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DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, June 25, 1996

Another new member of the commission is Presidential Security Guards (SBP) chief Yuri Krapivin.

Security Council Reshuffled

· Russian President Boris Yeltsin today signed a decree dismissing two deputy secretaries of the Russian Security Council, Vladimir Rubanov and Aleksandr Troshin, and replacing them with Vladimir Denisov and Sergei Kharlamov. Another presidential decree called for the staff of the Security Council to be reduced to 183 people, and for the Council's secretary to have four deputies, including one first deputy. Presidential spokesman Sergei Medvedev told Itar-Tass that the President had also instructed Security Council secretary Aleksandr Lebed to submit for approval the new provisions for the Council, as well as its new structure and personnel. "The president sees it necessary to strengthen the role and functions of the Security Council, to strengthen the personnel of that state body," he said.

Yeltsin Signs Chechnya Pullout Order

· Russian President Boris Yeltsin signed a decree today ordering the partial, phased withdrawal of Russian forces from Chechnya. The withdrawal is to be completed by September 1 "in line with the stabilization in regions and settlements of the Chechen Republic," said the decree, according to Interfax. General Vyacheslav TIKHOMIROV, the Commander of Russian forces in Chechnya, said on Monday that the 245th Mechanized Infantry Regiment, one of the main army units in Chechnya, would begin

Russian Federation

Politics

Generals Close to Grachev Dismissed

· Russian President Boris YELTSIN signed a decree today removing from their posts seven high-ranking army officers, all of whom had studied or served together with former Defense Minister Pavel GRACHEV. These include: Colonel-General Viktor BARYNKIN, first deputy head of the General Staff; Colonel-General Anatoly BOGDANOV and Colonel-General Vyacheslav ZHEREBTSOV, both deputy heads of the General Staff; Colonel-General Dmitri KARCHENKO, chief of the General Staff International Military Cooperation department; Lieutenant-General Sergei ZDORIKOV, chief of the Defense Ministry Political department; Lieutenant-General Vladimir SHULIKOV, deputy chief of Land Forces; and Valery LAPSHOV, the head of the Defense Minister's personal staff.

Four of the above-mentioned generals were named last week by newly-appointed Security Council secretary Aleksandr LEBED as co-conspirators in a plot to block the dismissal of GRACHEV. LEBED caused a sensation on June 18 when he suggested that five generals close to GRACHEV were plotting a coup to keep him in power, but on Friday he played down his previous statements, suggesting that his remarks had been overblown by the media.

Nonetheless, it appears that LEBED will play a major role in replacing the fired officers. Today, Yeltsin appointed him to head the commission which recommends officers for promotions to the top ranks of the military. Presidential spokesman Sergei Medvedev told Itar-Tass that Lebed had been appointed chairman of "the commission on top military posts, top military, and top special ranks" of the Council for personnel policy in the presidential administration.

Today's News Highlights

Russia

Zyuganov Low on Funds

Economist Hopeful, But Cautious

Central Bank on Ruble Trade

Sun Microsystems in Russia

Govt. Plans to Aid Moskvich

European Republics

Neste to Build Riga Terminal Ukraine Grain Forecast Down

Transcaucasia & Central Asia

Uzbek President Signs US Deals

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Tuesday

June 25, 1996

Intercon's Daily

pulling out on Friday. Yeltsin also ordered the government to aid the military withdrawal and to build facilities for troops permanently stationed in Chechnya. It is not clear how many Russian servicemen will stay in Chechnya permanently. Russian negotiators, led by Nationalities Minister Vyacheslav Mikhailov, were due to fly to Grozny on Wednesday to resume peace talks with Chechen rebels.

Communist Zyuganov Low on Funds

· With about 10 days left before the presidential runoff, Communist Party candidate Gennady ZYUGANOV is running out of campaign funds. "We never had much money, and now we face a second round. There's little left," campaign official Aleksandr UVAROV told the Associated Press (AP) on Monday. ZYUGANOV's campaign managers are "concerned" about the problem and have held several meetings recently to discuss fund shortages, he said. "Fortunately for us, election outcome depends more on the word-of-mouth propaganda than on money for the electronic media," according to UVAROV. However, the shortage of campaign funds is apparent in ZYUGANOV's campaign strategy for the second round. Communist Party spokesman Mikhail MOLODSTOV said that the candidate plans to hold daily press conferences in Moscow, rather than traveling around the country to campaign, according to today's Wall Street Journal.

However, ZYUGANOV will have some free air time on state television and radio stations, which is granted as part of the country's election law. The Central Electoral Commission drew lots to schedule times for ZYUGANOV and YELTSIN on Monday with both allotted two hours of free campaign time on TV and more than 2.5 hours on radio. The free media time will begin on June 26 and end on Monday, July 1st. ZYUGANOV told reporters today that he was certain of victory in the upcoming runoff, but current public opinion polls show him trailing YELTSIN. A recent poll by the All-Russia Center for Public Opinion (VTSIOM) gave YELTSIN a 53-34 lead over his Communist challenger and a survey by the Public Opinion Fund showed the split at 47-27. Nonetheless, YELTSIN campaign workers are concerned that, if turnout is under 60 percent, the President will not win and are urging people to go to the polls next week. At a meeting at the Heritage Foundation in Washington, DC today, Russian Ambassador to the

US Yuli VORONTSOV forecast that 55 percent of the vote will go to YELTSIN and 45 percent to ZYUGANOV. He also predicted that in the year 2000, there will be no Communist candidate in the race.

Economy

Ruble = 5,075$1.00 (NY rate)

Ruble = 5,072/$1.00 (CB rate)

Ruble = 5,053|5,091/$1.00 (buy|sell rates)

Economist Hopeful, but Cautious

· Andrei Illarionov, director of the Russia's independent Economic Analysis Institute, told reporters in Moscow Monday that a victory for President Boris Yeltsin in the upcoming runoff election on July 3 will give Russia a chance to overcome the existing economic difficulties in the medium- and long-term, reported Itar-Tass. He emphasizes that the goals of the president's economic program—a deficit-free budget by the year 2000 and a reduction of taxes—are positive, but notes that details on how to attain these goals are lacking. Illarionov pointed out that financial stabilization and some growth on the stock market characterize the current economic situation in the country. He warned, however, that the present state of financial reserves may cause a deterioration of the general economic situation. He estimated that the Russian Central Bank had printed in excess of 50 trillion rubles since the beginning of the year, while its currency reserves have shrunk by $3 billion over the last two months. The market of government securities is losing its role in financing the budget deficit, as the government debt increased by $20 billion over the first six months of the year, including foreign debt by $4 billion and internal debt by $16 billion, he said. Illarionov also noted that the consolidated budget deficit has grown from 9.6 percent of GDP in April to 11.8 percent of GDP in May. He blamed the increases on extravagant budget spending and stressed that the government should relinquish those functions which it cannot fulfill, according to Itar-Tass.

The reserve figures estimated by other Russian sources are even worse. Zavtra reported on Saturday that financial reserves at the end of April stood at $12 billion and gold and precious metals reserves were worth another $2 billion. But that currently, only two months later, reserves had fallen to $4 billion.

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	Tuesday		June 25, 1996
	Intercon's Daily
	Central Bank Move Toward Convertibility · Russia's Central Bank directors have approved a draft order to allow commercial banks to export and import rubles with non-resident corresponding banks, reported today's Journal of Commerce. The move brings Russia closer to fulfilling the requirements of article 8 of the International Monetary Fund (IMF) charter relating to progress toward full convertibility of the ruble in current operations. The order has been handed over for approval to the State Customs Committee and the Finance Ministry. Business Sun Microsystems Wins Russia Contract · Mountain View, CA-based Sun Microsystems computer company announced today that it has been selected as the network computing supplier to the Russian Ministry of Fuel and Energy in a project with investment potential of $50-$200 million over five years, according to a company press release. Sun is assisting the Ministry in building a multi-terabyte distributed petroleum database system, which will be located at a main site in Moscow and various regional oil centers throughout Russia. The system will create a unified information infrastructure for the worldwide petroleum industry, giving companies and government agencies within the CIS and elsewhere fast, efficient access to data for exploration and production drilling purposes. The project offers data on more than 1,000 government-owned oilfields in the CIS. Sun will collaborate on the development and deployment of the Federal Data Bank with Central Geophysical Expedition (CGE), the Russian agency appointed by the Ministry, and Roy International, a system integrator and Sun partner based in Moscow. CGE is using Dynamic Data Image Inc., a software vendor based in Houston, Texas, to provide the visualization software for the stored data. Sun servers will act as the central metadata repository and will also control the distributed remote servers. The initial remote test site is in Western Siberia, expanding to six sites by 2001. Sun has offices in Moscow and Novosibirsk, Russia, as well as an office in Almaty, Kazakhstan. Government Plans Aid to Moskvich · Russian President Boris YELTSIN has issued a decree instructing the government to draw up a program to save the ailing Moskvich automaker,	reported Dow Jones on Monday. The decree orders the government to grant Moskvich at least 100 billion rubles to help cover its debt, as well as to plan some kind of tax amnesty, tax exemptions and an unspecified loans to the company in budgets for coming fiscal years to help the company restructure and improve its overall financial standing by 2001. The decree also recommends that the city of Moscow give the company tax breaks thorough the year 2001.
		European Republics Neste to Build Terminal in Riga · Finnish energy and chemicals group Neste Oy announced on Tuesday it will build an oil terminal in Riga with a storage capacity of 30,000 cubic meters, reported Reuters. Approximately 350,000-500,000 tons of oil products will pass through the terminal annually. It will be in use at the end of 1997, and serve mainly Neste's own gas station chains in Latvia, Lithuania, Estonia, and Belarus. The total cost of the project is about 80 million markka (about $17.2 million). Norway's Statoil said in April that it would build two similar terminals in Riga, together with Neste, and cooperate on infrastructure building. Ukraine Grain Forecast Down · Ukrainian and Western agricultural experts forecast today that Ukraine's grain harvest will total only 28 million tons this year, reported Reuters. The official forecast for this year's grain crop is 36 million tons. *Intercon* reported early this month that Agriculture Minister Pavlo HAIDUTSKY was dismissed after being accused of mismanagement, resulting in "huge losses" to the economy by Prime Minister Pavlo LAZARENKO. Ukraine's grain harvest has fallen steadily in recent years from 46.5 million tons in 1993 to 35.5 million in 1994 to 35 million in 1995. Russian-American Investment Forum Ritz Carleton Hotel, Marina Del Rey, CA September 16_18, 1996 Conference and Exhibition on exploring new investment strategies in Russia. Sponsored by: Baker & McKenzie law firm, The City of Moscow and The RUSSIAN magazine Information: Russian-American Investment Forum Tel: 213-462-7005; Fax: 213-462-7017 E-mail: raif@rmag.com


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Tuesday

June 25, 1996

Intercon's Daily

Transcaucasia and Central Asia

Uzbek President Karimov in US

· At a meeting with US business leaders at the Overseas Private Investment Corporation (OPIC) on Monday, Uzbek President Islam KARIMOV strongly praised the economic cooperation between the two states, and urged American businesses to increase investment activity in Uzbekistan. In his keynote speech, President KARIMOV outlined several factors vital to foreign investment currently in place in the Uzbek market including: a strong legislative base which renders economic reforms irreversible, abundant minerals and natural resources; a geopolitically strategic position between Western and Asian markets; and an improved international standing over the past five years. Citing recent macroeconomic indicators, he said the economic forecast for the first six months of 1996 is 1.2 percent growth in industry and GDP levels the same as the first half of 1995. In addition, the government's assets now total some $1.2 billion and hard currency reserves equal seven months worth of imports. President KARIMOV announced that a 36-item decree on privileges granted to foreign investments was signed on May 31, which included shortening the time period and requirements for registering a joint venture to one week and four required documents. KARIMOV commented, "Uzbekistan is interested in seeing US relations strengthen and grow, and American business and American capital take its rightful place in the Uzbek market." When asked to identify key sectors of growth, he stressed natural resources, light industry, telecommunications and transportation, banking and insurance, tourism, and defense conversion.

Following the meeting, a signing ceremony took place for six documents between Uzbek and American entities. (1) A $400 million protocol was signed between OPIC, Enron Oil & Gas, and the state oil concern Uzbekneftegaz on financing and insurance for a joint venture to develop oil and gas reserves. (2) A protocol was signed between OPIC, Texaco and Uzbekneftegaz to provide support for a joint venture,

which will manufacture and market Texaco-brand lubricants throughout Central Asia. (3) A memorandum of understanding was signed between the Bank of America and the National Bank of Uzbekistan on the further development of relations. (4) A protocol was signed between Case Corp. and the Uzbekistan Banking Association on agricultural services and leasing services. (5) An agreement was signed between the US Trade and Development Agency (TDA) and the National Bank of Uzbekistan awarding a $1 million grant for an aircraft co-production feasibility study. (6) A memorandum of understanding was signed between the TDA and the Uzbek Ministry of Trade to identify mutually beneficial investment opportunities.

US TDA Grant for Uzbek Aircraft Study

· US Trade and Development Agency (TDA) Director J. Joseph GRANDMAISON on Monday signed a $1 million grant for a $2 million feasibility study to examine the revitalization of Uzbekistan's Chkalov Aircraft Production Company to co-produce passenger and cargo aircraft with US engines and avionics, according to a TDA press release. Tashkent-based Chkalov is the largest manufacturer of aircraft and aircraft components in the NIS. Chkalov and the National Bank of Uzbekistan are the grant recipients. US AlliedSignal Corp., Allison Engine Co., and General Electric Aircraft will conduct the study. The US consortium is sharing the cost and will reimburse TDA for the grant when the project is implemented. The study will include a comprehensive business plan, a marketing study, and a design of leasing arrangements to support the sale and lease of Chkalov-produced aircraft. If successful, the program will result in a project to produce and sell IL-114 aircraft with Allison engines and IL-76MF/TF aircraft with GE engines. Both engines would be equipped with AlliedSignal brakes, avionics, and auxiliary power units. Allison engine sales are expected to total $750 million, with AlliedSignal avionics and brake exports estimated at $306 million. TDA is sponsoring this week's visit of Uzbek President Islam KARIMOV to the US.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1996, Intercon International, USA.

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