DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, February 24, 1997

Russian Federation

Politics

Yeltsin Proclaims That He's Better

· Russian President Boris Yeltsin, looking healthier than he has in weeks, on Sunday declared that he had "fully recovered" and is ready to tackle his opponents and the problems of governance, reported Dow Jones. At a press conference after laying a wreath at the tomb of the unknown soldier in Moscow, YELTSIN said, "You can now say my sickness has passed; now I just need to regain some strength." Sunday was Homeland Defenders' Day, a holiday honoring the army.

The president reiterated his opposition to NATO's eastward expansion, but said he was hoping to reach a compromise on NATO's expansion plans at a summit meeting next month with US President Bill Clinton. He also lashed out at the State Duma's consideration of a resolution calling on him to step down for health reasons, calling the attempt "purely political" and saying he has no intention of resigning.

During a televised meeting with Prime Minister Viktor CHERNOMYRDIN in the Kremlin today, YELTSIN instructed his premier to prepare proposals for restructuring the government. "An opinion poll showed that most Russians were unhappy with the government, the premier and the president.... The main thing is that the government cannot cope with [delayed] pensions, wages, and payments," the president is quoted by Reuters as saying. "I am the president and I am responsible for the work of the government. Tell me who needs to be replaced and I will listen to your opinion." The goal is to make the government more efficient, he said.

Also today, YELTSIN met with newly-elected with Constitutional Court chairman Marat Baglai, telling

him that "it is impermissible" for Constitutional Court judges to criticize the Constitution, according to Itar-Tass. The president also said that "it is wrong and by no means admissible to call for a revision of the Constitution or making amendments to it," adding that the court "must not be a political organization and it must not be a tool of corporate interests."

Economy

Ruble = 5,670/$1.00 (NY rate)

Ruble = 5,670/$1.00 (CB rate)

Ruble = 5,664|5,676/$1.00 (buy|sell rates)

Kulikov Focuses on Aluminum Sector

· Russian Interior Minister Anatoly Kulikov told State Duma deputies on Friday that Russia may lose its aluminum industry as a result of crime, reported Itar-Tass. The crime rate in the non-ferrous metallurgy increased 2-3 times in the past two years, with large sums of money from phony companies involved. Almost the whole Russian aluminum industry is controlled by large criminal groups, which control all deals with major refineries, the minister said.

For instance, the Transseas Commodities company signed contracts with the Bratsk, Krasnoyarsk, and Novokuznetsk aluminum plants and the Achinsk alumina plant. It paid on contracts with money stolen from Russian banks with the help of fake documents, said KULIKOV. The Russian Prosecutor General's Office has been investigating Transseas and its

Today's News Highlights

Russia

IMF Delays Monthly Payment

Moody's Rates City of Moscow

GDP Projections Table

Transaero to Order Boeings

Videobridge Extends to Dubna

South Caucasus & Central Asia

Azeri Parliamentarian Killed

Iran/India/Turkenistan Deal

Turkmen Wants Israel Gas Deal

US Citizens Out of Tajikistan

Politics-Economics-Business

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Monday

February 24, 1997

Intercon's Daily

director Lev CHERNYY, as well as his brother, for illegal aluminum deals and connections with high government officials for some time, but no charges have been filed.

"A purposeful policy of Western producers to force Russian aluminum away from the world market resulted in a price drop of 20 percent," said Kulikov. Although Russia is the world's second biggest aluminum producer, the world and Russian aluminum markets are controlled by several American, Canadian, French, and Swiss companies, including Transseas Commodities, he charged.

Kulikov proposed the creation of a state commission to investigate violations during the privatization of metallurgical enterprises. He said it is impossible to stop crimes in the metallurgical sector "without control over financial operations," and a legal basis for measures against organized crime "and corrupted officials who encourage it."

He also wants to "form large production complexes to unite extracting, processing, and metallurgical enterprises and regional suppliers of electricity" and pass "protectionist policy in favor of Russian producers of aluminum," according to Itar-Tass.

IMF Delays Another Loan Payment

· An International Monetary Fund (IMF) mission left Moscow on Friday without recommending release of the next monthly tranche of a $10 billion loan to Russia, which effectively means another delay in payment, reported the weekend edition of the Financial Times. IMF officials were concerned over the continued difficulties of the Russian government to collect revenues for the federal budget, but was generally satisfied with other aspects of Russia's economic performance, said FT.

"We had very poor revenue collection in January, that is why the mission could not come to a decision," Russian Finance Minister Aleksandr LIVSHITS is

quoted by the FT as saying. "The money itself is not that important to us, we can cover any shortfall with a Eurobond issue," he said. "The important thing is our respect for the Fund. We know what weight they have in the world economy."

During the past year, the IMF has twice delayed the payment of monthly tranches to Russia, once in July and again in November. Last month, however, the IMF released the monthly tranche plus one of the delayed monthly payments.

Business

Moody's Rates Moscow Eurobond Issue

· Moody's Investors Service has assigned a Ba2 foreign currency rating to the forthcoming Eurobond issue of the city of Moscow, reported Futures World News (FWN). This is the first time that Moody's has rated any debt of a territorial government in Russia.

Moody's said that the rating is constrained by the Russian Federation's existing Ba2 foreign currency rating ceiling. "The credit assessment behind Moscow's rating recognizes the city's position as one of the economically strongest regions in Russia, its highly autonomous status as a regional government of the Federation (to a larger degree than West European cities), as well as the good track record of the city in carrying out its responsibilities and in managing its vast resources," it said.

At the same time, Moody's noted that its analysis also takes account of the inherent uncertainties that are related to Moscow's evolving administrative and budgetary structures and powers, as well as to the relative fluidity existing in the country as a whole. In an in-depth research report on the city of Moscow soon to be published, Moody's will address all the analytical details underpinning its rating and credit assessment.

Beside being Russia's capital, Moscow is also its financial services and industrial center. It is one of the two federal cities in Russia—thus being one of the 89 first-tier territorial governments in the Federation. Due to the diversity of its economic base and to a rapidly expanding service sector, said Moody's, Moscow has suffered less from the economic downturn than other parts of the Federation.

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Monday

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Intercon's Daily

Transaero to Order Boeings, Ilyushins

· Russian private airline Transaero announced on Friday that US Boeing and Russia's Ilyushin had jointly won a tender to supply new aircraft, reported the Financial Times. Transaero will buy an as yet undetermined number of Boeings-737s, Boeing-767s, and Ilyushin 96M/T aircraft. The order will be "in the tens of each type," said Transaero general director Aleksandr PLESHAKOV.

Intercon reported in May 1996 that Transaero planned to hold a tender to purchase some 40 longrange aircraft.

The purchase of the Ilyushin aircraft is, in part, a nod to Russia's struggling aviation manufacturing sector. The Ilyushin jets ordered by Transaero, however, are being made with engines from US Pratt & Whitney and avionics and components from other US firms. The US Export-Import Bank has granted $1.1 billion in credits to Ilyushin to finance the purchase of US-made equipment for the construction of the new IL 96M/T aircraft. The European Bank for Reconstruction and Development (EBRD) added another $480 million.

Videobridge Extends to Dubna

· Cambridge, Mass.-based VideoBridge International Corp. announced on Friday that it extended its videoconferencing network to the Russian city of Dubna, with the local termination point at the new International University, said a company press release. This marks the first time that a university in the former Soviet Union will enjoy 24-hour access to the rest of the world, including universities in other countries, through a videoconferencing network.

Initially, the satellite-based network will be used to provide medical training to Dubna hospital staff in the

treatment of diabetes. The local clinic has a partnership with Gunderson-Lutheran Hospital in LaCrosse, Wis., sponsored by the American International Health Alliance (AIHA).

The Dubna service, as with other VideoBridge locations, is expected to be used for such varied purposes as distance learning, telemedicine, business meetings and introductions, and cultural purposes such as art exhibitions.

South Caucasus & Central Asia

Top Azeri Parliamentarian Murdered

· Prominent Azeri historian and politician Ziya Buniyatov was killed on Friday by an unknown number of attackers as he walked home from work in Baku, reported Itar-Tass. Buniyatov, 75, was stabbed four times and shot twice in the entrance hall of his house. He died on the way to the hospital. Buniyatov was a member of the Azeri parliament, vice president of the National Academy of Sciences, and an important figure in the ruling New Azerbaijan Party of President Geidar ALIYEV.

New Azerbaijan Party leaders are calling the murder an attempt to destabilize the situation in Azerbaijan. Prosecutor-general Eldar Gasanov told Azerbaijan News Service TV on Saturday that Buniyatov's murder may have been a contract killing.

Iran/India/Turkmen Agreement Signed

· Iran, India, and Turkmenistan signed a trade and transit agreement in Tehran on Saturday in a bid to boost trilateral economic cooperation, reported Xinhua. The accord was signed by Iranian Foreign Minister Ali Akbar Velayati, Indian Minister of External Affairs Inder Kumar Gujral, and Turkmen Foreign Minister Boris Shikhmyradov. Under the agreement, India will ship cargoes to Turkmenistan via Iran. Specialists said that it will cut the transport costs by at least one-third. Earlier, the goods were being exported through Russia, which made transportation costs more expensive.

Velayati said that the three countries also signed a memorandum of understanding on the admission of Kazakhstan into the agreement. The Iranian foreign minister also looks forward to the participation of Russia in the network in the near future.

Upcoming Events

"Yeltsin and Beyond: US Policy Toward Russia"

Part of the Center for Democracy's

1997 Monthly Dialogue Series

February 27, 1997

National Press Club, Washington, DC

Information: Donna Gold or

Cliff Stammerman; Tel: 202-429-9141

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Monday

February 24, 1997

Intercon's Daily

Turkmen President Saparmurat NIYAZOV will arrive in New Delhi on Tuesday for a two-day state visit to sign four cooperation agreements, reported Reuters. The accords will cover the avoidance of double taxation, cooperation in health and medicine, environment and forestry, and the extension of cultural programs until 1999. In addition, NIYAZOV will discuss the possibility of joint exploration of oil and natural gas fields with Indian offficals.

Turkmenistan Wants Gas Deal w/Israel

· Turkmenistan's Foreign Minister Boris Shikhmyradov has requested a meeting with Israeli National Infrastructure Minister Ariel Sharon to discuss supplying natural gas to Israel, reported Xinhua today, citing the Jerusalem Post. The report quoted a senior Israeli industry source as saying that Shikhmyradov has apparently asked Foreign Minister David Levy to arrange the meeting for Shikhmyradov's visit to Israel on March 19.

A deal with Turkmenistan provide an alternative to lines of supply from Qatar and Egypt, which are proving difficult to secure, said the newspaper. Turkmenistan is proposing the construction of a pipeline under the Caspian Sea to Turkey, from where Israel will be supplied.

Israeli government sources, however, suggested the financial and political costs will be too large a burden for the former Soviet republic. In addition, too many competing nations would have to give permission for the pipeline to be constructed to the coast of Turkey. One Foreign Ministry official said the idea was not a new one, but considers it "far-fetched."

Meanwhile, the Israeli company Merhav last week signed two deals with Turkmenistan worth some $600 million. The first was for a refinery upgrade and construction of a new petrochemical plant, and the other project is for upgrading the country's natural gas infrastructure. Acting for the Turkmen government, Merhav is organizing both projects and will supervise their execution.

US Embassy Families Out of Tajikistan

· The US State Department announced on Friday its decision to evacuate the dependents of its embassy staff in Dushanbe and to authorize the voluntary departure of non-essential Embassy staff. "This decision was prompted by concern about the inability of the local government to ensure the safety of international personnel, including American citizens," said State Department spokesman Glyn Davies.

On Tuesday, two US Embassy in Tajikistan security guards, locally-hired ethnic Russians, were killed by unidentified gunmen. The guards among seven people—including five Russians—gunned down in separate attacks during a one-day shooting spree in Dushanbe. In addition, during February 4-17, an independent Tajik rebel group took several UN and other international organization staff hostage.

Davies said a total of five dependents were being pulled out on scheduled flights, leaving 12 Embassy staff in Dushanbe. The State Department called the move a temporary measure.

Meanwhile, Tajik government and opposition rebels made seemingly-impressive progress in their some five-year dispute during weekend negotiations. Tajik President Emomali Rakhmonov and rebel leader Said Abdullo NURI met Friday night in the Iranian city of Mashkhad and reached an agreement to share power in a newly-created transition commission, reported United Press International (UPI). The two men agreed each side would get 13 seats on the 26-seat commission. A government spokesman says representatives of the opposition would also get almost a third of government posts in the future. The accord also allows for the exchange of prisoners and return of hostages taken by the rebels.

Both sides will hold a new round of talks in Moscow Wednesday, which will focus on the other 20-odd opposition groups and their demands for representation in the government. A date for parliamentary elections may also be discussed.

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

Rebecca Martin, Svetlana Korobov, 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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