DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, June 17, 1996

Russian Federation

Politics

Preliminary Presidential Election Results

· With some 98 percent of the ballots in Sunday's Russian presidential elections counted, incumbent President Boris Yeltsin has received about 35 percent and Communist Party leader Gennady Zyuganov was supported by about 32 percent, meaning the two men will face each other in a second round of voting. This result was generally expected; the surprise outcome was that nearly 15 percent of the vote went to maverick ex-General Aleksandr Lebed, who is now likely to be a significant factor in the runoff. LEBED's success apparently came as a result of his image as an incorruptible, political outsider, who has the ability to reduce crime and corruption, and possibly end the war in Chechnya. LEBED left the military in April 1995 to pursue a career in politics, following an order by Defense Minister Pavel GRACHEV to restructure the unit under LEBED's command, the Russian 14th Army in Moldova. Despite having been an outspoken critic of the YELTSIN Administration's policies, particularly its handling of the invasion of Chechnya, LEBED is considered more likely to support YELTSIN in the second round than ZYUGANOV. Yabloko party leader Grigory Yavlinsky placed fourth with slightly less than eight percent of the vote, although he had been expected to receive as much or even more support than LEBED. Whether or not YAVLINSKY forms an alliance with YELTSIN for the second round, his pro-reform supporters are likely to vote for the president over his communist challenger. Ultranationalist Vladimir Zhirinovsky, whose popular support has dropped off steadily since the 1993 parliamentary elections, received less than six percent. Nonetheless, his followers, who seem more likely to vote for ZYUGANOV than YELTSIN in the runoff, could be a significant factor in the second round.

The other five candidates—famous eye surgeon Svyatoslav Fyodorov, former Soviet president Mikhail Gorbachev, pharmaceuticals magnate Vladimir Bryntsalov, former Olympic weightlifting champion Yuri Vlasov and obscure economist Martin Shakkum—fared extremely poorly, receiving less than one percent of the vote each. More than 70 percent of eligible voters turned out.

Foreign election observers, including the some 500-strong Organization for Security and Cooperation in Europe (OSCE) mission, proclaimed Sunday's elections to have been "generally free and fair", although YELTSIN's monopoly over the state media during the campaign was criticized.

Central Electoral Commission secretary Aleksandr Vishnyakov told reporters today that official results of the Sunday elections will be ready after June 20. The second round of voting will be held on either June 30 or July 7.

Yeltsin/Zyuganov Prepare for Second Round

· Russian President Boris YELTSIN began campaigning for the second round almost immediately, attempting to woo voters and possible supporters among first round candidates. "The choice is absolutely clear: either backward to revolutions and shocks or forward to stability and prosperity," Yeltsin said early today in a televised address. "Today as never before we must be as one. We have one motherland, one Russia. Together we will be victori

Today's News Highlights

Russia

Preliminary Election Results--

Overall and by Region

Luzkhov Wins Moscow Easily

Tax Breaks for Pharmaceuticals

Russia Sells Planes to Iran

European Republics

Ukrainian Gov't Changes

Baltics Agri. Trade Accord

Transcaucasia & Central Asia

Georgia Frees Bread Prices

Politics-Economics-Business

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Monday

June 17, 1996

Intercon's Daily

Preliminary Russian Presidential Election Results

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Politics-Economics-Business

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Monday

June 17, 1996

Intercon's Daily

ous." The president thanked those who cast their ballots for him and urged voters to turn out again for the second round. In an early morning interview today, third-place winner Aleksandr LEBED said he was prepared to offer his endorsement in exchange for "a post in which I would be able to fight against organized crime...and create normal, civilized order in the country." He is apparently seeking the post of Defense Minister, secretary of the Security Council, or Deputy Prime Minister in charge of the security services. YELTSIN held a meeting with LEBED today, but both sides refused to comment on the meeting. Presidential aides said that YELTSIN will meet with also-rans YAVLINSKY and FYODOROV to seek their support and offer them government posts. The government of Prime Minister Viktor CHERNOMYRDIN, is required by law to resign after a new president is elected. LEBED is also expected to meet with Communist Party head ZYUGANOV, who will offer him the post of prime minister. ZYUGANOV may also try to make a deal with ZHIRINOVSKY.

Moscow's Luzhkov Easily Wins Re-election

· Moscow Mayor Yuri LUZHKOV won a second term in office by a landslide on Sunday, receiving nearly 90 percent of the vote, according to city electoral officials. His closest opponent, the Communist-backed Olga SERGEEVNA, got only five percent of the vote. These results were expected. Unlike Anatoly SOBCHAK, who recently lost a re-election bid for mayor of St. Petersburg, LUZHKOV is extremely popular among ordinary Muscovites. He has presided over a huge economic boom in the city over the last few years, and is well liked for efforts to fill in potholes, increase police patrols, help pensioners, and promote construction in the capital.

Yeltsin Given Bigger Role at G-7

· Russian President Boris YELTSIN has been invited to spend more time at this year's G-7 summit in order to show Western support for the Russian president, reported today's Journal of Commerce, citing French officials. The annual meeting of G-7 leaders, scheduled to take place June 27-29 in Lyon, France, falls between the two rounds of the Russian presidential elections. The official summit schedule, drawn up by French President Jacques CHIRAC's office, invites YELTSIN to attend a working session in the afternoon of the second day of the summit, instead of later at dinner, as at previous summits.

Economy

Ruble = 5,029/$1.00 (NY rate)

Ruble = 5,057/$1.00 (CB rate)

Ruble = 5,038|5,076/$1.00 (CB buy|sell rates)

Tax Exemptions for Pharmaceuticals

· The Russian government has approved profits tax exemptions for several essential medicinal preparations and health-care related items, reported the European Intelligence Unit (EIU) earlier this month. The list of newly-exempt items includes 426 drugs and medical care items, covering a wide range of products and instruments. All producers of the items are subject to tax privileges, regardless of whether they are state-run, private, or joint ventures.

Russia Sells Planes to Iran

· The Samara aircraft manufacturing company AviaKor will deliver 12 Tu-154M passenger planes to Iranian aviation companies, reported Friday's Kommersant-Daily. The deal was announced during the signing of a cooperation treaty between Russia's southern Samara Oblast and Iran, whose delegation visited Samara. The filling of this order is expected to help solve part of the Samara aviation enterprise's financial problems, according to the paper. Plans also call for holding a number of consultations on organizing the production of An-140 planes in Iran.

Oil/Gas Equipment Exhibition Opens

· The sixth international exhibition of equipment for the oil and gas industry, Neftegaz `96, opened in Moscow today with more than 300 Russian firms and some 500 firms from 28 other countries participating, reported Itar-Tass. The exhibition was jointly organized by Expotsentr, Russian gas monopoly Gazprom, the state-owned oil firm Rosneft, and the German firm Nowea International, with the assistance of the Ministry of Fuel and Energy. Various equipment for the automation of oil and gas extraction and preparation of oil and gas for transportation, contemporary technologies and equipment for geological surveys, as well as equipment for environmental protection is on display. During the exhibition, the major US company Raytheon, which specializes in the manufacture of equipment for the oil-and-gas complex, will conduct a seminar for specialists and experts from various branches of the Russian fuel-and-energy complex, said Itar-Tass.

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June 17, 1996

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European Republics

Ukrainian Government Changes

· Ukrainian President Leonid Kuchma dismissed Energy Minister Aleksei Sheberstov last week, following the firing of Agriculture Minister Pavlo HAIDUTSKY. A source in the president's office told Itar-Tass that another four or five ministers are also slated for removal. When he nominated Pavel Lazarenko as the country's new prime minister last month, Kuchma gave him permission to form a new government. According to the source, deputy prime ministers and ministers in charge of economic issues will soon be dismissed as well. In addition, the Ukrainian government on Friday decided to dismiss 20 percent of civil servants in a cost-cutting measure, reported Xinhua. The government plans to fire 10,200 civil servants, set new salary standards for government employees, and limit the number of cars for central and local governments. The measures are expected to reduce the country's budget by 242,000 billion karbovanets (about $1.33 billion).

Baltic Agriculture Trade Agreement

· Latvia, Lithuania, and Estonia on Sunday signed a deal in Vilnius which removes protective tariffs on agricultural goods traded among themselves, reported Reuters. This agreement complements an existing free trade deal in industrial products, but inter-Baltic trade remains light. Lithuania said its exports to Latvia came to $299 million, 7.1 percent of total exports, in 1995. Exports to Estonia totaled $120 million, or 2.2 percent of overall exports. The deal is seen as an important step in the countries' efforts to join the European Union. "The next step must be a customs union," said Latvian Prime Minister Andris SHKELE, according to Reuters.

Transcaucasia and Central Asia

Karabakh Negotiations Resume in Moscow

· On Friday, talks between Armenia, Azerbaijan, Russia aimed at settling the Nagorno-Karabakh conflict reopened in Moscow, under the mediation of

the Organization for Security and Cooperation in Europe (OSCE), reported Interfax. Russian mediator Vladimir Kazimirov told the agency that the parties in the talks would continue discussion of a draft agreement on reaching a permanent settlement to the conflict. This round of talks is expected to last a week. The war, which began in 1988, left more than 15,000 people dead, and about one million more refugees. In addition, some 20 percent of the territory of Azerbaijan was seized by Armenia. Earlier this month, the heads of Azerbaijan, Armenia, Georgia, and Russia held a meeting in an attempt to create a favorable atmosphere for the ongoing talks and speed up a negotiated resolution to the conflict.

Georgia Liberalizes Bread Prices

· In a key move in the economic reform process in Georgia, officials freed bread prices, beginning on Saturday. "The liberalization of prices that began today is the most serious and radical step to strengthen a market economy," Deputy Prime Minister Temur Basilia is quoted by Itar-Tass as saying. As part of the liberalization effort, the Georgian government has decided not to accept further shipments of grain and flour from the US and Western Europe under humanitarian aid programs. In addition, the Georgian authorities decided to exempt from taxes and duties those commercial firms which import grain and flour. During the first days of the liberalization, bread prices are expected to rise 40-50 percent. On Saturday alone, bread prices rose an average of 20-25 percent, bringing the cost of a one-kilo loaf up to $0.4-0.45.

Kazakhstan Sentences Seven More to Death

· Kazakhstan's Supreme Court has upheld the sentences, decided by the Dzhambul district court, meted out to a 13-member crime gang, which committed 36 armed assaults over three years, reported Itar-Tass. The gang's attacks left three people dead. Seven of the gang were sentenced to death and six to long prison terms. Over the last year, Kazakhstan's courts have delivered 101 death sentences, of which 63 have been carried out.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Ellen Shapiro, Principal Editor

Alycia S. Draper, Rebecca Martin, Contributing Editors

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $895.00 per year. A discount is

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