U.S. firm Raytheon, and the so-called pink file concerning political campaign donations made by the failed Banco Economico. In addition, the government's plans to win approval for a series of constitutional reforms in the spheres of social security, administration, and taxation were running behind schedule. Despite special sessions of the National Congress during January and February, little was achieved in this regard, although the extension to mid-1997 of the emergency financial fund, formerly known as the emergency social tax, was approved. In large measure members of Congress were anticipating municipal elections scheduled for October, in which about 25% of the members of the Chamber of Deputies would run. A further setback for the reform agenda occurred when the Senate voted in March to set up a parliamentary inquiry into the banking sector following irregularities discovered at another bank, the Banco Nacional. The inquiry was later shelved, which allowed limited headway on reforms. In late April the Cabinet was reshuffled, partly in order to reinforce congressional backing for the reforms, with the timing being linked to the departure of Agriculture Minister Jos Eduardo Vieira. Vieira's post went to another member of the Brazilian Labour Party, Sen. Arlindo Porto. But the more important move was to bring into the Cabinet a member of the Brazilian Progressive Par