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

Tuesday, June 18, 1996

Russian Federation

Politics

Lebed is In, Grachev is Out

· Russian President Boris YELTSIN has reshuffled the top national security positions in his administration, including appointing General Aleksandr LEBED (ret.) to head the country's Security Council and act as National Security Advisor, to strengthen his bid for re-election in the second round of voting next month. LEBED, who took third place in Sunday's first round, will replace Oleg LOBOV as Security Council Secretary and Yuri BATURIN as National Security Advisor. In addition, YELTSIN dismissed the unpopular Defense Minister Pavel GRACHEV, reportedly at the insistence of LEBED, who was forced into early retirement last year by GRACHEV. In response to reporters' queries, YELTSIN also suggested that he planned to try to groom LEBED to become his successor in the year 2000. The Russian constitution stipulates that a president can serve only two terms in office.

LEBED, 56, a career military man, joined the army at the age of 18, graduated from the Frunze Military Academy, and was a paratrooper and later trainer of paratroopers. He served in Afghanistan and played a major role in ending the conflict between Russian separatists in Moldova's Dnestr region and the Moldovan troops, commanding the 14th Army in Tiraspol. He was elected to the State Duma in December 1995 from a single-seat constituency, following which he ended his affiliation with the nationalist group Congress of Russian Communities. YELTSIN signed the decree on LEBED's appointment in front of TV cameras, describing the move as a "union of two political programs with adjustment in the realms of reform of the army, security, crime, and corruption." LEBED said that he was certain that his supporters would understand his

new alliance and that some 70 percent would continue to support him. "Eleven million voters believed I could guarantee the security of citizens. I am an officer and must be worthy of their trust," said LEBED. He was scheduled to meet with Communist leader Gennady ZYUGANOV today to discuss a possible deal, but this is now unnecessary. "He (ZYUGANOV) can offer me whatever he wants. We're through with communism." It is "over, dead, finished," LEBED is quoted by Reuters as saying.

A new first deputy prime minister's post was created for LOBOV, the outgoing secretary of the Security Council, a position he had held since September 1993. He will join Oleg Soskovets and Vladimir Kadannikov, the current first deputy prime ministers. LOBOV is also the president's special representative in the Chechen Republic; it is unclear at this time whether he will retain this role or if LEBED will take over.

Baturin will remains as a presidential aide, but his duties have so far not been defined, according to presidential spokesman Sergei Medvedev. "A decision to redistribute duties between (Yeltin's) assistants has not been taken yet. It is the president's prerogative to give instructions to his assistants," Medvedev told reporters. Baturin, 47, became the President's National Security Advisor in January 1994. Prior to that, from June 1993 to January 1994, he was the presidential aide for legal affairs.

GRACHEV's dismissal, which has been expected

Today's News Highlights

Russia

Yeltsin Requests Weekday Poll

Final Pres. Election Results

Share of Arms Trade Up

Rostelekom Figures/Textile FiG

European Republics

Latvia/Estonia Pres. Elections

Moldova/Dnestr Near Accord

Transcaucasia & Central Asia

Armenia President in Greece

Dutch/Samsung in Kazakh Deals

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Tuesday

June 18, 1996

Intercon's Daily

for some time, will be lauded by many quarters. His handling of the Chechnya war, involvement in corruption scandals, tactlessness, and failure to implement military reform, made him extremely unpopular not only within the army, but among politicians and ordinary citizens. He retained his position, despite widespread criticism, apparently because of his unswerving loyalty to the President. He had been Defense Minister since 1992. Now, however, seems to be the perfect time for YELTSIN to cut him loose and collect political capital before the crucial, final round of the presidential elections. YELTSIN has not completely abandoned GRACHEV, he has been offered the job of Russian representative to NATO headquarters. General Mikhail KOLESNIKOV, Chief of the General Staff, was named acting Defense Minister, but it is likely that former Deputy Defense Minister Boris GROMOV will be chosen to take the position permanently.

Yeltsin Requests Weekday Runoff

· In his second major move aimed at ensuring victory in the presidential runoff, Russian President Boris Yeltsin sent an official request to the State Duma on Monday to allow the second round to be held on Wednesday, July 3. This would require that the Duma approve a draft law proclaiming July 3 a holiday, as the election law stipulates that the poll be held on a non-workday. Communist challenger Gennady ZYUGANOV has a steady base of support, especially among elderly and rural voters, while YELTSIN needs a high turnout, particularly among the young and urban, in order to win. Many urban dwellers abandon their city homes for country dachas during the weekends, and are unlikely to return early on Sunday to vote. However, Duma speaker Gennady Seleznyov hinted today that Communist-dominated lower house of parliament is unlikely to grant YELTSIN's request. A decision on the matter is expected on Friday.

Final Presidential Election Results

· According to information released by the Russian Central Electoral Commission's Federal Information Center, the results of the first round of voting for the Russian presidency are as follows: Boris Yeltsin was backed by 35.06 percent of the people who took part in the voting (26,000,057); Gennady Zyuganov received 31.96 percent of the votes (23,697,740); Aleksandr Lebed was third with 14.70

percent of the votes (10,901,654); followed by Grigory Yavlinsky with 7.41 percent of the votes (5,496,960); and Vladimir Zhirinovsky with 5.76 percent (4,274,728).

Yabloko Co-Leader Reacts to Reshuffling

· Although Grigory YAVLINSKY, who placed fourth in the presidential elections, has not commented on his second round plans, his main Yabloko colleague has praised President YELTSIN administrative reshuffling moves. Vladimir Lukin, Yabloko's first deputy chairman who is also Chairman of the State Duma Committee for International Affairs, said today that Aleksandr Lebed's appointment as Secretary of the Security Council and presidential national security aide is "more than a successful step on the part of President Boris YELTSIN," according to Itar-Tass. Lukin believes that the appointment will not guarantee that all Lebed's electorate will automatically vote for Yeltsin in the run-off election, but it "will undoubtedly increase the number of his supporters." According to LUKIN, the dismissal of Grachev "is an absolutely correct, however, somewhat belated decision of the President." LUKIN also expressed satisfaction with the removal of Oleg Lobov from the post of Security Council Secretary.

Economy

Ruble = 5,065/$1.00 (NY rate)

Ruble = 5,059/$1.00 (CB exch. rate)

Ruble = 5,040|5,078/$1.00 (CB buy|sell rates)

Stock/Bond Trading Up After Elections

· The preliminary results of the first round of Russian presidential elections caused a significant increase in trading on the Russian stock market and revived interest in government securities. The quotations for short-term government bonds (GKOs) and federal loan bonds (OFZs), which have been steadily declining since April, as well as internal government bonds and corporate securities, grew sharply on Monday morning, reported the Prime news agency. By midday, dealers reported significant growth in the value of government savings bonds. Some experts believe that the growth will continue, but they warned that the situation on the market will deteriorate as the run-off elections approach, reported Itar-Tass. An unidentified representative of one leading Russian commercial bank told Itar-Tass that, "very big money is now coming to

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the market. Those investors who are confident of YELTSIN's victory try to buy up cheap securities for all the money they have, which accounts for abnormally high trade growth rates." Other observers believe that the upsurge in trading is speculative and does not reflect real investment demand, it said.

Protectionist Measures on Gasoline

· Russian Trade Minister Oleg DAVYDOV told Interfax today that Russia will temporarily ban some gasoline imports in order to help protect domestic refineries. "A ban is required and called for by the fact that in recent times, more and more gasoline, made from Russian crude oil, is imported into Russia from abroad," he is quoted as saying. No further details were available.

Russian Share of Arms Trade Up

· According to the Stockholm International Peace Research Institute's (SIPRI) 1996 Yearbook, Russia increased its share of total world trade in major conventional weapons from four percent in 1994 to 17 percent in 1995. The US was the number one arms exporter accounting for 43 percent of the total 1995 trade worth $22.8 billion. The Chairman of the Russian State Committee for Military-Technical Policy Sergei SVECHNIKOV told Radio Rossii last week that Russian arms exports in the first five months of 1996 had risen by 30 percent over the same period last year, reported Friday's OMRI. He attributed the increase to improved government support for arms exporters, it said.

Business

Rostelekom 1995 Figures

· Russia's biggest long-distance telecommunications company Rostelekom showed a net profit of 4,119 trillion rubles in 1995, reported A&G news service last week, citing a corporation management

report. Maintenance costs last year were 1,659 trillion rubles, while capital investments amounted to 826.4 billion rubles. In 1995, the company paid 584.6 billion rubles into the federal budget and its after-tax profit exceeded one trillion rubles. The board of directors of Rostelekom will pay 1995 dividends to privileged shareholders only. The company decided not to pay dividends to regular shareholders, but to reinvest the rest of the profit money.

New Textile FiG Created

· The first textile-oriented financial and industrial group (FiG) has been organized in Russia, reported the A&G news service last week. The new group, called Russian Textile Consortium, includes enterprises presenting the entire technological process—from raw material production to sales—and the Menatep financial group, which plans to invest over six trillion rubles into Russia's ailing textile industry within the next four years.

European Republics

Clinton to Meet Baltic Leaders

· The leaders of the three former Soviet Baltic states will meet with US President Bill Clinton on June 25 to discuss political, economic, and security ties, reported United Press International (UPI), citing White House officials. Presidents Lennart Meri of Estonia, Algirdas Brazauskas of Lithuania, and Guntis Ulmanis of Latvia accepted Clinton's invitation to the White House for a four-way meeting, which will take place prior to his trip to Lyon for the annual G-7 summit.

Ulmanis Re-Elected to Latvian Presidency

· Latvian President Guntis Ulmanis was re-elected president for a second three-year term by the country's 100-member legislature. He received 53 votes. He defeated parliamentary speaker Ilga Kreituse, who gained 25 votes, Doctor of Biology and Professor of the Agricultural University Imant Liepa (14 votes), and jailed former Communist leader Alfred Rubiks (5 votes), reported Itar-Tass.

Estonia Presidential Poll in August

· Estonian legislators are scheduled to choose a new president at an August 26-27 session. As in Latvia, the president of Estonia is also elected by the

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101-member parliament. To be nominated as a presidential candidate, a person must garner the support of 21 legislators and to be elected one must receive 66 votes. Incumbent President Lennart Meri, whose term expires on October 6, 1996, has been nominated for re-election. His challenger is parliament deputy speaker Arnold Reutel, who is also the leader of the Peasants' Party and the last chairman of the Estonian Supreme Soviet presidium.

Moldova/Dnestr Close to Agreement

· Representatives of the governments of Moldova and its separatist Dnestr Republic agreed on an outline for the region's future status at the most recent round of settlement talks, which ended Monday, reported Reuters. "During today's round of talks, we and Moldova have boradly agreed on a memorandum normalizing our relations," Dnestr leader Igor SMIRNOV is quoted by Reuters as saying. The memorandum defined Dnestr as "a state-territorial formation in the form of a reputlic within Moldova's internationally recognized borders," he said. The Russian-dominated Dnestr region declared independence from Moldova in 1990 out of fear that the Moldova would reunite with Romania and its residents would become second-class citizens. Fighting was halted following the intervention in 1992 of Russia's 14th Army, led by Lieutenant-General Aleksandr LEBED.

Transcaucasia and Central Asia

Armenian President in Greece

· Armenian President Levon Ter-Petrosyan arrived in Athens on Monday for a two-day official visit at the invitation of his Greek counterpart, Kostis Stephanopoulos, reported Xinhua. The two sides signed a friendship and cooperation agreement on Monday afternoon, immediately following one-hour talks between TER-PETROSYAN and Greek Prime Minister Costas Simitis. The talks focused on issues affecting the wider region, the Armenian president told reporters after the meeting. Simitis said Armenia could serve as a base for

Greece's increased activity in the Caucasus. Armenian Defense Minister Vargen Sargisian, who is accompanying Ter-Petrosyan, is scheduled to meet with his Greek counterpart, Gerassimos Arsenis today, and the two are expected to announce a defense cooperation agreement between the two countries.

Chinese On Pan-Asian Pipeline System

· Chinese experts on Sunday called for a continental network of oil and gas pipelines linking China, Central Asia, Russia, and the Middle East, as well as Japan and South Korea, reported AsiaInfo News on Monday. According to China National Petroleum Corp. (CNPC) president Wang Tao, the construction of key parts of the network, such as pipelines connecting eastern and western parts of China, and between China, Russia, and Central Asia, is either currently underway or about to start.

Dutch Invest in Kazakh Power Plant

· Armin Mayer, the executive president of the Dutch industrial group IBB, and Kazakh Deputy Prime Minister Garri Shtoik signed a memorandum of understanding today on building a 640- megawatt coal-fired power station, reported United Press International (UPI). Construction of the first 320-megawatt phase of the plant, to be built using mainly IBB technology and local labor, is due for 1999-2000 on the shore of Lake Balkhash in southern Kazakhstan. A joint venture, IBB Kazakhstan, was created specially for the project with an investment of $350 million, and the memorandum provided for IBB to own and operate the plant for 20 years.

Samsung Invests in Kazakh Copper Plant

· South Korea's Samsung Company signed an agreement in Almaty with Kazakh Deputy Prime Minister Garri SHTOIK today to purchase a 40 percent stake in a state-owned copper plant in Kazakhstan, reported Xinhua. Samsung agreed to invest $1 billion in the ailing Zezkazgan non-ferrous metallurgical company within the next 15 years, as well as to pay off the company's $300 million debt.

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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