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, May 1, 1997

About 40,000 people took part in a similar demonstration in St. Petersburg. Communist supporters and unions held rallies and marches in 900 cities across Russia.

In his traditional radio address, Yeltsin said many Russians would use the four-day holiday to rest or work on their garden plots. "Others, out of habit, will go to rallies with flags and slogans. They will condemn the authorities, condemn the president," he said, according to Reuters. "They have the right to do so as this is what we have fought for. For the citizens' right to decide themselves what they want to do, both on working days and on holidays."

Duma Eyes Foreign Groups in Russia

· Some members of the Russian State Duma are concerned that Russian security interests are threatened by the proliferation of American citizens appearing in Russia as part of aid and cooperation programs. Apparently, the distrust of the Soviet-era is alive and well in certain Russian politicians. Or perhaps this is part of a campaign of rhetoric, or even proposed action, against the US in retaliation for the planned eastward expansion of NATO.

A group of Duma deputies has sent an inquiry to Foreign Minister Yevgeny Primakov and Federal Security Service (FSB) director Nikolai Kovalyov about multiple foreign assistance and cooperation missions in Russia, reported Itar-Tass. A member of the group, Duma deputy chairman Sergei

Russian Federation

Politics

Albright in Moscow for NATO Talks

· US Secretary of State Madeleine Albright held talks in Moscow today with Russian Foreign Minister Yevgeny Primakov over the terms of a NATO-Russia charter. ALBRIGHT told reporters on the airplane to Moscow that the US will make no concessions on the charter, which is designed to ease the Kremlin's opposition to NATO's planned eastward expansion.

"We are at our bottom line," she is quoted by Untied Press International (UPI) as saying. Russia hopes to conclude negotiations on the charter in time for a signing in Paris on May 27. But NATO is opposed to Russian demands for a written guarantee not to place nuclear weapons in the new member states. Poland, Hungary and the Czech Republic are expected to join NATO at the July summit in Madrid.

"We don't want to have any second class NATO membership. There can be no subordination of NATO to anybody," said Albright. "There is a new Russia, and it is important for Russia to understand there is a new NATO, too. It is not a bloc-to-bloc situation."

Leftists Demonstrate for May Day

· Left-leaning, anti-government demonstrations took place across Russia to mark the May Day holiday, but they remained peaceful and were even festive in some places. In Moscow, demonstration leaders said that 100,000 people turned out, but police put the size of the crowd at closer to 25,000. The demonstrators waved red flags, chanted slogans, demanded payment of back wages and pensions, and called for the resignation of President Boris Yeltsin and his government.

Today's News Highlights

Russia

Poll Finds Russians Like Imports

Russia US Nuclear Storage Deal

Russian Trade Short Takes

European Republics

Belarus Wants Taxes from Soros

Shadow Economy in Moldova

South Caucasus & Central Asia

Black Sea States Meeting

Georgia Replaces Finance Min.

Daewoo Buys into Kaztelecom

Politics-Economics-Business

Page

Thursday

May 1, 1997

Intercon's Daily

Baburin, told the news agency on Wednesday that, "according to available information, tens if not thousands of American organizations are active in the territory of the Russian Federation, with their branches located practically in all strategically important cities of Russia—from Vladivostok to Smolensk."

Sergei Glotov, a coordinator of the Duma's Anti-NATO group, said the economic, scientific, and technological cooperation with Western countries, including the US, is welcome, but the multiplicity of assistance missions "needs a probe."

The Duma inquiry asks Primakov and Kovalyov whether "there is a need in terms of Russian national interests" for the heavy presence of US missions emerging in assistance and cooperation programs. Another question is how activities of the missions are controlled and whether conditions of their accreditation are comparable with those for similar Russian organizations in the US.

Russian Foreign Ministry spokesman Valery Nesterushkin told Itar-Tass on Thursday that the ministry proceeds on the assumption that Western technical and economic assistance has helped the development of Russia's market economy. The assistance missions work under international agreements and are controlled by relevant Russian services and regional administrations.

FSB spokesman Boris Kostenko told Itar-Tass that there is no need for the FSB's control of Western assistance missions as far as they are within law. If their interests extend to "obtaining classified information or, say, interfering in politics of Russia, they inevitably get in the field of vision of counter-intelligence which is called to secure interests of national security of our country."

Economy

Ruble = 5,750/$1.00 (NY rate)

Poll Finds Russians Like Imports

· A recent public opinion poll suggests that Russian President Boris YELTSIN's recent plea for the country to "Buy Russian" has fallen on deaf ears. A poll, conducted by the All-Russian Center for the Study of Public Opinion, found that 52 percent of

Russians will not buy goods simply because they were produced domestically, reported Interfax. The polls respondents say they buy goods based on quality and price, not country of origin.

Pollsters questioned 1,593 Russians between April 18 and 24. Only 12 percent of respondents said they approve of YELTSIN's campaign to encourage Russians to purchase domestically-made goods. Some 29 percent of respondents said they are already giving preference to Russian-produced goods. Another five percent of those polled said they always preferred imports.

Business

Russia-US Nuclear Fuel Storage Deal

· Russia and the US plan to build a used nuclear fuel storage facility on an uninhabited atoll in the Pacific Ocean, reported Itar-Tass. Russian Nuclear Power Ministry spokesman Georgy Kaurov told a press conference on Wednesday that the issue will be discussed by the State Duma and the US Congress in June.

Alex Copson, director of the US company Fuel and Security, said Russia and the US plan to set up a joint venture to provide a wide range of services to nuclear power plants—delivering fuel, transporting it to the atoll, and ensuring its safe storage. The project won't require state subsidies because nuclear power plants in various countries have already expressed a willingness to provide financing.

The joint venture's annual turnover could reach $10 billion. All profits will be equally divided among its founders, he said. Used nuclear fuel will be transported and kept in special super-strong containers.

Copson stressed that by establishing a joint venture, Russia and the US will "kill three birds [with one stone]." They will protect the environment, prevent the proliferation of nuclear weapons, and obtain considerable profits.

European Republics

Belarus Sends Tax Bill to Soros

· Belarussian tax authorities have demanded $3 billion in taxes and fines from the Minsk office of the Soros Foundation, which amounts to about half of

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

May 1, 1997

Intercon's Daily

Russia Trade Short Takes

n Russia's foreign trade turnover reached $34.5 billion in current prices in January-March 1997, down one percent from the same period in 1996, said the State Statistics Committee. Russian exports totaled $20.8 billion, up three percent, while imports fell by six percent to $13.7 billion. The trade surplus was $7.1 billion, an increase of $1.6 billion from Q1 1996.

n Russia's trade turnover with countries outside the former Soviet Union (including unorganized trade) grew by three percent during the first quarter of 1997 to reach $26.6 billion. Trade with the Commonwealth of Independent States (CIS) shrank by 13 percent to $7.9 billion.

n The trade turnover between Russia and the Czech Republic has grown steadily over the last three years and reached $2.65 billion in 1996. Russia is the Czech Republic's fourth-largest trading partner.

n The trade turnover between Russia and Slovakia grew by 24 percent in 1996 to reach $2.2 billion. Russian exports to Slovakia grew by 28 percent, compared with 1995, to $1.86 billion, while Russian imports of Slovak goods remained at the same level of about $320 million. Russia ranks as Slovakia's third largest trading partner (accounting for some 11 percent of trade), lagging behind only the Czech Republic (28 percent) and Germany (17.4 percent).

n Trade between Russia and the Union Republic of Yugoslavia reached $800 million in 1996. Construction services and Russian gas supplies were the two main trade items.

n China currently ranks third, in terms of volume of trade, among Russia's trade partners, after Germany and the US. China accounts for 4.7 percent of the total volume of Russian trade. In 1996, Russian-Chinese trade totaled $6.9 billion, up 25.3 percent from 1995. Russian exports to China were worth $5.15 billion and imports—$1.69 billion. By 2000, Sino-Russian trade is expected to reach $20 billion, compared with $7-8 billion projected for this year.

the group's entire 1996 budget. Over the last two years, the Foundation has given grants worth some $13 million for educational, ecological, and cultural programs.

Despite the fact that the Foundation was granted tax-free status as a charity in 1995, Belarus tax officials began an audit of its activities in March. Auditors claim that 19 grants extended last year did not correspond to their stated goals, and so the funds did not represent charity and should have been subject to various taxes. The audit also accused the foundation of profiting from its activities.

Soros' problems in Belarus began earlier this year when President Aleksandr LUKASHENKO criticized the group's activities and authorities barred the executive director of the Minsk office, Peter BYRNE, from reentering the country, charging him with supporting the political opposition and interfering in the domestic affairs of Belarus.

The Shadow Economy in Moldova

· The size of the shadow economy in Moldova is the subject of widely varied estimates, but is clearly a large and growing portion of the total Moldovan economy, according to a report from the US Embassy in Kishinev. The report loosely defines the shadow economy as "that part of the total economy not documented by reports to officialdom."

This undocumented activity takes place in four, often-overlapping areas: the unofficial economy, which includes business entities and individuals trying to avoid paying taxes for legal and illegal transactions; the informal economy where economic entities evade taxes by failing to officially document transactions; the fictitious economy where records of transactions are tampered with, often by corrupt officials, to lower tax liabilities; and the criminal economy, encompassing a wide variety of illegal activities that are completely hidden from the state.

The Moldovan department of statistics estimates that the size of the shadow economy rose from about three percent of gross domestic product (GDP) in 1992 to seven percent in 1993, 10 percent in 1994, 11 percent in 1995, and 15 percent in 1996.

In contrast, a recently-released report by the Market Problems Research Center of the Moldovan Acad

Politics-Economics-Business

Page

When you need to know it as it happens

Thursday

May 1, 1997

Intercon's Daily

emy of Sciences (MAS) suggests that the size and growth of the shadow economy are much larger. The MAS used a variety of methodologies in preparing their report. It estimates that the shadow economy in Moldova amounted to 40-50 percent of official GDP in 1996. If this is accurate, it indicates that the government is losing much more tax revenue than officially estimated. Moreover, it could mean that total GDP may actually have grown in 1996, rather than declined. Some estimates put the 1996 GDP drop at eight percent.

South Caucasus & Central Asia

Black Sea Countries Plan Free Trade

· Following a meeting of ministers of the 11-member Black Sea Economic Cooperation (BSEC) group, Turkish Foreign Minister Tansu CILLER praised an agreement to create a free trade zone, reported Reuters. BSEC officials say it will take until 2010 to open a free trade zone. Wednesday's meeting was attended by foreign ministers and senior ministry officials from Turkey, Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, and Ukraine.

The ministers' meeting followed a three-day conference aimed at promoting trade and joint projects in the Black Sea region that brought together more than 600 businessmen, western financiers, oil executives, and officials from Black Sea states.

This week, BSEC unveiled plans for six regional cooperation projects focused on energy conservation, gas pipelines, development of small- and medium-sized enterprises, infrastructure, a project related to the use of the Danube River, and another to speed border access in the region. The Black Sea Trade and Development Bank, founded by the group, will open at the end of May in Thessalonika, Greece.

Georgia Replaces its Finance Minister

· Georgian Finance Minister David YAKOBIDZE, in an apparent response to severe criticism last fall

for incompetence, on Monday submitted his resignation to President Eduard SHEVARDNADZE, reported RFE/RL Newsline. YAKOBIDZE has also been targeted by the head of the parliamentary anti-corruption committee. SHEVARDNADZE has appointed Mikhail CHKUASELI, the prefect of the Guria region and an economist, to replace YAKOBIDZE.

Daewoo Buys into Kaztelecom

· The government of Kazakhstan has sold 40 percent of the country's telecommunications monopoly Kaztelecom to South Korea's Daewoo Corp., which won a tender over six other foreign companies, reported Itar-Tass. Kazakh Deputy Prime Minister Aleksandr Pavlov and Daewoo managing director Kim Bong Woo signed an agreement on the sale on Wednesday.

Under the agreement, Daewoo will invest $1.37 billion in the development of the country's telecommunications system, Pavlov told Itar-Tass. It will also give a bonus to the government and make some other payments. The number of telephone lines in Kazakhstan, which has a population of 16.4 million, is to grow by 1.5 times, reaching 3.3 million, said Pavlov. Kazakhstan's telecommunications system is currently 25-30 years behind the standards of developed nations.

Hurricane Finalizes Purchase of Yuzhneftegaz

· Canada's Hurricane Hydrocarbons Ltd. said on Wednesday that it has finalized its purchase of Kazakh oil company Yuzhneftegaz, by making its fourth and final payment of $30 million to the government of Kazakhstan, reported Dow Jones. The company said that the effective date of the $120 million acquisition was November 30, 1996.

Hurricane said the name of Yuzhneftegaz has been changed to Hurricane Kumkol Munai JSC. Hurricane Kumkol Munai is currently producing 45,000 barrels of oil per day and has proven and probable reserves of 340 million barrels, said the company. The oil is refined and marketed locally.

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