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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, January 3, 1997

Russian Federation


Yeltsin and Kohl to Discuss NATO

· Russian President Boris YELTSIN today flew to the Rus state hunting lodge in Zavidovo, about 100 km. west of Moscow, to prepare for a meeting with German Chancellor Helmut KOHL on Saturday. KOHL, who has a close personal relationship with YELTSIN, will be the first Western leader to meet with the Russian president since he underwent heart bypass surgery on November 5.

The planned 3-4 hours of talks at Rus will mainly focus on the future shape of European security arrangements, specifically the issue of NATO expansion, Reuters cited a German government spokesman as saying. NATO is hoping to overcome Russian objections to eastern expansion by forming a special relationship with it. German analysts believe that the Russian government is resigned to the first wave of NATO expansion, despite such incidents as Defense Minister Igor RODIONOV refusing a NATO offer to exchange military liaison officers and warning that expansion could jeopardize arms control. Top Russian officials have made contradictory statements on Russia's view of NATO and Western leaders are likely seeking to clarify with the recovering YELTSIN what policy line he will follow.

The West may be disappointed, however, with YELTSIN's planned position. Russian presidential aide Dmitri RYURIKOV told Interfax on Wednesday that "overcoming the concept of NATO expansion eastwards" will be a "major goal" of YELTSIN's foreign policy in 1997, reported Thursday's OMRI. RYURIKOV said that Moscow views NATO expansion "as a kind of offense," arguing that "it was Russia that won the Cold War by doing away with military confrontation for the good of all countries."

Incriminating Exhibit Opens in Moscow

· An exhibition featuring documents and audio tapes of compromising materials on dozens of prominent Russian politicians and public figures opened in Moscow on the eve of 1997, reported Itar-Tass Express weekly. Among the exhibits are a documented report by US Kroll Company on foreign bank accounts held by high Russian government officials, copies of signed receipts by a hundred politicians who received payments from the Vlastelina company, which was involved in criminal banking, and the Israeli passport of one of the leaders of the Russian patriotic movement. In addition, President Boris YELTSIN's former chief bodyguard Aleksandr KORZHAKOV furnished the exhibition with the last audio tape from his telephone answering machine. Visitors may purchase copies of the exhibited materials. The exhibition was organized by young artists of Moscow.

FAPSI Seeks Control of Russian Internet

· At recent Russian State Duma hearings on Russia and the Internet, the Federal Government Information and Communications Agency (FAPSI) outlined a plan for creating a special protected computer network for Russian government officials, reported Kommersant-Daily on December 24. The users of this network would be able to communicate with the rest of cyberspace only through a special "sluice gate," a protected system designed by FAPSI that would prevent hackers and foreign intelligence agencies from breaking into government computers.

Today's News Highlights


New Exchange Corridor Set

Tax Revenues Up

New Copyright Legislation

New Securities Legislation

False Bankruptcy Law Enacted

Boeing Sued Over Rus. Rockets

AOL Finds Internet Credit Fraud

European Republics

Metromedia Buys Moldova Cable

Updates Chechnya




January 3, 1997

Intercon's Daily

Ruble = 5,747.13/$1.00 (NY rate)

The value of the US dollar increased by 920 rubles during 1996, according to official figures, from 4,640 rubles as of January 3 to 5,560 rubles per dollar as of December 31. The 1996 annual inflation rate was 22 percent, and the dollar's value against the ruble increased by approximately 19.8 percent. Therefore, the dollar's buying power fell by only two percent in 1996, while in 1995 it dropped 43 percent.

Tax Revenues on the Rise

· Russian State Tax Service department head Andrei ILYIN estimated on Thursday that tax revenues for December will reach 25 trillion rubles ($4.5 billion), a 23 percent increase over the monthly average for tax revenues in 1996, reported RIA Novosti today.

Govt. Approves World Bank Loan

· The Russian government has approved a $70 million September loan agreement with the World Bank, reported Interfax. The loan is for a program to improve efficiency in the country's electricity use. Of the total, $58 million will be allocated by the Finance and Fuel and Energy ministries to regions and municipalities. It will finance the purchase of energyefficient equipment by major gas consumers in 10 cities—St. Petersburg, Vladimir, Voronezh, Nizhny Novgorod, RostovonDon, Ryazan, Samara, Saratov, Stavropol, and Cherepovets—and studies to support policy reform in Russia's gas sector. These local governments will each repay, with interest and commissions, their portion of the loan. The remaining $12 million in technical assistance will be repaid and serviced by the federal budget.

New Copyright Law to Take Force

· On 1 January 1997, new legislation took effect which imposes increased fines and carries a possible prison term of up to two years for illegal use of certain copyrighted materials, reported Interfax. The fine and prison term will be doubled if the crime is committed by a group or a repeat offender.

Developers and suppliers of software should welcome the tighter copyright legislation, a spokesman for the Moscow office of Latham & Watkins, an international company providing legal services to software suppliers including the US firms Microsoft, Novell, and Symantec, told Interfax. Microsoft has estimated that Russian software piracy cost the

Aug Sept Oct Nov Dec Jan

At a meeting after the Duma hearings, Russian Internet experts scorned FAPSI allegations that the CIA is busily creating "information weapons" and "combat computer viruses" to use against Russia, said the paper. More worrisome to the experts, however, were reports that FAPSI wants to impose blanket restrictions on the use of the Internet. The rationale for the restrictions would be similar to that used in China and Singapore, where certain types of information are prohibited on the Internet "for the sake of maintaining peace and upholding public morals," said Kommersant-Daily.


New Currency Exchange Corridor in Effect

· Starting 1 January 1997, Russia set new boundaries on its inclined currency corridor which allow the ruble-dollar exchange rate to fluctuate between 5,500 and 6,100 rubles to the US dollar, reported Prime-Tass on Wednesday. After 31 December 1997, the parameters of the corridor will change to 5,750-6,350 rubles/$1.00. The limits of the previous ruble exchange corridor ranged from 5,000 and 5,600 rubles to the dollar.

In 1997, the ruble's value against the dollar is expected to decline by approximately nine percent, while the forecasted inflation rate is 12 percent. According to Central Bank experts, currency policy in 1997 will be implemented as a component of financial stabilization policy, which should allow the currency corridor to continue to control inflation.

When you need to know it as it happens




January 3, 1997

Intercon's Daily

company $700,000 in 1995. Last year, the company did $14 million worth of business in Russia and it estimates losses from piracy at more than $200 million.

Russian courts heard three cases of copyright offense filed by Microsoft in 1996, said the spokesman. The Russian anti-monopoly committee suspended the operations of the Moscow-based Viza company for illegal production and distribution of Microsoft programs, and a Russian court fined the High Technologies company 75 million rubles ($14,000) for illegal trade of Microsoft products. A third company Triatoris was penalized for installing unlicensed software in the computers that it assembles. Microsoft plans to press suits for copyright offense against three other Russian companies in 1997, said the Latham spokesman.

Experts estimate that 94 percent of all software sold in Russia is purchased on the black market, making Russia the second largest market for illegal software in the world after China, reported Intercon in November.

The US government is also closely following the development of copyright legislation in Russia and the problem of piracy. In a statement circulated in Washington last week, US Trade Representative Charlene BARSHEFSKY called for tougher enforcement of copyright and trademark protection laws in Russia by the authorities.

At the same time, she noted progress in Russia's "battle against piracy," pointing to Russia's compliance with its trade obligations set forth in the 1992 bilateral trade treaty and its January 1997 adoption of a new criminal code that places more severe punishments on copyright violations. The statement notes, however, that strict enforcement of the legislation by Russian authorities is needed.


False Bankruptcy Law Enacted

· Under a new criminal code that took effective 1 January 1997, Russian companies that falsely declare bankruptcy are subject to substantial penalties, reported Interfax today. A Russian chief executive who bankrupts his enterprise by pursuing his personal interests is liable to face fines or up to six

years in prison. Concealing the property of an indebted enterprise or falsifying its accounts can result in a prison term of up to two years. A false declaration of insolvency with the aim of obtaining permission to defer debt repayment carries imprisonment of up to six years. Under the old criminal code, the only penalty faced by a chief executive for the above offenses was dismissal from his post.

New Securities Law Takes Effect

· New Russian criminal code, effective from January 1, tightens securities regulations, reported Interfax. Under the new law, selling securities without central bank licensing will incur a three- to seven-year prison sentence while top company executives whose firms deliberately publish false information about the company's securities will be subject to fines. The former regulations addressed only counterfeiting of state securities. This crime will now carry a sentence of five to eight years in prison.

Third Submarine Sent to Iran

· A diesel-powered submarine—the last of three ones supplied by Russia to Iran—passed through the Suez Canal on Thursday, heading for Iran, reported Itar-Tass today. The submarine will join the Navy of Iran, which is the only Gulf state which has a submarine fleet.

US Company Sues Over Russian Rockets

· Denver-based Commercial Space Management Co. filed suit on Friday against US Boeing Co. and its partners in a commercial space venture, charging that the group used "fraud and deceit" to persuade Russian rocket manufacturer ENERM to back out of

Upcoming Events

US-Russia Investment Symposium:

Financial and Direct Investment Opportunities

in Russia

January 9_12, 1997

Harvard University,

John F. Kennedy School of Government

Sponsored by: the US-Russian Business Council, the Conference Board,

and Harvard University

Information: Jill Costello

E-mail: jillc@world.std.com; Tel: 617-787-6597

When you need to know it as it happens




January 3, 1997

Intercon's Daily

a previously negotiated deal, reported Reuters. Commercial is seeking more than $3 billion in damages for lost business and punitive damages.

The company says it signed an exclusive deal with ENERM in 1993 to obtain its Zenit and Energia rockets and paid at least $100,000 before the contract was suspended by a trade agreement between the US and Russian governments restricting the sale of launch vehicles.

The complaint, filed in Los Angeles Superior Court, asserts that when the restrictions were lifted in 1995, Sea Launch Co., a consortium led by Boeing, had arranged to use the Russian rockets in violation of the 1993 agreement. The document further contends that Boeing used "purloined documents" to conclude that ENERM was justified in breaking its contract with Commercial and says recent efforts to negotiate with Boeing were fruitless. The other partners in Sea Launch listed as defendants are Kvaerner of Norway and ENERM's two component companies RSC-Energia of Russia, and NPO-Yuzhnoye of Ukraine.

Credit Card Fraud by Russian AOL Users

· Russian users of the world's largest Internet provider, America Online, have been cut off from direct access since December 14 because of widespread credit card fraud on Russian based accounts, reported the St. Petersburg Times, citing a company spokesman. "We were made aware of fraudulent activity connected with credit card payments [in Russia]," Susan PORTER of AOL's public relations department told the Times.

AOL provides direct access to its services to Russian users via two telecommunications companies, SprintNet and GlobalNET, both of which shut down their AOL direct access numbers. According to PORTER, people using fraudulent credit card numbers would buy large blocks of time using access provided by the two phone companies, and AOL would get stuck with the bill.

Credit card fraud over the Internet is a major problem in Russia, Adam ROSENBLATT, marketing manager for Matrix Technologies, a new Russia-based Internet service provider, told the Times. "It's no problem to get hold of credit card numbers. Fraud is tremendous here," said ROSENBLATT. "The service provider gets defrauded because the user accounts don't get paid, and there is also fraud involved in ordering over the Internet."

European Republics

Metromedia Acquires Moldova Cable TV

· Metromedia International Group Inc.'s wholly-owned subsidiary Metromedia International Telecommunications Inc. (MITI) announced today that its 50-percent owned Moldovan joint venture, Sun-TV, has concluded an acquisition of the assets of Eurocable Moldova Ltd., according to a company press release. Eurocable is a wired cable television company with some 30,000 subscribers and 100,000 homes in Kishinev, which has a population of about one million in the cable coverage area.


Chechnya: Former Chechen rebel commander Aslan MASKHADOV stepped down from his position as prime minister in Chechnya's coalition government on January 1 in connection with his candidacy in the January 27 presidential elections. Rebel field commander Ruslan GELAYEV has been named to replace him. Chechen law requires all government officials running for office to resign by January 2. Currently, 16 candidates are registered to compete for the presidency, and some 10 candidates have been nominated to compete for each of the 63 parliamentary seats.

The Chechen coalition government plans to prosecute former Chechen president Doku Zavgayev and some of his supporters "for crimes against the Chechen people," Chechen Deputy Prime Minister Ruslan Kutayev told Echo Moskvy radio today.

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 1997, Intercon International, USA.

When you need to know it as it happens