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

Friday, October 18, 1996

scribed as "depressed" by the Economics Ministry because the average income of its residents was 30 percent below the Russian average.

Kursk Oblast: Some five candidates will challenge incumbent Vasily SHUTEEV, appointed by YELTSIN in December 1991, in Sunday's election. Communist Aleksandr MIKHAILOV is considered a major contender, but Agrarian Vitaly GUKOV, former presidential representative in Kursk Aleksandr KURONINOV, and human rights advocate Vyacheslav MOLOKOEDOV, are seen as marginal. The Russian Supreme Court decided this week that former Vice President Aleksandr RUTSKOI should be allowed to compete, and he is believed to have a good chance of winning. The Kursk electoral commission had refused to register RUTSKOI, saying that he did not meet the residency requirement, but the Court found that the requirement violated federal law. Kursk is located in west central Russia on the Ukrainian border and has a population of about 1.35 million. A majority of regional residents voted for Communist candidate Gennady ZYUGANOV during both rounds of presidential elections.

Birobidzhan: Incumbent Nikolai VOLKOV, appointed by YELTSIN in December 1991, is expected to beat challenger Stanislav VAVILOV, the chairman of the local Duma. The Jewish Autonomous Oblast is located in southeastern Siberia, next to China, and has a population of about 212,000. The region favored YELTSIN in both rounds of presidential elections this year.

Russian Federation

Politics

More Regional Elections on Sunday

· Four gubernatorial elections—in Sakhalin, Pskov, and Kursk Oblasts and the Jewish Autonomous Oblast (Birobidzhan)—and one runoff, in Kaliningrad Oblast, will be held on Sunday. Governors have already been chosen in seven regions, with a total of 50 to be held before the end of the year. All new governors automatically gain a seat in Russia's upper house of parliament, the Federation Council, giving them authority on a national, as well as the regional, level.

Sakhalin Oblast: Ten candidates are running in far eastern Sakhalin. However, the only significant contenders are incumbent Igor FARKHUTDINOV, Communist Anatoly CHERNY, and businessman Valerian TIMOFEEV. FARKHUTDINOV, appointed by President Boris YELTSIN in April 1995, is backed by the pro-government Our Home is Russia. The remote region, which includes Sakhalin Island and the Kuriles, has a population of about 673,000 people.

Pskov Oblast: Seven candidates are vying for the post of governor in Pskov. Incumbent Governor Vladislav TUMANOV has enjoyed a great deal of attention by the local media, apparently by virtue of his position, and has been endorsed by the Democratic Russia movement. Other contenders include businessmen Vitaly PUSHKAREV, Vladimir SIDORENKO, Vladimir ZHUKOV, and former Paratroop Colonel Ivan KOMAR, local Duma chairman Viktor ASADCHNY, and local Liberal Democratic Party representative Yevgeny MIKHAILOV. The head of the Pskov branch of the Communist Party Vladimir NIKITIN chose not to run. Pskov is located in northwestern Russia and has a population of about 835,000 people. In September, the region was de

Today's News Highlights

Russia

Chechen Elections in January

Korzhakov to be Prosecuted?

Russia Cuts Discount Rate

Colombia Buys Helicopters

Massport-Pskov Agreement

European Republics

CIS Grain Crop Overview

Lithuanian Elections on Sunday

Transcaucasia & Central Asia

Kazakh 1997 Budget Draft

Politics-Economics-Business

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October 18, 1996

Intercon's Daily

Ruble = 5,438/$1.00 (NY rate)

Ruble = 5,435/$1.00 (CB rate)

Ruble = 5,430|5,440/$1.00 (buy|sell rates)

day. Chief presidential spokesman Sergei YASTRZHEMBSKY and an unidentified Chechen rebel spokesman both told Interfax that they will adhere to the peace agreements signed in August. The joint Russian-Chechen commission set up to find a settlement in Chechnya held its first meeting on Thursday and has vowed to continue its work without LEBED.

Parliament Supports Lebed's Dismissal

· The Russian State Duma today overwhelmingly voted to support President Boris YELTSIN's removal of Security Council chief Aleksandr LEBED, reported the Associated Press (AP). The vote suggests that almost all Russian political parties view LEBED as a political threat. It also shows the general animosity towards LEBED by the deputies, most of whom have been criticized by LEBED at one time or another, even those who backed his peace initiative in Chechnya.

"LEBED reconciled me with the present government because I suddenly quite clearly saw what a frightening face the other coiled have," Stanislav GOVORYUKHIN, a leader of the leftist People's Power faction and strident critic of the YELTSIN regime, is quoted by AP as saying. The Duma also voted 224-35 against a motion by the liberal Yabloko faction to demand the dismissal of Interior Minister Anatoly KULIKOV.

Korzhakov Vulnerable to Criminal Prosecution?

· Russia's former Presidential Security Service (SBP) chief Aleksandr KORZHAKOV could face a variety of criminal charges as a result of new revelations on his service in the Kremlin, said Yevgeny SAVOSTYANOV, deputy head of the presidential administration, in an interview with Izvestia, published on Thursday.

SAVOSTYANOV told the newspaper that if KORZHAKOV is in possession of compromising materials on top officials gathered while he was in office, as he has claimed, then he has violated official procedures on handling secret materials. KORZHAKOV's statements about such materials and knowledge of corruption has caught the attention of the Russian prosecutor's office, he said. Specifically, KORZHAKOV's claim that bank president BEREZOVSKY had offered him money to as

May Jun Jul Aug Sep Oct

Kaliningrad Oblast: The runoff election in Kaliningrad will feature incumbent governor Yuri MATOCHKIN and the director of the city's fishing port Leonid GORBENKO. In the first round of voting on October 6, MATOCHKIN received 31 percent of the vote, GORBENKO got 22 percent, and the communist-backed challenger Yuri SEMENOV received about 21.5 percent, out of a field of seven candidates. MATOCHKIN is favored for the second round, but analysts don't rule out the possibility of an upset by GORBENKO.

Chechen Elections Set for January

· The Chechen parliament decided today to hold presidential and parliamentary elections for the republic on January 27, 1997. Chechen parliamentary chairman Akhyad Idigov told Itar-Tass that the elections would be monitored by international observers, and the central electoral commission would comprise representatives of all political forces in the republic, including supporters of deposed president Doku Zavgayev. Russian authorities staged elections in Chechnya in December 1995, but they were not recognized as valid either by international observers or by the rebels. ZAVGAYEV and other officials elected in December were effectively sidelined during the recent peace negotiations and no longer rule Grozny.

Meanwhile, both sides in the Chechnya conflict declared today that they will continue with the peace initiative started by former Security Council chief Aleksandr LEBED, despite his dismissal on Thurs

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Friday

October 18, 1996

Intercon's Daily

sassinate business rival GUSINSKY is considered a serious matter. If it is true, the SBP chief was obligated to bring the matter to the attention of the Federal Security Service (FSB) or prosecutor's office at the time, and if not, he could be prosecuted for slander, said SAVOSTYANOV.

In addition, if KORZHAKOV collected materials on officials in violation of official procedures, or if he failed to properly document his findings, this means that he could be guilty of abuse of power and should be called to account, he said.

Moreover, SAVOSTYANOV says the fact that former Sports Fund chairman Boris FYODOROV was threatened by an organized crime group after making public allegations of corruption against KORZHAKOV strongly suggests that he has ties to the mafia.

Economy

Russia Cuts Discount Rate

· The Russian Central Bank decided today to further reduce its discount rate from 80 to 60 percent, as of Monday, October 21, an informed Bank source told Prime-Tass. This will be the fourth decrease of the discount rate this year. In February, it fell from 160 to 120 percent, and further down to 110 percent in July, and to 80 percent in August.

Colombia to Buy Russian Helicopters

· The Colombian military will buy 10 Russian-made Mi-17-IV helicopters to boost its fight against the leftist guerrillas in the country, reported RIA Novosti. "The Russian helicopters have the best internal load bearing capacity and have the lowest operating costs and are a god alternative for logistical and rearguard operations, even if they may have limitations in terms of transporting troop into combat zones," said Colombian Defense Minister Juan Carlos ESGUERRA in a communiqué.

The deal accounts for 40 percent of an agreed $107 million budget for buying a fleet of helicopters. The remainder will be spent on an unspecified number of US-made Blackhawks and French-made Cougars.

Business

Massport-Pskov Sign Cooperation Agreement

· The Massachusetts Port Authority (Massport)

announced Thursday the signing of a Cooperation Agreement between its Trade Development Department and the Pskov Center for Regional Planning and Development (CRP) in Russia aimed at increasing business ties between the two regions, said a Massport press release. The agreement calls for Massport and CRP to provide one-on-one assistance to companies seeking information, contract and joint venture advice, trade opportunities or technological relationships with businesses.

The CRP, created by the Pskov Oblast government and the Polytechnical Institute Partnership, promotes the economic development of small and medium-sized firms in Northwestern Russia through educational and promotional programs. In addition to Pskov Oblast, the northwestern region includes the city of St. Petersburg, Leningrad Oblast, and Novgorod Oblast. CRP's mission dovetails with that of Massport's Trade Development Department, said the press release. TDD's trade representatives both here and in foreign offices provide local companies with informed counseling, education, and market/trade promotion assistance.

"We help small to medium-sized New England businesses to go global. Promoting international trade increases the import and export of goods and services through Massport's maritime ports and Logan Airport," said TDD director Andrew Bendheim. "We welcome an opportunity to increase trade and partnerships with Russia through this agreement."

Currently, Massachusetts exports $34.4 million of products to Russia. Products include: computers, instrumentation, electronic equipment, software, food, and rubber and miscellaneous plastic products. In the year to date, food product exports have increased a staggering 2000 percent, while rubber and plastics have increased 115 percent over last year. Recent research conducted by the US-Russian Partnership at U-Mass/Amherst, cited the plastic industry as a hot market for companies seeking to export to Russia.

"Our trade reps will begin seeking to identify New England companies in varied plastic fields who are interested in exploring trade with Russia," said Bendheim. "We have a mission to Russia tentatively planned for late Spring 1997."

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European Republics

Overview of CIS Grain Harvests

· Grain harvests in Russia, Kazakhstan, and Belarus this year are expected to be little higher than in 1995, while harvests in Ukraine and Moldova will be below last year's level, reported Itar-Tass, citing Commonwealth of Independent States (CIS) statistical sources. The total grain harvest in CIS countries will reach about 125 million tons this year, on par with last year's harvest, but more than 20 million tons below the 1994 harvest.

According to recent estimates, Russia will harvest about 70 million tons of grain this year, compared with 64 million tons in 1995, Kazakhstan—about 13 million tons compared with 9.5 million, and Belarus—six million tons compared with 5.6 million. Ukraine is expected to harvest 26-28 million tons of grain, down from 34 million. Moldova harvested 1.7-1.8 million tons, down from 3.1 million in 1995.

Uzbekistan's grain harvest should reach last year's level of about three million tons, as will Azerbaijan's at about one million tons. Kyrgyzstan has harvested 1.3 million tons of grain, up from one million in 1995. According to the latest estimates, the grain harvest in Turkmenistan will be lower than last year's one million tons.

Lithuanian General Election Sunday

· Lithuania will hold a first round of general parliamentary elections on Sunday, the second such vote since the country gained independence from the Soviet Union in 1991. Outspoken former prime minister Vytautas LANDSBERGIS' right-wing Homeland Union party, which led the drive to break away from the Soviet Union, is heavily favored over the ruling Lithuanian Democratic Labor Party (LDLP). A second round of voting will be held November 10. On Sunday, voters will choose from party lists under a proportional representation system to decide 70 of the 141 seats. Twenty-four parties and 1,351 candidates will participate in Sunday's poll, but only five or

six parties are expected to pass the five percent barrier and win seats. In the second round, Lithuanians will vote for individual candidates, with winners receiving a majority of the votes. Voter turnout is expected to be low.

Homeland is expected to ally with the Christian Democrats to form a government after the election, although the parties may have to invite others to join if the two fall short of a majority of seats. On Wednesday, the two parties, along with four others, signed a declaration appealing for popular support. Analysts predict Gediminas VAGNORIUS, prime minister from January to August 1992, will become the next premier, while LANDSBERGIS prepares to run for president in 1998 elections.

In the 1992 elections, Homeland lost its majority in parliament, primarily due to the discontent of the hard-hit rural population. President Algirdas BRAZAUSKAS and his LDLP—the former Communist party—were elected on pledges to ease the pain of the economic transition. However, the government is now experiencing a backlash due to its inability or unwillingness to fulfill those populist promises. On the contrary, it has followed the austerity program recommended by the International Monetary Fund (IMF). It has also been discredited by corruption charges and a banking crisis, in which a former prime minister withdrew his money from a bank just a few days before it was closed by the government in December.

Transcaucasia and Central Asia

Kazakhs Prepare 1997 Budget

· The Kazakh government on Thursday unveiled a draft 1997 state budget, which projected two percent growth in GDP, reported Xinhua. Finance Minister Aleksandr Pavlov said the budget plans for total revenues of 157.6 billion tenge (about $2.28 billion) and total expenditures of 189.2 billion tenge ($2.74 billion). The GDP is forecast at 1,740 billion tenge ($25.2 billion), up two percent from 1996.

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