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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, February 11, 1997

Russian Federation


Yeltsin Recovery Going "Quite Slowly"

· Russian chief presidential spokesman Sergei YASTRZHEMBSKY told reporters today that President Boris YELTSIN is gradually gaining strength and increasing his physical activity, "Do not expect the president's speedy return to the Kremlin," reported the Associated Press (AP). YELTSIN is recovering from a November quintuple heart bypass and a bout of double pneumonia in early January.

He has reportedly been "working with documents" at his Gorky-9 dacha outside Moscow and seems to be holding about one meeting a day. Today he met with Prime Minister Viktor CHERNOMYRDIN to discuss the premier's visit to the US last week and the planned March summit with US President Bill CLINTON in Helsinki. YELTSIN will meet with Interior Minister Anatoly KULIKOV in the Kremlin on Thursday and make a radio address to the nation on Friday. Early next week, he is expected to meet with Defense Minister Igor RODIONOV, who recently complained that he could not get through to YELTSIN by telephone.

Lebed Watch: Trips to Chechnya, France

· Former Russian Security Council secretary Aleksandr LEBED will travel to Grozny to attend the inauguration of Chechen President Aslan MASKHADOV on Wednesday, reported Interfax. Last summer, LEBED and MASKHADOV signed the peace agreements which ended the 20-month conflict in Chechnya. After Grozny, LEBED will fly to France for a private visit, said the report.

PLO Leader to Visit Moscow

· Palestinian leader Yasser Arafat will arrive in Moscow on February 18 and meet with Russian

President Boris Yeltsin, reported Itar-Tass on Monday. The Palestinian leader will also meet Russian Prime Minister Viktor Chernomyrdin and discuss the Middle East peace process with Russian Foreign Minister Yevgeny Primakov. After the talks, the two sides are expected to sign a number of economic agreements.

Israeli Trade and Industry Minister Natan SHARANSKY, during a trip to Moscow last month, announced that Israeli Prime Minister Benyamin NETANYANU will visit Moscow in mid-March.


Ruble = 5,639/$1.00 (NY rate)

Ruble = 5,646/$1.00 (CB rate)

Ruble = 5,640|5,652/$1.00 (buy|sell rates)

Central Bank Cuts Refinancing Rate

· The Russian Central Bank reduced its annual refinancing rate from 48 percent to 42 percent, effective February 10, the sixth rate cut since February 1996, when it was lowered from 160 percent to 110 percent.

Federation Council to Debate 1997 Draft Budget

· Russia's Federation Council (upper house of parliament) will begin discussing the 1997 draft federal budget on Wednesday, reported Russian television (RTV). The State Duma passed the budget on its fourth and final reading on January 24. Federation Coun

Today's News Highlights


Russian Grain Situation

Fisher Scientific in Russia

Alaska Airlines Expands Routes

Bank of America New Manager

New Director for Norilsk

European Republics

Kuchma Plans Corruption Probe Ukraine to Adopt Currency Band

Ericsson in Estonia

CEME in Lithuania TV Deal




February 11, 1997

Intercon's Daily

cil chairman Yegor Stroyev said he expects the budget to pass, "although with difficulty."

Russian 1997 Grain Imports Seen Down

· US Department of Agriculture (USDA) Secretary Dan Glickman told reporters on Monday that Russia may purchase US wheat and maybe wheat flour this year. "I talked with my Russian counterpart (Deputy Prime Minister) Aleksandr Zaveryukha and the issue of Russian purchases of US wheat came up," he is cited by Futures World News (FWN) as saying. "He (Zaveryukha) showed some interest in US wheat, but no commitments were made." Glickman also noted that any Russian purchases of US wheat would be made by Russia's private sector, and that any US help would be under the GSM credit umbrella.

The USDA's Russia analyst Christian Foster said on Friday that, despite speculation in the Russian media about the need for Russia to import grain, no major Russian grain purchases outside of the former Soviet Union have taken place and probably will not. "USDA is estimating under five million tons of grain being imported into Russia in the 1996-97 marketing year—in fact, closer to around three million tons—and that grain is coming from other former Soviet Union countries and the rest coming from eastern Europe and other western countries," said Foster, according to FWN.

Although Russia's grain crop was larger this year, much smaller livestock and poultry production has reduced the need for feed and has brought about increased exports of US poultry to Russia, particularly chicken, Foster noted. "The 1996 crop was above the year before," Foster noted. "So that shows why imports didn't have to rise in this latest year. Not only that, the state is procuring less of the grain—that is, the farmers are less willing to sell it to the state."

Foster said that he did not see any evidence of a grain shortage in Russia. "The bottom line here is if there was a significant drop in grain production in Russia this last year and there was significantly low supplies of grain in Russia, you would certainly be seeing significantly more trade in grains occurring that would be very visible—it (grain trade) isn't done secretly," he stressed. "That is just not occurring."

Customs Codes to Meet Int'l Standards

· Russia has changed its customs codes in line with its membership in the international convention on customs procedures, which became effective on January 1, 1997, reported Russian television. A new system of regulation of imports and exports has been set up to replace the old regulations, which were designed for "internal" use within the Soviet Union and were not compatible with other countries' systems. Under the new system, the government has compiled a list of all possible goods or groups of goods, from pets to antiques. Each item on the list is assigned a digital code for customs purposes.


Fisher Scientific to Do Russia Study

· New Hampshire-based Fisher Scientific International Inc. has been selected to conduct a feasibility study for the potential development of a $10 million state-of-the-art laboratory in Moscow to test and certify pharmaceuticals for the Russian Health Ministry, said a Fisher press release on Monday. The laboratory, to be the first of its kind in Russia, would incorporate testing and certification procedures similar to those of the US Food and Drug Administration (FDA). Pharmaceuticals imported into Russia as well as those produced domestically would be tested at the facility. The study is scheduled to be completed by June of this year.

The study will be funded in part by a $400,000 grant from the US Trade and Development Agency (TDA) and has been endorsed by the GORE-CHERNOMYRDIN Commission and the governor of New Hampshire.

According to the Health ministry, the laboratory will function not only as a testing center but also as a training facility for Russian chemists and microbiologists working with pharmaceuticals and other scientific projects. Because the instruments and equipment in the laboratory will be from US manufacturers, testing procedures will be based on US standards.

In conducting the study, the Fisher Scientific Worldwide unit of Fisher Scientific International will work with personnel of the FDA's St. Louis laboratory, major American pharmaceutical companies, and

When you need to know it as it happens




February 11, 1997

Intercon's Daily

other experts to ensure that the equipment and supplies selected meet the testing protocols of the US Pharmacopoeia and other testing authorities.

For the study, Fisher will bring a team of engineers, architects, and designers to Moscow to evaluate the proposed site of the laboratory, a building that also houses the Medical Engineering Research Institute of the Russian Academy of Medical Sciences.

Bank of America Names New Russian Manager

· San Francisco-based Bank of America on Monday named David Lingelbach its country manager for Russia and the former Soviet republics, said a company press release. He will be based in Moscow. Lingelbach is a specialist in emerging markets finance with extensive experience in the region spanning Bulgarian privatization programs, management consulting for Russian businesses, and venture capital investment in Russia.

As president of CARESBAC-Saint Petersburg, Small Enterprise Assistance Funds Inc.'s Russia subsidiary, he led investments in Russian firms and managed one of the most successful Russian debt/equity portfolios in that country. Prior to that, he held a series of international and US origination and credit roles with Milwaukee-based Firstar Corporation and with CoreStates Financial Corp. in Philadelphia.

Bank of America has maintained a representative office in Moscow for more than 20 years and intends to build its business in Russia with a securities-led expansion. It is seeking regulatory approvals to establish a banking subsidiary in Moscow.

Alaska Air Adds Yuzhno-Sakhalinsk

· Alaska Airlines announced on Monday that it will begin service May 10 to Yuzhno-Sakhalinsk, pending approval from Russian authorities, said a company statement. Once approved, the city will become the fifth city in the Russian Far East served by the carrier. Yuzhno-Sakhalinsk is the regional capital of the Russian island of Sakhalin, just north of the Japanese island of Hokkaido.

"Several major oil and gas companies have invested heavily in exploration projects in the area," said Bill Ayer, senior vice president of customer service, marketing, and planning for Alaska. "This has spurred demand for a variety of services, including air trans

portation. As the only US carrier to the Russian Far East, we are in a unique position to expand operations to Yuzhno-Sakhalinsk."

Alaska intends to operate one round-trip weekly between Seattle and Yuzhno-Sakhalinsk via Anchorage. The carrier will offer first class and coach service with connections available to and from the West Coast. Seattle-based Alaska Airlines began flying to Russia in 1991 and today serves more cities in Russia than any other US carrier. It currently serves the cities of Khabarovsk, Magadan, Petropavlovsk-Kamchatsky, and Vladivostok.

New Director for Norilsk Nikel

· Russia's Norilsk Nikel metals group has named Yuri KOTLYAR as first deputy general director, reported Interfax on Monday. He will be responsible for strategic development at the company, including social issues and matters connected with precious metals. Norilsk Nikel is Russia's largest producer of nickel and copper and a major world supplier of platinum, palladium, and platinum group metals.

KOTLYAR served as acting general director of the State Committee for Precious Metals and Stones (Roskomdragmet), before it was disbanded in December 1996. His appointment is the latest leadership change at the financially-ailing Norilsk, which is heavily in debt to the government (it owes some 500 billion rubles) and to its workers.

European Republics

Kuchma Plans Crackdown on Corruption

· Ukrainian President Leonid Kuchma has vowed to kick off a major campaign against graft in response to increasing complaints from Western governments and investors about corruption within the top levels of Ukraine's civil service, reported Xinhua. In a recent television speech, Kuchma said a working group, led by Justice Minister Sergei Golovaty, would be set up to implement anti-corruption measures. Representatives from Ukraine's Security Service and other law enforcement agencies would also be involved. "Public employees must be people with spotless reputations," he said.

Kuchma proposed to establish a National Bureau of Investigations (NBI), which will join a half dozen existing agencies responsible for fighting corruption,

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February 11, 1997

Intercon's Daily

and monitor the progress of foreign investment projects, gas distribution deals, and other matters.

The corruption issue was raised during Kuchma's meeting with World Bank President James Wolfensohn at the World Economic Forum in Davos. Wolfensohn sent Kuchma a letter late last year expressing concern over widespread corruption among Ukrainian officials. US and other western officials have also complained that graft has become a major obstacle to foreign investment with foreign firms recounting tales of arbitrary regulation and outright extortion by Ukrainian officials.

High-level government corruption has recently received a lot of press coverage, but few of the media scandals were prosecuted. Security Service head Vladimir Radchenko told parliament last October that his agency was investigating 1,500 senior officials. But since then he has announced only a handful of solved cases, most of which involved low-level provincial officials. Interior Ministry statistics show more than 3,000 civil servants have been punished for job-related crimes since 1991, while none of them held a top position in the government.

Mykola Melnyk, consultant to the parliamentary commission on the Fight Against Organized Crime and Corruption, estimated that the country's law enforcement agencies now caught just one percent of corruption cases and misuse of office by government officials. Only 10 percent of the officials caught had received greater punishments than a reprimand. "Most likely, the president has lost faith in the effectiveness of the law enforcers and decided to entrust the fight against corruption to a Justice Ministry headed by a young and energetic minister," Melnyk told Xinhua.

Ukraine May Set Currency Band

· Ukrainian central bank deputy chairman Vladimir STELMAKH has said that his country may introduce a currency band within which the hryvnia will trade at between 1.5 or 1.6 to the US dollar, reported

Interfax. The current official exchange rate is about 1.873 hryvnia/$1.00.

Meanwhile, Belarus abandoned its exchange rate band, effective February 1. The trading band for its currency that kept the exchange rate at between 15,500 and 21,050 Belarussian rubles to the US dollar had been replaced with a fixed exchange rate of 22,050 Belarussian rubles/$1.00.

Belarus Trade Deficit at $1.66 Bln

· The Belarus Trade Ministry last week estimated the country's 1996 trade deficit to be $1.66 billion, reported Friday's OMRI. The ministry said that trade turnover had fallen with both Western countries and the CIS, but offered few details.

Ericsson to Estonia with DCS 1800

· Swedish telecom firm Ericsson and Estonia's Eesti Mobiiltelefon have signed a $20 million contract, under which Ericsson will deliver the first DCS test network in Estonia and continue as the country's exclusive supplier of GSM systems, said an Ericsson press release. Construction of the DCS 1800 network will begin in late 1997 and cover central Tallinn. Decisions on expanding the network will be taken next year. This system offers the same services as the GSM 900 cellular phone system, but functions in the 1800 Mhz band. Eesti Mobiiltelefon is one of Estonia's main mobile phone network operators. Telecom Finland and Sweden's Telia each hold a 24.5 percent share in the company, while the majority of shares are held by private Estonian investors.

US Company Buys Into Lithuanian TV

· US Central European Media Enterprises (CEME) will buy a 40 percent stake in private Lithuanian television station LNK, reported Reuters today, citing Lithuanian daily Lietuvos Rytas. The newspaper quoted state-owned Agricultural Bank as saying that it had sold its stake in LNK to CEME for an undisclosed sum.

Daily Report on Russia & the FSU will not be published

on Monday, February 17, 1997, for President's Day.

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

Rebecca Martin, Charles Lawrence, Contributing Editors

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