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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

Thursday, January 9, 1997

Russian Federation

Politics

Next Few Days are Key for Yeltsin

· Russian President Boris Yeltsin, whose temperature was normal this morning, is resting in the hospital and being treated with antibiotics, according to the presidential press service. Despite having recently undergone major surgery, medical experts believe that if YELTSIN responds to the antibiotics he should recover easily from his latest ailment. A clearer prognosis will become available in the next few days.

Prime Minister Viktor Chernomyrdin, who would assume power should YELTSIN be declared unfit to rule, doesn't seem particularly worried about the president's health, leaving today for a vacation expected to last through the middle of next week. He had a 15-minute telephone conversation this morning with YELTSIN, and will maintain regular phone contact with the president while he is on leave, said the press service.

Down the hall from YELTSIN at the hospital is Finance Minister Aleksandr LIVSHITS, 50, who was also admitted yesterday and is reportedly suffering from influenza. The flu season is in full swing now in Russia with some 64,000 Muscovites coming down with the illness since January 1. According to the Russian Health Ministry, flu epidemics have been reported in several northern regions including Khabarovsk, Yakutsk, Murmansk, Arkhangelsk, Chelyabinsk, Chita, Magadan, Yaroslavl, Kazan, and Birobidzhan.

Lebed Wasting No Time

· Russia's most ambitious politician, former Security Council secretary Aleksandr LEBED today demanded President Boris YELTSIN step down for

health reasons in light of his latest illness, calling the country "rudderless."

"The president is in the hospital, the prime minister on holiday and people have not been paid and are not paid. No one has dealt with the economy or is dealing with the economy.... Someone has to answer for that, someone has to rule," he is quoted by Reuters as saying. LEBED has called on YELTSIN to relinquish power several times in the past, hastening his own dismissal from the government by flagrantly displaying presidential aspirations while the president was ailing.

Primakov on Russian Foreign Policy in 1997

· Russian Foreign Minister Yevgeny Primakov on Wednesday reaffirmed Moscow's opposition to NATO's planned eastward expansion, demanding a voice in the Alliance's decision-making concerning Russia's "vital interests," according to Xinhua. Outlining Russia's foreign policy priorities for 1997, Primakov said that Moscow would welcome NATO's offer of a new relationship, only if the Alliance proves its willingness to take Russia's concerns into account.

He said that NATO will indicate its "seriousness of intentions" by agreeing to adjust the Conventional Forces in Europe (CFE) treaty and by consulting with Russia on important issues. "If we manage to reach agreement on the modernization of CFE ... and to create a mechanism for making joint decisions with NATO concern

Today's News Highlights

Russia

Primakov on Chechnya/CIS

New Finance Ministry Duties

Nizh. Novgorod Eurobond Issue

Glaxo Wellcome in Krasnodar

European Republics

Ukraine Struggles w/'97 Budget

New Kiev Hotels Planned

Transcaucasia & Central Asia

US Man Killed in Kazakhstan

Pavlodar Refinery Tender

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Thursday

January 9, 1997

Intercon's Daily

Thursday Tidbit

Baltic states. Most ethnic Russians living in Estonia and Latvia do not have citizenship and some have complained about political discrimination.

PRIMAKOV singled out Estonia as potentially susceptible to economic sanction, estimating that 60 percent of its national income derives from trade with Russia. "We are continuing to pressure Estonia on humanitarian issues, at least [until it] complies with the recommendations of the OSCE [Organization for Security and Cooperation in Europe] on the status of the Russian-speaking population in this republic."

Finance Ministry Responsibilities Defined

· The Russian government today adopted a resolution endorsing the new main functions and structure of the Finance Ministry, reported Prime-Tass. According to the resolution, the Finance Ministry is the legal successor to the Federal Service for Surveillance over Insurance Activities (now abolished), the Committee for Precious Metals and Stones (except functions delegated to the Industry Ministry), and the Federal Commission Supervising Lotteries and Gambling (except functions delegated to the State Committee for Physical Culture and Tourism).

The maximum number of the staff of the Finance Ministry will be 1,645 (except security and personnel servicing buildings). The structure of the Finance Ministry includes 14 deputy finance ministers, three first deputy finance ministers, and a Finance Ministry Board with 31 members. The Finance Ministry Board includes the heads of the State Tax Inspectorate and State Customs Committee. The Finance Ministry was also put in charge of the State Mint, the Almazyuvelir diamond jewelry export association, and the State Repository.

Economy

Ruble = 5,595/$1.00 (NY rate)

Ruble = 5,585/$1.00 (CB rate)

Ruble = 5,573|5,597/$1.00 (buy|sell rates)

Morgan, Barings to Handle NN Bond Issue

· A commission in central Russia's Nizhny Novgorod Oblast has appointed US JP Morgan and Dutch ING Barings to handle a 1997 Eurobond issue for the region. The oblast will issue $75-$100 million in five-year bonds. The bonds are expected to yield over 10 basis points more than Russian national

Russian brewers

and beer drinkers have extra

reason to rejoice this New Year's: they

were exempted from a new tax on alcoholic

beverages. "It foams, it's sold in kiosks, and it has

alcohol in it—but officially it is not an alcoholic drink,"

Oleg SMIRNOV of the St. Petersburg Trade Committee told the St. Petersburg Times. A new tax, effective on January 1, will apply to wine and spirits, but thanks to lobbying by four major St. Petersburg breweries, beer

has been declared a non-alcoholic beverage. Brewers

are overjoyed as the new tax would have doubled the

price of beer. A spokeswoman for Stepan Razin

beer, however, reminds Russians that

despite the new classification: "The effects

Stepan Razin has on a person

is still the same."

ing Russia's vital interests and other issues, we will sign the appropriate document [on a special relationship]," said Primakov.

Russia considers NATO's plan to admit eastern and central European countries, which could mean nuclear deployment on Russia's border, a serious threat to its security, said PRIMAKOV. Noting that Moscow has no right to veto NATO expansion, he said that "no one, including NATO members, can veto our right to defend our national interests."

Primakov on Relations w/Chechnya and CIS

· Russian Foreign Minister Yevgeny Primakov told a Cabinet meeting today that Chechnya's drive for secession is very real, reported Itar-Tass. "There is a real threat that Chechnya will go out of Russia de facto and de jure," he warned. He said the government is facing "the immense task of placing shock absorbers on this path," including by improving relations with the Organization of the Islamic Conference (OIC) and other Muslim groups.

As for Moscow's policy towards Russians who reside in former Soviet republics, Primakov said the government's efforts should focus on "having the Russians living abroad settled down rather than moving them out to Russia."

He also called on the government "not to balk at the use of economic sanctions" to combat discrimination against Russian speakers, particularly in some of the

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	Thursday		January 9, 1997
	Intercon's Daily
	bonds, according to Governor Boris NEMTSOV, who heads the commission. The banks stand to earn a one percent commission on the issue. The two were selected from a group which included AMRO Bank, Eurofinance, Creditanstalt, CS First Boston, and Deutsche Morgan Grenfell. Standard & Poor's will assign the region a credit rating. Business Glaxo Wellcome in Deal with Krasnodar · British pharmaceutical company Glaxo Wellcome signed a contract with Krasnodar city offficials today to become the main supplier of medicines to the city, which is the capital of southern Russia's Krasnodar Krai. The city purchased pharmaceuticals for oncological patients, antibiotics for children, and medicines for asthma and allergies. Krasnodar will also receive a drug to reduce the side effects of chemical and radiotherapeutics. GM Gets Tax Break for Tatarstan Plant · The local parliament in the Russia's central Republic of Tatarstan voted Wednesday to exempt a local General Motors joint venture car factory from regional profit tax and VAT, reported United Press International (UPI). Officials said the decision will halve the overall tax burden of GM's $250 million venture with the Yelaz factory to build Chevrolet Blazers for sale in Russia and the former Soviet republics. The venture also received a five-year deferral on payment of the 13 percent federal profit tax and the 10 percent federal VAT. The joint venture turned out its first vehicles last month. GM holds a 25 percent stake, but full control over management of the venture, which will assemble Blazers from parts shipped from Brazil before eventually switching to production from locally-made components.	said on Tuesday that the legislature's delay in approving the budget, which called for cuts in social spending and for tax reductions, could invite cutbacks in the $3.5 billion in expected aid, reported Xinhua. "I am concerned not only that Ukraine is not going to receive the entire promised sum, but also that it will still be unable to overcome the crisis after receiving significant help," said Suslov. The budget, which cuts government subsidies for war veterans and the victims of the 1986 Chernobyl nuclear plant blast, drew fire from leftists in parliament, while education and research spending cuts were opposed by nationalist parties. Some legislators also criticized the government's proposed tax reforms, which would lower the average income tax rate from 42 percent to 34 percent while adding a two percent property tax on individuals and corporations. Last month, Deputy Prime Minister Viktor PYnzenyk warned that failure to approve the budget, which was endorsed by the International Monetary Fund (IMF), the World Bank, and 14 other donor nations, could endanger some expected foreign loans. Hotels & Renovations in Ukrainian Capital · Kiev Mayor Aleksandr OMELCHENKO said on Tuesday that construction will begin shortly on several five-star hotels and the renovation of the city's Bessarabian Quarter, reported Interfax. The projects are to be completed by May 1998, when Kiev will host the annual meeting of the European Bank for Reconstruction and Development (EBRD). The meeting should bring in about 4,000 visitors. Work on the Teatralnaya Hotel will begin any day, and construction of the Grand Hotel is also expected to commence soon. The mayor said a contract to rebuild the Leipzig Hotel is in the works. Germany's Upcoming Events Ukrainian-North American Investment Forum January 29_30, 1997 Marriott Financial Center Hotel, New York City Sponsored by: KPMG International Info: American Conference Institute Tel: 416-927-7936; Fax: 416-927-1563

	European Republics Ukraine Struggles with 1997 Budget · The Ukrainian parliament has been unable to agree on tax reform legislation or pass a draft 1997 budget, which could jeopardize a promised foreign assistance package. Viktor Suslov, chairman of the parliamentary finance and banking committee,

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Thursday

January 9, 1997

Intercon's Daily

Hoch Tief is beginning construction of a hotel-office complex in the historical section of Kiev. OMELCHENKO said that the complex may be run by US Hilton or Marriott.

Under a contract signed in December, South Korea's Daewoo will invest $194 million in renovation of the city's Bessarabian Quarter, building a hotel and a business and trade center in the area. Austrian firm Maculan began renovation of the quarter in 1993, but the project was halted when the company failed to see eye-to-eye with city officials.

Shadow Cabinet Formed in Minsk

· Belarussian opposition members have formed a shadow cabinet in reaction to a November dissolution of parliament by President Aleksandr LUKASHENKO, reported Interfax. Former parliamentary deputy chairman Gennady KARPENKO was chosen on Tuesday to lead the new National Economic Council. Most members are deputies of the former parliament. The council plans to analyze the country's economic situation, and will include committees on economic policy, security, social policy, and labor. About 40 members will meet in Minsk at least twice a month. The council will also examine Belarus' questionable human rights record.

Transcaucasia and Central Asia

American Man Killed in Kazakhstan

· A 28-year-old American man was found dead in his Almaty apartment today. Christopher Joseph GEHRING of Arkansas, who worked for a US-based non-profit media development company, had his throat slit in an apparent robbery.

Kazakhstan Passes 1997 Budget

· The Kazakh government on Wednesday released the country's 1997 Budget Law which envisions revenues of 177 billion tenge ($2.4 billion) and expenditures of 200 billion tenge ($2.7 billion), reported Xinhua. Under the law, the state treasury is to extend 32.8 billion tenge ($440 million) in loans, thus

registering a budget deficit of 55 billion tenge ($740 million), or about three percent of the gross domestic product (GDP).

The budget allocates 58 billion tenge to support domestic production—a 60 percent increase over last year's allocation, and earmarks 165 billion tenge for national defense and the social security system.

The 1997 Budget Law was approved by the Kazakh parliament last Christmas and signed by President Nursultan Nazarbayev on December 31.

Pavlodar Tender Participants Named

· The Kazakh State Property Committee on Wednesday announced the names of six bidders in the tender for the country's state-owned Pavlodar Oil Refinery, reported Reuters. Committee spokesman Mirkhat NIGMATULIN said that Canada's Hurricane Hydrocarbons Ltd., Britain's CCL Oil and Inter-Mediterranean Petroleum Co., US Access Industries, and Kazakh Amaday and Radical have submitted bids on the plant, located in the northern part of the country. The plant has a capacity of about 7.5 million tons per year.

Hurricane last year won a 90 percent stake in Kazakh Yuzhneftegaz oil enterprise when it promised to invest $280 million over six years and pay off the company's debts. The Kazakh government is involved in a massive sell-off of most of the country's energy enterprises. However, several of the tenders have been delayed.

Tajikistan Uncovers Major Tax Evaders

· Tajikistan's tax payment commission has exposed several major tax evaders who were holding unlawful bank accounts in rubles and hard currency not only inside the republic, but also in banks based in other former Soviet republics and foreign countries, reported Itar-Tass today. Among the offenders were such monopolists as the Tajik aluminum plant and the leading Tajik cotton company, said Prime Minister Yakhya Azimov, who heads the commission.

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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