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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, March 31, 1997

Russian Federation


Russia-Belarus Integration Treaty Signed

· Russian President Boris YELTSIN today approved a draft Union Treaty between Russia and Belarus, which will be signed by himself and his Belarussian counterpart Aleksandr Lukashenko in Moscow on April 2, presidential aide Dmitri Ryurikov told Itar-Tass. The Treaty was prepared during a meeting of the Supreme Council of the Community of the two countries. Following the signing of the Treaty, the document will be presented for ratification to the parliaments of Russia and Belarus. However, some adjustments may be still introduced to the document before it is signed, said Ryurikov.

On April 2, 1996, Russia and Belarus signed an agreement creating a Community. Although this new treaty on a Union apparently aims to more closely integrate the two powers, it is unclear how much practical integration resulted from the last accord.

Today's announcement angered Russian liberals who worry that the increasingly authoritarian Belarus will gain some power over decisions affecting Russia. "You cannot talk about negotiating integration with a state where there is political repression, conditions for the normal existence of the opposition are ruled out, and the work of the media is restricted," Yabloko party leader Grigory YAVLINSKY is quoted by Reuters as saying.

Complaints that the Russian people have not been consulted properly on integration with Belarus are also being heard. Nezavisimaya Gazeta editor Vitaly Tretyakov wrote in his newspaper today that the draft union treaty between Russia and Belarus needs public discussion. "We once woke up in the morning to learn that somebody liquidated overnight

the country [the USSR], in which we lived until then. The reverse process cannot be viewed as wholly and unconditionally positive only because it is in reverse," wrote Tretyakov.

Yarov, Yastrzhembsky Promoted

· Russian President Boris YELTSIN announced on Friday that chief presidential press secretary Sergei Yastrzhembsky has been promoted to the rank of deputy presidential chief-of-staff, while Yuri Yarov has had his status upgraded to first deputy presidential chief-of-staff, reported Kommersant-Daily on Saturday.

According to the newspaper, these appointments help maintain a balance of powers in the Kremlin because the other first deputy chief-of-staff, Aleksandr Kazakov, has ties with Prime Minister Viktor Chernomyrdin, while Yarov is First Deputy Prime Minister Anatoly Chubais' man.

Collins to Be US Ambassador to Russia?

· The Associated Press (AP) on Thursday suggested that James Collins, a State Department specialist on the former Soviet Union, is a "shoo-in" for the open post of US Ambassador to Russia. It cited US presidential aides as saying that President Bill CLINTON had settled on COLLINS, but said a final background check was still being conducted.

Intercon reported in January that Itar-Tass predicted that J. Stapleton ROY, currently the US Ambassador to Indonesia, would become the new

Today's News Highlights


Agriculture Congress Meets

Russian Auto Production Up

World Bank Loan for Petersburg

Use of An-24's Suspended

Aeroflot Out of GE Engine Deal

Lufthansa to Kazan, Perm

European Republics

US Bars New Belarus Amb.

South Caucasus & Central Asia

Russia-Azeri Oil Transport Deal




March 31, 1997

Intercon's Daily

US Ambassador to Russia. The Moscow post has been vacant since the departure of Ambassador Thomas PICKERING on November, 1 1996.


Ruble = 5,728.5/$1.00 (NY rate)

Ruble = 5,729/$1.00 (CB rate)

Ruble = 5,722|5,736/$1.00 (buy|sell rates)

Private Agricultural Congress Meets

· Speaking at the 8th congress of private and cooperative farmers in Moscow Saturday, Agriculture Minister Viktor Khlystun called for creating a civilized and regulated land market in Russia. "We will not be able to revive either agriculture or the economy in general unless we give people normal access to land," Itar-Tass cited him as saying. He said he believes that the land market should be regulated by the state to ensure the movement of land parcels from bad owners to good ones.

Currently, there are 279,000 private farms in Russia, down from 280,000 in 1995. One of the main problems facing these private farmers it the shortage of land. An average farm comprises 44 hectares of land, but private farmers could cultivate at least 150 hectares without trouble, according to KHLYSTUN.

Vladimir Bashmachnikov, the president of the Association of Private Farms and Agricultural Cooperatives, told the congress that market-driven agriculture has passed a test for survival and viability over the last three years, according to Itar-Tass.

This has occurred despite the fact that pressure from left-wing conservative forces in federal and regional legislatures has slowed down agrarian reform. No effective land ownership system has been created, tax legislation is imperfect, and state support for farmers has practically stopped, he said.

Nonetheless, BASHMACHNIKOV noted that the Association of Private Farms has managed to create a system of leasing for enterprises making agricultural machinery and for farms engaged in cattle breeding, as well as to help establish dozens of processing enterprises and preserve the infrastructure—funds, banks, fairs and exhibitions, and insurance and leasing companies—that is critical to agricultural production.

Food Consumption Patterns to Change

· Since price liberalization in 1992, Russian households have adapted their pattern of food consumption to higher prices and decreased real income, said a recent US Department of Agriculture (USDA) report, according to Futures World News (FWN). But in 1997, personal income may increase for the first time in several years, and future growth in food demand will begin to focus on quality, rather than return to the pre-reform levels of consumption of poor quality foodstuffs.

The USDA cited household budget surveys covering Russia's rural areas and cities, including Moscow, show that as a share of diet expressed in total calories, consumption of eggs, meat, and animal fats declined between 1990 and 1995, while consumption of vegetables, vegetable oils, and starches increased. Pre-reform patterns of meat and dairy consumption reflected state policies that subsidized these products, but also discouraged high quality and year-round availability.

Nonetheless, except for the very poor, most Russians are able to eat adequately. As inflation has declined from triple-digit levels, households increasingly find goods available in stores at stable prices and hold fewer speculative stocks of staples. The pattern of purchases differs between rural and urban households, reflecting relative price differences. The price differences stem from poorly developed market infrastructure. The developments in consumption patterns and market growth have implications for future US exports to Russia, and for investment to restructure the Russian food and agricultural sector, said the report.

Russian Auto Production Up

· Russian State Statistics Committee (Goskomstat) figures show output by the Russian car industry rose by 12 percent in January and February, compared with the first two months of 1996, reported Prime-Tass today. Motorcycle production increased by 250 percent to 9,400 vehicles, while the industry produced 146,000 cars, or 16 percent more than last year, and 6,000 buses, a two percent increase. The Ulyanovsk auto plant (UAZ) boosted car production by 98 percent from January-February 1996, Izhmash—by 45 percent, the Volga plant (VAZ)—by 14 percent, and the Gorky plant (GAZ)—by eight

When you need to know it as it happens




March 31, 1997

Intercon's Daily


n Russian commercial bank Inkombank plans to finance a number of projects in the northwest region of Russia. Specifically, the bank will invest in constructing a detour road around Vyborg. The project will cost $300 million.

n Moscow real estate prices are still the highest in Russia. Northeastern Siberia's Yakutsk is the second most expensive city, with real estate costing $820 per square meter. Yakutsk is followed by a group towns where an average square meter of housing costs $600-700—St. Petersburg, Irkutsk, Nizhny Novgorod, Anapa, and Vladivostok. The cheapest real estate is in Valdai and Vorkhuta.

n The Central Bank said last week that $84 billion in cash has been imported into Russia since 1993.

n Excerpts from a new untitled book by Aleksandr LEBED, published by the AP, reveal his views on the best path for the development of democracy in Russia. "One of the fundamental miscalculations of Russian reform is that we simplistically, one-sidely accepted the democratic idea and everything connected with it.... We have to proceed along the conscious path of gradual democratization, not being afraid to preserve certain elements and forms which are not completely democratic—or are even authoritarian—for a time."

n Aleksandr Kotelkin, director of state arms export agency Rosvooruzhenie, has predicted that arms exports to the Middle East would account for 40 percent of Russia's total in the next few years.

n Russian oil giant Lukoil ordered 10 oil tankers from the Volgograd shipyard. The order will provide jobs to thousands of plant workers.

n The collegium of the Russian Industry Ministry has determined that more than 3,000 domestic enterprises in the machine-building, textile, light, and metallurgy industries have virtually no prospects and should be subjected to bankruptcy procedures.

n The Sverdlovsk Oblast government has appointed WestMerchant Bank to lead manage a $100 million Eurobond offering, while Tatarstan's main oil company Tatneft has recommended Dresdner Kleinwort Benson to manage its issue.

percent. In addition, the Moskvich company resumed production after a one-year suspension, it manufacturing 227 cars over the past two months.

World Bank Loan for Historic Petersburg

· The World Bank on Thursday approved a $31 million loan to Russia to support the St. Petersburg Center City Rehabilitation Project, said a World Bank press release. The project will promote the improvement of St. Petersburg's historic center through reforms, restructuring, and investment.

The two components of the project are Technical Cooperation ($19.3 million) and the Pilot Investment Programs ($26.8 million). The first part of the program consists of research, analysis, administration, and regulatory, and institutional improvements for strategic planning, design, and engineering of the city's historic center. The investment programs concentrates on enhancing and developing existing and new services, such as maintenance of street lighting and landscaping, improvement of amenities for existing residents, establishment of a cultural fund, and strengthening of the maintenance and energy efficiency for apartment buildings.

The total cost of the project is $46.1 million, of which the Bank is providing $31 million in financing. The City of St. Petersburg is contributing $11.1 million, while the Governments of Finland and the US are providing a total of $3.5 million. The remaining $400,000 was financed by local investors.

AN_24 Plane Use Suspended

· Russia's Federal Aviation Service has suspended the domestic use of all Antonov AN_24 small passenger planes, following a crash in the North Caucasus on March 18 that killed nearly 50 people, reported Izvestia on Friday. All AN_24 airliners will undergo technical inspection and must receive safety certification before begin permitted to fly again. According to Izvestia, this decision could ruin many small local air companies because the AN_24 is the most popular plane on short routes, servicing 40 percent of all passenger traffic in Russia.


Aeroflot Drops Out of GE Engine Deal

· Russia's Aeroflot International Airlines announced on Friday that it has abandoned plans to

When you need to know it as it happens




March 31, 1997

Intercon's Daily

modernize its wide-body IL_86 passenger jets with CFM_56 engines from US General Electric and France's Snecma, reported Reuters. "This project is not efficient and... Aeroflot will drop out of it," said the company statement.

GE signed a memorandum of understanding in 1995 to modernize 18 Aeroflot IL_86s at a cost of $30 million for each of the four-engine, 350-seat planes. At the time, three other Russian airlines—Pulkovo, KrasAir, and Sibavia—and Kazakhstan Airways also expressed an interest in modernizing their IL_86 fleets. A GE official in Moscow told Reuters that he was hearing the news on Aeroflot's pullout for the first time.

The Aeroflot statement said the decision on the GE deal does not affect plans to produce a new IL_96 jet fitted with US Pratt & Whitney engines.

Lufthansa Begins Flights to Kazan

· Germany's Lufthansa airlines today began regular flights from Frankfurt to Kazan, the capital of Russia's Republic of Tatarstan, and the Urals' city of Perm, reported RIA Novosti. The twice-weekly flights (Mondays and Thursdays) will be serviced by a new Airbus A_319. Lufthansa currently offers regular service to six Russian cities and seven CIS capitals.

ment to accept TSEPKALO was still in effect, it was the timing that was at issue.

The State Department said the decision was further retaliation for the expulsion of US diplomat Sergei Alexandrov from Minsk earlier this month. Following the incident, Washington recalled its Ambassador to Belarus Kenneth Yalowitz to Washington for consultations and then expelled a Belarussian diplomat from the US.

Meanwhile, Belarus President Aleksandr LUKASHENKO told a press conference in Moscow on Friday that the West was waging a slander campaign against his country and financing opposition efforts to foil his efforts to re-integrate with Russia. "We are facing a propaganda aggression against Belarus and big money is being spend on it. Its aim is to prevent a next step in the Russian-Belarussian integration," he is quoted as saying by Reuters. "In those conditions the Belarussian state takes measures to protect the people against foreign interference." LUKASHENKO also defended his decision to expel ALEXANDROV.

South Caucasus & Central Asia

Russia-Azeri Oil Transport Deal Signed

· Russian state oil transport company Transneft, Azeri state oil company SOCAR, and the international consortium Azerbaijan International Oil Company (AIOC) signed agreements on Thursday to begin pumping Azeri Caspian Sea oil to the Russian Black Sea port of Novorossiisk, as of October 1, reported Reuters and Itar-Tass. Transneft estimated that the 15-km section of pipeline passing through Chechnya will be repaired by October.

The agreements call for 20,000 tons of oil to flow through the pipeline in 1997, while this figure will increase to 1.5 million tons in 1998 and to five million tons annually by 2002. They cover the Northern Route for the export of AIOC oil; a second Southern Route via Georgia will be operational next year.

European Republics

US Bars New Belarus Ambassador

· The CLINTON Administration last week continued diplomatic sanctions against Belarus, barring the country's new ambassador to the US from taking up his post in Washington. "The US has told the Belarussian government that we believe now is not an appropriate time for a new Belarussian ambassador to come to Washington," said State Department spokesman John DINGER on Thursday.

According to Itar-Tass, newly-appointed Belarus Ambassador to the US Valery Tsepkalo was compelled to return to Minsk when he was halfway to Washington. However, US officials said the agree

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

Svetlana Korobov, Contributing Editor

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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When you need to know it as it happens