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

Wednesday, January 8, 1997

diplomatic sources in Washington. The Moscow post has been vacant since the departure of Ambassador Thomas Pickering on November 1, 1996.

Roy, a career diplomat, entered the US Foreign Service in 1956. Prior to his ambassadorship in Indonesia, ROY served as Ambassador to China (1991_1995) and Ambassador to Singapore (1984_1986). He also worked at the US embassies in Thailand, Hong Kong, and Taiwan, as well as serving in Moscow and as Soviet Affairs Officer in Washington during the 1970s. He speaks Mandarin Chinese, Russian, and Thai.

New Viewpoint on NATO Expansion

· A Russian parliamentarian this week forwarded a new Marxist-Leninist view of NATO's planned eastward expansion. Nikolai Stolyarov, Deputy Chairman of the Russian State Duma Committee on International Affairs, told Itar-Tass today, that the real reason for NATO's planned expansion is to realize its "economic ambitions" in Eastern Europe.

"Eastern Europe is a vast market of cheap raw materials and cheap labor force. NATO's eastward expansion pursues the aim of dislodging Russia from the geopolitical space where it has been historically present and must be present," said Stolyarov.

Noting that Russia has apparently intruded upon the sphere of interests of the US and other NATO countries, Stolyarov insists that Russia "must defend and uphold its economic interests."

Russian Federation

Politics

Has the President Caught Pneumonia?

· Russian television reported today that President Boris YELTSIN is showing the early signs of pneumonia and doctors had ordered that he be admitted to the hospital. A Kremlin statement, issued this afternoon, said that he would be taken to Moscow's Central Clinic Hospital for several days. On Monday, the Kremlin announced that YELTSIN was suffering from a "heavy cold" and had canceled his meetings for the next few days to rest at his dacha.

This is very serious. Pneumonia can be fatal for a man of 65 years, particularly so soon after undergoing major surgery. Moreover, it renews the political uncertainty that has prevailed in the country over about the last 18 months. The recent sense of political stability in Russia was short-lived. YELTSIN had returned to work at the Kremlin for only two weeks, following his recovery from heart surgery conducted on November 5, before falling ill again.

His continued health problems were apparently anticipated by former Security Council chief and presidential aspirant Aleksandr LEBED, who recently stepped up his party-building and politicking activities, reportedly on the advice of former presidential bodyguard Aleksandr KORZHAKOV.

A government spokesman said earlier today that Prime Minister Viktor CHERNOMYRDIN was weighing whether to leave Moscow on a planned short holiday, but it is now likely he will be forced to cancel.

Roy to Be US Ambassador to Russia?

· J. Stapleton Roy, currently the US Ambassador to Indonesia, will likely become the new US Ambassador to Russia, reported Itar-Tass today, citing

Today's News Highlights

Russia

Bomb in Kabardino-Balkaria

Eco. Security Measures Planned

NEC in Central Bank Contract

Intercon Special Feature: An

Eye on Russian Intelligence

European Republics

Food Scandal in Belarus

Daewoo Seeks AvtoZAZ Stake

Transcaucasia & Central Asia

Uranium Left in Georgia

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Wednesday

January 8, 1997

Intercon's Daily

Bomb at North Caucasus Parliament

· A bomb exploded at the regional parliament building in the southern Russian Republic of Kabardino-Balkaria this morning, but there were no injuries, reported Reuters. The device went off in the basement of the building in the regional capital Nalchik, which is located some 100 km from the border with Chechnya. No one claimed responsibility for the blast.

Kabardino-Balkaria will hold a presidential election on Sunday in which incumbent President Valery KOKOV will run unopposed. However, a regional security official told Interfax that there was no evidence that the blast was politically motivated and could have been "simple hooliganism." In June 1996, a bomb blew up a bus in Nalchik, killing four people and injuring 24, but no one claimed responsibility.

Economy

Ruble = 5,594/$1.00 (NY rate)

Ruble = 5,580/$1.00 (CB rate)

Ruble = 5,565|5,595/$1.00 (buy|sell rates)

Economic Security Measures Planned

· The Russian government issued a resolution today on priority measures to implement an April 1996 presidential decree on maintaining the country's economic security, reported Itar-Tass. The measures include reducing the skewed distribution of wealth among the population, preventing the further deterioration of the Russian economic structure, preventing the increasingly unequal social and economic development in the regions, and eliminating the causes of crime in society. By March 1, 1997, appropriate federal agencies must estimate the possible threat to economic security and create a system to ensure this security.

India to Finally Buy Two Russian Subs

· After a four-year delay, India has agreed to purchase two Kilo-class diesel submarines from Russia for $1.5 million, reported Xinhua today, citing the Press Trust of India (PTI). Indian Navy officials were quoted as saying that the service has a critical requirement for new submarines, as six Russian Foxtrot-class submarines would be decommissioned over the next three years. The navy's submarine fleet, it said, now comprises six Foxtrot-class, four HDW-class, and eight Kilo-class vessels.

Business

NEC Gets Contract with Russia Central Bank

· Japan's NEC Corp. announced today that it has received a $25 million order from the Russian Central Bank to install a satellite communications system, reported Dow Jones. The Central Bank will use the system to transmit bank settlement data via satellite between the head office and its 340 branch offices.

NEC will install two large relay stations at the Central Bank's main office in Moscow and relay terminals at each of the branch offices, beginning in June. The system is expected to be operational by autumn.

Natsionalny Kredit Bank Declared Insolvent

· The Russian Central Bank has revoked the license of Natsionalny Kredit bank, reported Russian television (RTV). Established six years ago, Natsionalny Kredit was one of Russia's leading banks until May 1995 when it found itself in financial trouble. The total debt of the failed bank was $700 million. Boris FYODOROV, the former head of the National Sports Foundation, is chairman of Natsionalny Kredit.

European Republics

Belarus Opp. Leader Barred from Travel

· Former Belarussian President Stanislav SHUSHKEVICH was prevented from flying to Poland on Saturday to attend a political symposium at Warsaw University, reported Reuters. SHUSH-KEVICH said on Sunday that border guards told him his diplomatic passport was no longer valid. According to Monday's OMRI, President Aleksandr LUKASHENKO decreed that, as of January 1, 1997, diplomatic passports held by members of the 1996 legislature are invalid. SHUSHKEVICH said he applied for a regular passport, but was rejected. Semyon SHARETSKY, speaker of the parliament dissolved in November by the president, was prevented from going to Poland by border guards last month.

Food Distribution Scandal in Belarus

· Belarus President Aleksandr LUKASHENKO has dismissed several top officials over corruption charges related to winter food distribution to the population, reported Tuesday's OMRI. The officials included a first deputy trade minister, the first deputy chairman of the board of directors of the Belarussian Food Cooperative, the president of the Belarussian

When you need to know it as it happens

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Wednesday

January 8, 1997

Intercon's Daily

Intercon Special Feature

Insider's Outlook:

An Eye on Russian Intelligence

by Oleg D. Kalugin

at $8.8 billion—three times more than allocations for science or agriculture, and almost as much as for industry, power engineering, and construction taken together.

Russian intelligence doctrine has undergone practically no change. It still lists the US as the prime target of intelligence efforts. According to NG, the SVR operates "from three to seven major illegal networks in the USA and Canada which report directly to their Moscow headquarters."

The SVR has been persistently intimidating the Russian leadership and people with the old bogeyman of the Western threat. "We are categorically against NATO enlargement," says the SVR director, "and it fully correlates to the position of our Foreign Minister (the former SVR chief). We have complete mutual interaction and support. We supplement each other." The SVR has also detected a new danger, this time emanating from the former Soviet republics of Georgia and Ukraine. And again the West is at the helm of this threat, forming an unholy alliance to try to undermine Russian security on the southern flank.

In the final analysis, these statements highlight the continued lack of legislative and public control, arrogance in the face of scandalous failures, duplicity and disinformation. This leads to one inexorable conclusion—the legacy of the Soviet secret police, submerged for a time, is now resurfacing for everyone to see.

When asked how he evaluates the performance of other foreign intelligence services compared to his own, the SVR director singled out the British MI-6 as superior to every one (except Russia, of course). The reason: they "did the most damage to us."

Is it really possible that the Brits succeeded in getting over to their side more than the 25 Soviet-Russian Nicholsons and Pittses who worked for the CIA or defected to the USA in the past 16 years? Or did they beat the US intelligence services which had such spectacular programs as "Venona"—the decoding of secret Soviet cable traffic—and the tapping of Soviet government and KGB communication lines?

If that's the case, shouldn't the Russian spooks await with trepidation a new wave of shakeups of their intelligence and security agencies? In any event, they deserve it.

The CIA may deem itself "uber alles," as cartoonist Herblock put it in the Washington Post, but it is certainly no match for Russia's Foreign Intelligence Service (SVR) which, according to director Vyacheslav TRUBNIKOV, "is unsurpassed and second to none."

Indeed, any stretch of imagination by the US spy agency pales next to that of its Russian counterpart which leaked to the official media a stunning revelation: Paul TATUM, a US businessman assassinated recently in Moscow, was a CIA agent and fell victim to an agency plot to get rid of those agents who had outlived their usefulness.

FBI director Louis FREEH must have turned green with envy too when his Russian opposite number, Federal Security Service (FSB) head Nikolai KOVALYEV, announced the arrest of 39 Russian citizens who spied for Western intelligence agencies. The FBI, said a major Moscow newspaper (Nezavisimaya Gazeta), was so disturbed by the news that it decided to urgently detain one of its own agents—Earl PITTS.

Its amazing how crude and ludicrous the disinformation practices of the new "democratic" Russian special services have become, compared with efforts of the old Soviet KGB. It is noteworthy that all these plugs were timed to coincide with the `Day of Chekists,' which has been celebrated annually since the Communist takeover in 1917, and was renamed the `Day of State Security Workers' in YELTSIN's Russia.

That is in essence what is happening in Russia today. The names of almost everything are changed and there is much ado about reforms, but little genuine progress in major areas of public concern. Half-hearted privatization aside, there were no agricultural, tax, judicial, or military reforms, and no basic changes in the security and intelligence setup.

The security agencies, after initial humiliation and disarray, have regained most of their influence over official political thinking. Their budget for 1997 stands

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When you need to know it as it happens

Wednesday

January 8, 1997

Intercon's Daily

Food Industry, a deputy chairman of the Brest regional executive committee, and a deputy chairman of the Minsk city executive committee. Over the winter months, there has been a shortage of butter, sour cream, sugar, and meat. An investigation concluded that the shortages were the result of commercial firms buying up supplies meant for the population and then exporting them for profit.

Daewoo Makes Bid for AvtoZAZ

· South Korea's Daewoo Group is prepared to invest $1 billion to acquire managing control of Ukrainian state car maker AvtoZAZ, reported Dow Jones on Tuesday, citing a Daewoo spokesman. "We hope to buy a 51 percent interest and so gain control of its management," said the spokesman.

If successful in its bid, Daewoo will produce medium-sized cars at the Ukrainian facility, expanding the capacity of the plant from 100,000 to 300,000 units annually. However, no deal has been finalized, and US General Motors Corp. is also said to be negotiating a takeover.

French/Ukrainian Railcar Coop. Deal

· French luxury railcar maker De Dietrisch will provide production training and components to Ukraine's Kremenchug Carriage Works under a 130 million franc ($25 million) contract signed in November, reported Interfax today. The Ukrainian facility will manufacture 250 train cars annually, each costing $500,000—about half as much as the price of a car purchased from Germany's DWA AG. Ukrainian railways are estimated to need 400 to 500 new passenger cars each year, according to Interfax. The Ukrainian transport ministry said there are currently 10,300 cars in operation, 45 percent of which will be due for replacement by the end of the century.

Transcaucasia and Central Asia

US Blames Russia Over Nukes in Georgia

· US officials voiced concern this week over the safety of 9.6 pounds of highly enriched uranium that

is being stored in Georgia, reported Sunday's New York Times. Uranium-235 was provided by Moscow to fuel a research reactor located near Tblisi that ceased operations in the early 1990s. When the Soviet Union collapsed, some 20 pounds of uranium was left at the poorly-guarded Georgian research facility, languishing there during civil war and economic strife. According to Zurab SARALIDZE, deputy director of Georgia's Physics Institute, there were two attacks on the facility in 1993, but while two cars were stolen, the uranium was untouched, reported the Associated Press (AP).

Last year, the facility sold about 11 pounds of the uranium to Uzbekistan for $20,000, Georgy KHARADZE, director of the Physics Institute, told AP. The removal of the remaining uranium has been the subject of negotiations between the US and Russia. In early 1996, the CLINTON Administration asked Russia to accept the uranium, offering to pay Georgia $100,000 for the material as well as to give Russia $1 million to cover the cost of moving it. Moscow approved the deal, but the actual removal of the uranium became stalled by various legal and technical issues. Meanwhile, the US has helped create better security around the facility to protect the uranium.

State Department spokesman Nicholas BURNS told Reuters that the uranium removal issue would be high on the agenda at the next regular meeting between US Vice-President Al GORE and Russian Prime Minister Viktor CHERNOMYRDIN, scheduled for February.

It is not clear, however, that Georgia feels obligated to pursue the US-Russian sale alternative, particularly considering the delay and the dangers involved in the uranium's continued presence in the country. "We are open to all proposals [to buy the uranium], except for those from rogue regimes," KHARADZE told AP. The uranium-235 is weapons grade, but experts say there is an insufficient quantity to make a nuclear weapon.

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.

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