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

Friday, February 14, 1997

Duma Votes for Health Report on Yeltsin

· The Russian State Duma today rejected a resolution on asking President Boris Yeltsin to step down for health reasons, but passed a resolution asking to receive an official written report on the state of the president's health. The first resolution, which was introduced by Communist deputy Viktor Ilyukhin, was supported by 208 deputies, but required 226 votes to pass.

The second resolution calls for the Russian Health Ministry, together with the president's doctors, to send the parliament a written report on Yeltsin's health by March 1. The Duma also instructed its committees to draft legislation on the continuity of state power in Russia by March 1.

UN/EU Leaders to Moscow

· Russian President Boris Yeltsin will meet in Moscow with four European Union (EU) leaders on March 3 as well as UN Secretary-General Kofi Annan during the first half of this year. The EU will be represented by Commission President Jacques SANTER, the External Relations Commissioner Hans van den BROEK, Dutch Prime Minister Wim KOK, and Dutch Foreign Minister Hans van MIERLO, reported Reuters. The EU-Russia summit was originally planned for February 4 in the Hague, but was postponed due to YELTSIN's poor health.

Itar-Tass cited ANNAN as saying that he will come to Moscow to discuss a wide range of issues with YELTSIN and other top officials.

Russian Federation

Politics

Yeltsin Gives Radio Address to Nation

· Russian President Boris Yeltsin's first radio address to the nation since catching pneumonia in early January made no mention of his health problems and gave no response to calls from opposition politicians that he step down. The speech lasted for about five minutes and mainly touched on the issues of pensions, the recent elections in Chechnya, and moves toward amending the constitution.

YELTSIN reassured pensioners that, despite recent statements by some government officials, working pensioners will not be deprived of their pensions nor will the minimum retirement age be raised. He also promised that pension arrears will be fully paid by the middle of the year.

He said that Russian officials would work with the newly-elected Chechen leadership to ensure the continued cessation of hostilities and the restoration of the republic's economy.

On the issue of amending the Constitution, the president warned that: "It is now premature and, moreover, irresponsible to put to the test the new structures of the Russian state which is under construction." He admitted that change was possible, but said that it should take place after the document had proved unworkable or insufficient over a long period of time. "The Constitution is the unsuitable field for impulsive decisions and insufficiently considered experimentation."

Yeltsin will deliver his annual message to the Russian parliament on March 6, which could last for 30-40 minutes, said presidential spokesman Sergei Yastrzhembsky today.

Today's News Highlights

Russia

$60 Bln in Capital Flight

Lukoil to Issue Level-1 ADRs

Intel Big in Russian Market

European Republics

Income Scrutiny in Belarus

Estonian Premier to Resign

UEC Buys into Ukraine Bank

Transcaucasia & Central Asia

Russia Upset at Solana in Cauc..

Turkmenistan-Iran Accords

Politics-Economics-Business

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February 14, 1997

Intercon's Daily

Ruble = 5,652/$1.00 (NY rate)

Ruble = 5,654.5/$1.00 (CB rate)

Ruble = 5,646|5,663/$1.00 (buy|sell rates)

Two treaties on money laundering between Switzerland and Russia have been ineffective, and a third is being prepared. The penal code requires banks to report suspicious transactions, but this is rarely obeyed. SHIBAEV said increased international cooperation is crucial to stemming the tide of the capital flow out of Russia.

Business

Lukoil to Issue Level-1 ADRs

· Russian oil conglomerate Lukoil has received permission from the US Securities and Exchange Commission (SEC) to issue Level-1 American Depository Receipts (ADR) for its preferred shares, said a Lukoil spokesman. One ADR will represent two preferred shares, each of which account for 9.1 percent of Lukoil's authorized capital. In December 1995, the company first issued Level-1 ADRs for common shares and it will become the first Russian company to issue ADRs for preferred shares. The Bank of New York is depositary for Lukoil's ADRs.

Intel Successful in Russian Market

· US microprocessor maker Intel plans to expand its presence in Russia and the CIS after posting regional sales of $201 million in 1996, up from $78.8 million in 1995, reported Interfax. Stephen CHASE, Intel regional manager for the CIS and the Baltics, said his company had opened offices in Almaty, Tashkent, Novosibirsk, Vladivostok, and several other major cities in the region.

Russia accounted for more than 85 percent of Intel's sales in the CIS and the Baltics, said CHASE. Intel is the largest provider of computer processors in Russia and controls some 80 percent of the CIS market. It has agreements with 15 leading CIS computer assemblers and 10 distributors that sell Intel products to 2,800 small assembly firms.

Sep Oct Nov Dec Jan Feb

Economy

$60 Billion in Capital Flight

· An estimated $60 billion has left Russia for foreign financial centers in the past five years and outflows continue at the rate of $12 billion a year, reported today's Financial Times. Swiss law enforcement agencies believe there is at least $10 billion in Russian mafia money in Swiss accounts. Former Coopers & Lybrand partner Dr. Sergei SHIBAEV told a conference on money laundering in Prague that Cyprus is also a popular destination for Russian capital flight, while Chechnya is a money laundering center.

Almost all of this capital is being sent abroad illegally. Last year, the Russian central Bank authorized the transfer of just $811 million, of which $416 million was actually transferred. The money is leaving through fake import-export schemes or even carried out in suitcases. It is impossible to tell how much of the money involved in this capital flight is "clean," as some of the money represents legitimate earnings fleeing crime and instability in Russia, said SHIBAEV.

SHIBAEV estimated that the black economy accounts for 40 percent of Russian economic activity. He said 41,000 companies, half the country's banks, and 80 percent of joint ventures involving foreign capital may be connected to criminal groups. These criminal groups number about 5,000. SHIBAEV warned western investors to "know your client."

Investing in Russia Conference

March 5-6, 1997

Plaza Hotel, New York

Organized by: Dow Jones Telerate

and Sachs Associates

in association with The Wall Street Journal

Info: Anita Aston, Dow Jones Telerate

Tel: 44 171 832 9737; Fax: 44 171 832 9940

Politics-Economics-Business

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Friday

February 14, 1997

Intercon's Daily

European Republics

CIS Leaders Meeting Postponed Again

· A planned summit meeting between the presidents of the Commonwealth of Independent States (CIS) on March 15 in Moscow has been postponed indefinitely, reported Reuters on Thursday, citing a CIS official. The meeting was originally scheduled for January 29, but was delayed because of Russian President Boris YELTSIN's poor health. No reason for the new postponement was given.

Copytele to Sell Magicom in CIS

· US CopyTele Inc. has entered into a distribution agreement with a Russian company for the sale and service of its Magicom® 2000 product in Russia, Ukraine, Kazakhstan, Georgia, Azerbaijan, and Armenia, said a CopyTele press release. Magicom® 2000 is a multi-functional telephone based product that can send and receive handwritten communications as well as simultaneous voice and electronic handwriting. The agreement is for three years and provides for monthly purchase orders in increasing quantities, beginning in the second quarter of 1997. The aggregate purchase price for the total quantities agreed to is approximately $88 million.

Belarussians Income Face Scrutiny

· Belarus President Aleksandr Lukashenko has adopted a measure apparently aimed at harassing the few more prosperous citizens of his country which clearly demonstrates the increasingly totalitarian nature of his regime. A presidential decree issued today requires each citizen of Belarus to have available at all times a declaration on his sources of income, beginning March 20, reported Itar-Tass.

The decree allows agents of the state control committee, state security, the prosecutor's office, as well as interior and state tax bodies to demand the presentation of declarations from individuals. The same agencies, with the exception of the KGB and the procurator's office, are authorized to investigate cases and impose penalties on those who fail to present a declaration of income or indicate false or insufficient data in the document.

The decree says that these income declarations are primarily intended for the well-off, particularly those who amassed their wealth through illegal means.

From March 20, residences, apartments, garages, plots of land, vehicles, expensive art works, and other property valued at more than 500 minimum wages, must be declared. Large property deals will be registered only upon the presentation of the income declaration. In addition, citizens appointed to posts at state-run enterprises, institutions, and organizations, must declare their sources of income. A declaration of income will also become compulsory for the personnel of the interior affairs department and the armed forces, with the exception of military school cadets and men in active service.

Estonian PM to Resign

· Barely surviving a no confidence vote on Monday, Estonian Prime Minister Tiit VAHI on Wednesday announced plans to resign his post, reported Reuters. He will step down officially when a new government is formed. This will be Estonia's third change of government in less than two years.

The current crisis began last month when VAHI admitted that his daughter was among 181 influential Estonians who covertly bought desirable old town flats in Tallinn at below market prices. Separate allegations were then made that state funds had been used in the renovation of VAHI's own apartment. The premier denied any wrongdoing, and no formal investigation has been launched, reported Thursday's Financial Times.

VAHI's coalition government controls only 41 seats out of the 101-member parliament. Several parties held talks last night on forming a new government which could again include VAHI's Coalition Party, with 19 seats, but under a new prime minister. The Reform Party, also considered large with 19 seats, has also expressed an interest in taking power. This party quit the coalition in November after a dispute with VAHI. Under Estonian law, at least three attempts can be made at winning parliamentary approval for a new government before new elections must be called.

Ukraine Closes 12 Banks

· The board of Ukraine's National Bank (central bank) decided to close 12 commercial banks which had neither paid nor registered the authorized capital of ECU 500,000, reported Itar-Tass on Thursday. The central bank hopes to influence 23 commercial

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banks which have paid but not registered this amount of authorized capital. Two of the banks will be re-registered, it said. As of January 1, 1997, there were 229 banks registered in Ukraine, including two state-owned banks (the Savings Bank and Ukreximbank) and 14 banks with foreign stakes. Currently, a total of 188 banks and 2,284 commercial affiliates operate in the country.

UEC Acquires Share in Ukraine Bank

· Canada's Ukraine Enterprise Corporation (UEC) announced Thursday that it has acquired a 20.1 percent interest in JSC Electron Bank based in Lvov in western Ukraine, said a UEC press release. UEC paid $1.09 million and the purchase is subject to the approval of the National Bank of Ukraine.

Electron Bank reported after tax earnings of $849,000 in 1996, down from $1,099,000 in 1995. In 1997, the bank is expected to reach 1995 levels, with good growth anticipated. The bank is highly under-levered, with loans only about 1.5 times shareholders equity. Book equity at December 31, 1996 approximated $5.5 million. The bank has 265 employees and four branches and a head office in Lvov.

UEC will have two directors on the bank's board and representation on the management committee.

South Caucasus & Central Asia

Russia Possessive of the Caucasus

· Russian Foreign Ministry spokesman Gennady Tarasov insisted on Thursday that the Caucasus is not NATO's sphere of influence and the presence of the Alliance's peacekeeping forces would not help settle regional conflicts, reported Xinhua. Russia's leading role in helping solve conflicts in the Caucasus region was obvious to all, he said. As for peacekeeping, Tarasov said the UN, the Organization for Security and Cooperation in Europe (OSCE), and the Commonwealth of Independent States (CIS) will be responsible. There is no need for NATO involvement, he added.

Tarasov's remarks coincided with NATO Secretary General Javier Solana's visit this week to Georgia, Armenia, and Azerbaijan as well as Moldova. Russian officials believe that Solana has discussed with leaders of the four former Soviet republics the possibility of sending a NATO peacekeeping force to the Caucasus, said Xinhua.

In general, Russia seems to view SOLANA's tour of the South Caucasus and Moldova as an attempt to isolate Russia. Foreign Ministry officials have portrayed it as having some sinister purpose, despite the fact that all of these countries, as well as Russia, are members of NATO's Partnership for Peace program and have regular relations with NATO.

Turkmenistan-Iran Sign Cooperation Accords

· Turkmen President Saparmurat Niyazov and his Iranian counterpart Akbar Hashemi Rafsanjani signed of five cooperation agreements in Tehran on Thursday, including accords on expanding contacts in transport services, trade, railroad-building, the construction of dams, and environmental protection. The two sides also discussed prospects for multilateral cooperation with Armenia and Ukraine. Another key topic was the transportation of Turkmen gas to Turkey through Iran.

A joint communiqué from the two leaders, published by the Iranian Republic News Agency (IRNA), said Iran and Turkmenistan also reached agreement on the formation of joint working committees in the agricultural, energy, transportation, banking, and telecommunications fields. RAFSANJANI said his country was ready to broaden cooperation with Turkmenistan in the areas of gas, oil and agriculture, and to pursue joint private sector investments.

Over the past six years, NIYAZOV has visited Iran 16 times and 116 bilateral accords have been signed since 1992, reported AFP. Bilateral trade stands at some $100 million annually.

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