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, April 17, 1997

Russian Federation

Politics

Rybkin on Threats to Russia

· Russian Security Council secretary Ivan Rybkin told Golos Rossii radio on Wednesday that global, local and regional conflicts, as well as organized crime and drug trafficking, are among the main threats facing Russia today. Rybkin said that he has submitted to State Duma chairman Gennady SeleznyEv a draft concept of national security containing a list of threats and responses. The development of education, health care, and fundamental science, and military action, are among the responses, he said.

Four New Government Officials

· The Russian government has made four new appointments to head major departments in the government administration, reported Prime-Tass today. Viktor Nekrutenko has been named chief of the department of property and regulation of natural monopolies. Mikhail Kirpichnikov has been appointed head of the department of science, education, and high technology. The department for industrial reform and conversion is now headed by Valery Mikhailov and Ivan Kalgashkin is the head of the department for reforming the agro-industrial complex and protecting the environment.

Russia Signs Protocol on Death Penalty

· Russia on Wednesday signed a protocol to the European Convention on Human Rights on abolishing the death penalty, reported Itar-Tass. The protocol will come into force after its ratification by the Russian parliament. When it joined the Council of Europe in February 1996, Russia pledged to abolish capital punishment, but the meting out of death sentences and their execution has continued. Russia must still strike the death penalty from its national

criminal code in order to bring its legislation into line with the standards of the Council of Europe.

Economy

Ruble = 5,740.5/$1.00 (NY rate)

Ruble = 5,753/$1.00 (CB rate)

Ruble = 5,741|5,765/$1.00 (buy|sell rates)

Chubais Warns of Financial Crisis

· Russia is facing a "monstrous budget crisis, the scale of which calls into question the ability of the state to perform its functions," First Deputy Prime Minister Anatoly Chubais told a session of the Federation Council today. Chubais told the parliament that the budget will have to be changed to reduce spending and serious measures must be taken because of a huge shortfall in state revenues.

In the first quarter of this year, the budget revenues amounted to only 56.6 percent of the government's target. Even though expenditures were just 62.8 percent of targets, the budget deficit has continued to grow. "It is impossible to execute the 1997 federal budget in its present form, since it tops by 100 trillion rubles the possibilities of the state," according to CHUBAIS.

The Russian government has drafted a program to reduce revenue and expenditure items in this year's budget. The Finance Ministry has already approved the budget sequestration program, he said.

Today's News Highlights

Russia

Grain Crop Estimated Down

Unpaid Teachers Block Road

Russian Top Banks are Stable

Big Loan for Gazprom

Philip Morris in Russia

European Republics

Ukraine Creates Bus. Council

Israel Minister in Ukraine

South Caucasus & Central Asia

World Bank Loan for Kyrgyz

Politics-Economics-Business

Page

Thursday

April 17, 1997

Intercon's Daily

CHUBAIS also said that the government will take "extraordinary measures" to raise at least 30 trillion rubles ($5.2 billion) to supplement the budget. The measures will include stepping up the collection of tax revenues, increasing the state monopoly on the market for alcohol production, expanding privatization, intensifying activities on foreign debts markets, selling off gold and diamonds, and delaying payments of wages and pensions.

Grain Crop Expected Down This Year

· The Russian Research Institute for Agricultural Economics has estimated that Russia's grain output could be as low as 60 million metric tons this year, which would make it the worst crop in three decades, reported today's Journal of Commerce. According to the Institute, farms have reduced the amount of land sown, so that regardless of the weather, the harvest will be smaller this year.

Grain production in 1996 was 69 million metric tons and the Agriculture Ministry has predicted similar output for this year. The 1995 harvest of 63 million metric tons was a 30-year low.

Unpaid Teachers Block Roads

· Some 120 frustrated teachers from southern Russia blocked a major roadway between Moscow and Astrakhan today to protest unpaid wages, reported Russian Television (RTV). Teachers from the city of Volsky, near Volgograd, say they have not been paid since November 1996. The local government has tried to improve the situation by "paying" teachers with food of "doubtful quality," said one of the demonstrators.

Volsky's mayor, a former teacher, blamed the central government for the teachers' problems. The teachers demonstrated outside the town hall as well.

Russian Top Banks are Stable

· Russian Central Bank chairman Sergei Dubinin told a group of prominent bankers in London today that Russia's top banks are in good shape. "The position of 50 Russian banks, which are heading the list of Russia's major financial and credit-lending institutions, is stable. Our opinion is that the banking system rehabilitation, which the Central Bank of Russia practiced throughout last year, has yielded positive results," he is quoted by Itar-Tass as saying.

Currently, there are 2,060 banks in Russia. However, the ongoing process of bank mergers is constantly reducing the numbers and making the entire financial sector more effective, said Dubinin. He also pledged that regulations, requiring accounting and reporting by Russian banks be brought up to international standards, will be ready by the end of this year.

According to Itar-Tass sources, the Russian Central Bank is currently negotiating with several other central banks to establish a global mutual information system.

Business

German Banks OK $2.5 Bln Loan for Gazprom

· Russian gas monopoly Gazprom head Rem Vyakhirev today signed an agreement with a consortium of German banks for a $2.5-billion credit to build a new gas pipeline from northern Russia to Germany via Belarus. VYAKHIREV arrived in Germany on Wednesday with President Boris Yeltsin. The contract on construction of the Yamal-Belorus-Germany pipeline was signed in February.

Philip Morris Plans Third Russia Plant

· US tobacco company Philip Morris said on Wednesday that it will invest $300 million in Russia during the next three years, reported United Press International (UPI). A Philip Morris official says the company plans to build a new factory in St. Petersburg. Philip Morris has already invested $120 million and operates two factories in the country.

Govt. Ready to Sign De Beers Accord

· Russian President Boris YELTSIN will approve, within 10 days, the long-awaited sales and marketing agreement between South Africa's De Beers and Russian diamond company Almazy Rossii-Sakha, reported Interfax. Almazy spokesman Valentin LOGUNOV said that only some legal details in the planned agreement still needed to be settled.

The Russian diamond company estimates that it lost $300 million in the first quarter of this year because of the break in trade with De Beers and the absence of quotas and licenses for the export of rough diamonds. De Beers suspended all purchases of Russian diamonds in January out of frustration over

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

April 17, 1997

Intercon's Daily

Russian government delays in approving a new sales agreement.

Diamond Company Launches Publication

· Russian diamond monopoly Almazy Rossii-Sakha today published the first issue of its own newspaper Vestnik ALROSA, reported Itar-Tass. The newspaper has a circulation of 7,000 copies and will be published every two weeks. The first issue contains materials from the annual report of the Russian Accounting Chamber on the results of the audit of the now-defunct State Committee for Precious Metals and Stones (Roskomdragmet).

RUSSIA SHORT TAKES

n Russian commercial bank Crystalbank and US AT&T recently signed an agreement allowing the bank to distribute AT&T world phone cards in Russia. All phone calls using the cards will be paid for by credit card. Previously, AT&T signed a similar agreement with Dialogbank.

n The Russian Central Bank's currency reserves grew $1.5 billion in March to total $13 billion. This growth was the result of both an increase in Russian borrowing in foreign markets and individuals' sale of currency.

n Russian commercial bank Alfa-Bank has begun issuing Visa international system cards. The cards will be serviced through Alfa-Bank's own processing center, certified in February. The bank already issues Visa Classic and Visa Gold corporate cards.

n A Czech bank has borrowed $23 million to invest in Russia's Nizhegorodsky aircraft plant. The six-year loan is guaranteed by Inkombank and will finance the manufacture of light aircraft. The money will mainly be used to purchase Czech equipment. Inkombank has already invested $8 million of its own funds into the project.

n Russia's Inkombank and Visa International have signed the final documents on issuing COPAC microchip cards in Russia. The launch is planned for October 1997. In addition, Europay International recently held an international meeting in Madrid with banks of Eastern Europe, including Russia's SBS-Agro and Most Bank.

n The Russian Association of Industrial and Construction Banks unites about 100 banks and other organizations, with aggregate assets of 50 trillion rubles. In 1996, the Association's banks registered a 120 percent increase in average authorized capital and of capital proper by 230 percent.

n According to information from the recent Business and Security: International Experience conference, only 15 percent of the Western companies that are willing to do business in Russia can be regarded as 100 percent reliable. Some 44 percent are weak companies seeking to improve their shaky position, 22 percent are bankrupt companies, and 19 percent are definitely criminal companies.

European Republics

Ukraine Creates Business Council

· In an effort to boost foreign investment, Ukrainian President Leonid KUCHMA has created a consultative council that will give foreign business executives a role in government policymaking, reported the Associated Press (AP). "The president is taking steps to dissipate foreign investors' doubts about Ukraine," presidential advisor Valery LIVITSKY told Interfax.

LIVITSKY will be secretary of the new council, which will be headed by KUCHMA and meet twice a year. The council, similar to one created in Russia a few years ago, is designed to give foreign businesses a chance to air complaints about the investment client and suggest changes in policy and legislation.

Foreign members of the council are expected to include: US Boeing, Swiss-Swedish Asea Brown Boveri, Deutsche Telekom, US Cargill, British Petroleum, Germany's Daimler Benz and Siemens, Ernst & Young, Royal/Dutch Shell, Coca-Cola Amatil Europe, Japan's Mitsui, Sumitomo, and Nomura, Italy's Fiat, and France's Alcatel.

Ukraine has attracted only $1.4 billion in direct foreign investment since late 1991.

Israel's Sharansky in Ukraine

· Ukraine and Israel on Tuesday signed a memorandum on free trade and a series of accords aimed at boosting bilateral trade, reported Xinhua. Israeli Trade and Industry Minister Natan SHARANSKY is in Kiev to attend an exhibition of Israeli products, in which 80 Israeli companies are participating. More

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

April 17, 1997

Intercon's Daily

than 100 joint venture companies involving Israeli firms are currently operating in Ukraine. Some 300,000 Ukrainian immigrants live in Israel. Ukrainian-Israeli trade totaled $107 million last year.

SHARANSKY told Ukrainian Prime Minister Pavlo LAZARENKO that Israeli investors are interested in Ukraine's agriculture and that Israel would get involved in Ukraine's banking and bond markets to guarantee Israeli investors' interests.

Odessa Foods New Ukraine Plant

· US-Ukrainian Odessa Foods International Inc. announced on Wednesday that the facilities at its new location in Teplodar, Ukraine, are now operational, said a company press release. As a result of the relocation, meat production has increased to about five tons a day from 1.5 tons and pasta production, now at about five tons per day, is expected to rise to 30 tons a day within four months.

The company has also established the smaller of two proposed slaughterhouses and expects to begin operations at the rate of 200 head per day in May. The second, larger slaughterhouse will become operational in early 1998.

United Kiev Resources Announcements

· Canada's United Kiev Resources Inc. announces on Tuesday that it completed a first closing on April 11, 1997 of a private placement in the amount of 10 million units for gross proceeds of $2 million, or 20 cents per unit, said a company press release. A further closing is anticipated before the end of April. The proceeds from both private placements are to be used in the company's operations in Ukraine and for working capital.

The company has also called a special shareholders meeting for May 20, 1997. At this meeting, shareholders will be asked to approve a change in the name of the company to Carpatsky Petroleum Inc. and to approve an increase in the maximum number of directors to fifteen.

Lithuanian Increases Excise Taxes

· The Lithuanian government on Tuesday significantly raised the excise taxes on liquor, tobacco, and oil products, reported Itar-Tass. With the tax hike, the price of a bottle of vodka will rise by an average of 2.5 litas (about 60 cents). A half-liter bottle of vodka now sells for 12 litas ($3). The price of pack of Lithuanian-made cigarettes will increase by 20 percent, while a liter of gas will cost 24 cents more.

South Caucasus & Central Asia

Armenia-Iran-Turkmen Cooperation Accord

· Armenia, Iran, and Turkmenistan on Wednesday signed a memoranda on cooperation and understanding in energy, communications, tourism, finance, and trade, reported Xinhua. Armenian Foreign Minister Aleksandr Arzumanyan, Iranian Foreign Minister Ali Akbar Velayati and their Turkmen counterpart Boris Shikhmyradov signed the document in Yerevan.

Under the memoranda, the three countries will further cooperate in communications and natural gas shipments. They will set up joint ventures in transport and increase the annual trade turnover between the three nations to $20-50 million.

World Bank Loan for Kyrgyzstan

· The World Bank today approved a $44 million Public Sector Resource Management Adjustment Credit to Kyrgyzstan in support of the government's economic reform program, said a World Bank press release. The loan is aimed at fostering economic growth and improving living standards by helping to reduce the fiscal deficit, and strengthening the management of public sector resources.

The credit will be used to support the government's effort to: maintain the momentum of its ongoing economic reform program, provide financing for the budget until public finances can reach a stable, long-run position with a growing tax base; and cover additional budgetary costs.

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

available for non-profit institutions.

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.

When you need to know it as it happens

Politics-Economics-Business

Page