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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, October 31, 1996

Russian Federation


Russian Reversal on Missile Defense

· Russia has reversed its position on an agreement that permits testing and deployment of American anti-missile defenses, due to be signed in Geneva today, US officials said on Wednesday. The accord, a clarification of the 1972 Anti-Ballistic Missile (ABM) Treaty, was announced last month by Secretary of State Warren Christopher and Russian Foreign Minister Yevgeny Primakov, following talks in New York. However, US Deputy Secretary of State Lynn Davis canceled a trip to Switzerland today because the Russian side registered last minute objections to the agreement. "We are disappointed with Russia's reversal of its own position," said State Department spokesman Nicholas BURNS.

Washington has been trying for three years to convince Russia that the ABM Treaty permits the development of defensive systems with certain capabilities. The treaty to be signed today would have allowed testing of low velocity systems, while the testing of high velocity systems was to be discussed at a later date. Russia apparently only said that it wanted to complete talks on both low and high velocity systems before signing anything. Although a relatively minor accord, the break through and then break down of progress on the issue is a blow to the CLINTON Administration.

Talbott's Changing View of Russia

· Even as Russia was reneging on an arms-related deal with the US, Washington's most influential Russophile was assessing current US-Russian relations and cautioning that the lingering Cold War mindset must change for Russia's relationship with the US to prosper and grow. "One challenge America faces, quite frankly, is to overcome Russian suspi

cions, Russian conspiracy theories, and Russian old-think," US Deputy Secretary of State Strobe TALBOTT said at the 50th anniversary of Columbia University's Harriman Institute on Tuesday.

Many Russians still believe "America's real strategy ... is actually to weaken Russia, even to divide it," according to TALBOTT. And he is concerned that: "If too many Russians overindulge their misplaced suspicions that we want to keep them down, then words like partnership and cooperation, will become synonym for appeasement, subservience, humiliation at the hands of the West." Mutual suspicions could encourage the reemergence of rivalry, rather than the growth of collaboration, he said. TALBOTT, who is expected to be named National Security Advisor, or possibly even Secretary of State if President Bill CLINTON is re-elected, concluded by saying that we have a lot of work to do with the Russians.

TALBOTT's rather rosy view of Russia seems to have tempered during his tenure as Undersecretary, along with his realization of the unpredictability of the new Russia, its policymakers and politicians. Should he remain the key US policymaker on Russia during the next presidential term, this speech may indicate that a more cautious approach will be taken.

SVR Angry over US Detention

· Vladimir GALKIN, a former employee of Russia's Foreign Intelligence Service (SVR) European Department, was detained by the FBI at a New York airport recently

Today's News Highlights


Cons. Council Meeting Delayed

Nationwide Strikes Planned

Russian Population Decreasing

IFC in Pioneer Fund

European Republics

Lukashenko Warns Parliament

Baltjia Bank Officials Charged

Transcaucasia & Central Asia

Unocal-Turkmen Gas Pipe Deal

New Uzbek Deputy Premier




October 31, 1996

Intercon's Daily

upon his arrival in the States for a business trip, reported today's Kommersant-Daily. GALKIN, has been retired from the SVR for three years and was on a business visit as the manager of the US-Russian firm Knowledge Express Inc., which deals in telecommunications security systems. "One would like to believe that this is a misunderstanding rather than a provocation," said the SVR of the incident.

According to information obtained by Kommersant-Daily, GALKIN arrived in the US to visit the head office of Knowledge Express for talks on the shipment to Russia of a large consignment of technical protection equipment. The trip, his first to the US, was planned a long time ago and he had had no trouble obtaining a visa from the US Embassy. However, he was arrested by the FBI as he walked off the plane and taken away in handcuffs.

Four high-ranking Russian militiamen, invited by US law enforcement bodies, were reportedly detained along with him, but were released an hour later. The FBI first said that they were arresting GALKIN because they could not find him on the computer, but reportedly they spent several hours questioning him about some inmates (mostly Russian-speaking) currently in American prisons charged with spying.

SVR chief spokesman Yuri KOBALADZE called the incident "an extremely unpleasant precedent." He said that the situation still needs to be analyzed, but did not rule out the possibility of retaliatory measures, said Kommersant-Daily.

US-Russia Row Over Arms to Latin America?

· Russian officials were angered this week over what they see as unfair attempts by the US to thwart Russian arms sales to Latin America. Following an announcement that Colombia would purchase 10 Mi-17 military helicopters from Russia for $42.8 million, US Deputy Secretary of State Robert GELBARD made critical remarks about the quality of Russian military hardware in an apparent attempt to put pressure on the Colombian military, reported today's Kommersant-Daily. This rapidly led to the Russian Foreign Ministry accusing Washington of violating the rules of "loyal competition." According to the newspaper, a Russian-American diplomatic scandal is brewing as Russian arms traders try to move in on the traditionally US-dominated Latin American market. At a briefing on Tuesday, Russian

Foreign Ministry spokesman Mikhail DEMURIN described GELBARD's remarks as an attempt at "interference in the trade relations of two sovereign states." Unfortunately, it appears to be another example of a heightening of tensions between the US and Russia as commercial competition causes new stresses in the post-Cold War era.

Consultative Council Meeting Postponed

· Russian Prime Minister Viktor CHERNOMYRDIN told reporters on Wednesday night that the first meeting of the four-member Consultative Council has been postponed from Friday to sometime next week, reported RIA Novosti. The delay is necessary due to a scheduling conflict—a CIS parliamentary assembly will be held in St. Petersburg on Friday and Saturday. CHERNOMYRDIN said it would be "a waste of time" to comment on State Duma speaker Gennady Seleznyev's announcement that he will not attend the Council meeting to protest the naming of businessman Boris BEREZOVSKY as Security Council deputy secretary. However, Federation Council senior spokesman Yuri Algunov told reporters Wednesday that speaker Yegor Stroyev will attend the Consultative Council meeting.


Ruble = 5,446/$1.00 (NY rate)

Ruble = 5,453/$1.00 (CB rate)

Ruble = 5,449|5,461/$1.00 (buy|sell rates)

Nationwide Strikes Planned

· Trade unions across Russia are preparing to hold a nationwide protest action on November 5 over wage arrears. According to Russia's Federation of Independent Trade Unions (FITU), the government's wage debt now totals 43 trillion rubles. FITU leader Mikhail SHMAKOV told RIA Novosti today that increasing social unrest is also a result of "the government's policy aimed at intentional lowering of wage levels" in order to curb inflation. He stressed that the minimum wage currently accounts for only 20 percent of the subsistence wage, and 85 percent of Russians hardly make enough to buy food.

Russian Communist Party head Gennady ZYUGANOV announced at a press conference Wednesday that the left-wing opposition will take an active part in the protest in support of the national science, culture, education, and public health sectors.

When you need to know it as it happens




October 31, 1996

Intercon's Daily

Russian Population Decreasing

· Russia's population fell by 350,000 since January 1, and totaled 147.6 million people as of October 1, the Russian State Statistics Committee told Itar-Tass on Wednesday. According to the Committee, the downward trend continued this year since the death rate of 14.5 per 1,000 people exceeded the birth rate of 9.1 per 1,000. During the first eight months of 1996, 575,000 marriages were registered, down 14.2 percent from the same period in 1995. However, the number of divorces decreased by 13.2 percent as compared to last year.

Russian Wholesale Markets Expanding

· Low prices on foodstuffs are attracting customers to wholesale markets, and authorities are promoting the activity, reported RIA Novosti. In Moscow, 50 wholesalers are operational, and they account for 50 percent of sales of tea and coffee in the capital. An estimated 20 percent of fruits and vegetables are bought in bulk markets at prices 30 percent cheaper than in shops. Officials have decided to support such places, allowing very liberal regulations on vending conditions, even though a substantial share of the products are illegally brought into Russia.


Pioneer Group in Talks with IFC

· Boston-based Pioneer Group announced on Tuesday that it has concluded agreements with the International Finance Corporation (IFC) regarding an IFC investment of up to $4 million for a 20 percent interest in Pioneer First Russia, a holding company for Pioneer's Russia-based financial services businesses. The final amount of the investment will depend upon the valuation of Pioneer First Russia's assets as of September 30.

A portion of the new investment will be used to finance market development costs of the Pioneer First Open Unit Investment Fund, managed by Pioneer's wholly-owned subsidiary Kompaniya po Upravleniyu Investitsionnymi Fondami (KUIF). Unit investment funds, similar to US mutual funds, are new investment vehicles in Russia. KUIF, the management company for First Investment Voucher Fund, one of Russia's largest voucher privatization funds, was one of three management companies selected in a pilot program introduced by Russia's Federal Commission on Securities to develop open

unit investment funds. Intercon reported on October 8 that Pioneer's was one of the first funds to receive all necessary licensing for the management of this type of fund.

The company's overall strategy is to build a broad-based financial services group to serve domestic Russian retail and institutional investors as well as Western investors in Russia. Pioneer's wholly-owned Russian subsidiaries include KUIF, Pioneer Securities brokerage and financial services company, and Pioneer Services shareholder services company. Pioneer also has a majority interest in Pioneer Investments which will act as the Russian advisor to a direct equity fund, and an indirect holding in First Voucher Bank commercial bank.

Director of IFC's Europe Department Edward NASSIM said, "Pioneer First Russia will have an important role in the development of Russia's capital markets. The company's efforts to establish unit investment funds are particularly significant, as these funds will serve as an important source of domestic finance for investment."

When you need to know it as it happens



European Republics

Lukashenko Warns Parliament on Referendum

· Belarussian President Aleksandr Lukashenko said on Tuesday that he would dissolve parliament, if the Constitutional Court ruled against his plan to hold a constitutional referendum on November 24, reported Itar-Tass. The Court is due to meet on Friday to review both the president's and the parliament's proposed constitutional amendments, according to Wednesday's OMRI. The court said that if judges found that the proposals amounted to new constitutions, rather than just amendments to the existing basic law, any referendum on them would be illegal.


October 31, 1996

Intercon's Daily

Top Baltija Bank Officials Charged

· Latvia's Attorney General today charged two top former officials of Baltija bank with criminal offenses related to the bank's collapse last summer. Board of Trustees President Aleksandr LAVENTU was charged with sabotage, deliberate ruination of the bank, fraud, and misappropriation of funds and bank president Talis FREIMANIS was accused of turning a blind eye to these proceedings, reported RIA Novosti. LAVENTU also allegedly provided loans to fictitious individuals after establishing the aliases.

The bank, then the largest in the three Baltic states, was declared insolvent in May 1995, ruining 150,000 private and 20,000 corporate investors including ministries, local government bodies, public organizations, and several banks. Total damage is estimated at $400 million. Attorney General Janis SKRASTINS said that the criminal court proceedings will start before February.

Transcaucasia and Central Asia

Turkmenistan/Unocal Sign Pipeline Accord

· US oil company Unocal and the government of Turkmenistan have signed an important agreement on the way toward building a natural gas pipeline between Turkmenistan and Pakistan, reported Dow Jones on Wednesday, citing a Unocal executive. The agreement names Unocal as the leader of the consortium building the line, which is expected to pass through Afghanistan. Unocal said it couldn't say when construction will start, but said the gas probably won't start flowing until at least 2000. The volatile situation in Afghanistan and the extensive commercial negotiations that will be necessary will delay the movement of the gas, it said.

The consortium building the gas pipeline includes Unocal, with a share of about 40 percent, Saudi Arabia's Delta Petroleum (with a 20 percent share), Russia's Gazprom (10 percent interest), and Turkmenrosgaz (five percent interest). Other companies may join later. The pipeline will be more than

1,000 km long and its construction is estimated to cost $2 billion. Turkmenistan plans to supply up to 40 billion cubic meters of gas a year to Pakistan by 2002. A crude oil pipeline that would also travel from Turkmenistan to Pakistan is at the same stage of development. It is expected to carry about five million barrels of crude a day by 2010.

New Uzbek First Deputy Premier Named

· Uzbek President Islam Karimov on Wednesday signed a decree appointing Andizhan region governor Kabildzhon Obidov to the post of first deputy prime minister, reported Itar-Tass. Obidov, 45, will be in charge of agriculture and water resources.

Japanese Loans for Uzbekistan

· The Japanese government decided to grant Uzbekistan a credit of 15.5 billion yen (over $140 million), which will be used to finance work on modernizing the airports in Samarkand, Urgench, and Bukhara, reported Itar-Tass. The airport renovations are part of a plan by Uzbekistan to attract tourism to the three cities, which lie along the ancient "silk road." Under a Japanese program to provide credits to improve the country's infrastructure, Uzbekistan received a 12.7-billion-yen loan last year to develop telecommunications, and the country plans to use future loans to repair passenger railway cars.


Chechnya: Alla DUDAYEVA, the widow of the late Chechen rebel leader Dzhokhar DUDAYEV, said in an interview with the Israeli daily Ha'aretz on Wednesday that she had been offered a position in the provisional Chechen coalition government, but had declined, reported Itar-Tass. She told the paper she preferred collecting contributions abroad for Chechen children who had suffered in the war.

DUDAYEVA told Itar-Tass by phone that the ceasefire agreement between Moscow and Grozny was an important document, and that her late husband would have signed it. She said she was in Chechen rebel headquarters "in a Middle East country."

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.

When you need to know it as it happens