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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, May 21, 1997

Across Russia, police checked 74,000 commercial firms and some 6,000 private security services. In Moscow, police halted the activities of 17 firms and 410 individuals who had provided unauthorized services, according to the director of the Moscow licensing department.


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

Ruble = 5,771/$1.00 (CB rate)

Ruble = 5,750|5,792/$1.00 (buy|sell rates)

Chernomyrdin Pushes for Budget Cuts

· Russian Prime Minister Viktor Chernomyrdin briefed the State Duma today on the country's economic performance in the first quarter of this year and pushed a government proposal on cutting 1997 budget expenditures. Chernomyrdin said that there were signs of growth in several sectors during January-March, but pointed out that spending was still too high. He admitted that the government could not reach the targets set in the 1997 federal budget in the first quarter, citing the main reason as the failure to collect taxes.

CHERNOMYRDIN rejected a plan, forwarded by Communist deputies, to double the money supply to pay off government debts. "The government and above all the central bank are carrying out a policy to control monetary emission which is aimed at lowering interest rates," Interfax quoted him as saying.

Russian Federation


Kulikov Travels to Israel

· Russian Deputy Prime Minister/Interior Minister Anatoly Kulikov arrived in Tel Aviv on Tuesday for a five-day official visit to Israel, reported RIA Novosti. Kulikov will meet with Prime Minister Benjamin Netanyahu and President Ezer Weizman and is expected to sign an agreement on cooperation with Israel's Ministry of Public Security. The agreement will outline possible coordination of actions between the two agencies in combating crime, including transitional crime, the prevention of Russian capital flight abroad, and information exchanges.

Kulikov's visit comes as Israeli law enforcement agencies have arrested a Russian mafia chief, Tsvi Ben Ari (Grigory Lerner), who leads a group of Russian émigrés suspected of carrying out large-scale financial manipulations and contract murders in Russia.

Interior Uncovers Illegal Security Firms

· Russia's Interior Ministry has exposed some 800 firms and 3,500 individuals operating illegally in the country's private security sector, an official, reported Itar-Tass. Ivan Mayatsky of the Interior's Public Security Department told reporters on Tuesday that the Shield operation, conducted jointly with Federal Tax Police, involved 139,000 public security officers and 24,000 criminal investigation personnel.

Following the raid, a total of 270 criminal cases were started for the illegal purchase, transfer, storage, transportation, or carrying of weapons, ammunition, and explosives. The exposed firms or persons were not registered or provided unlicensed security or private investigation services, said Mayatsky, adding that 86 private firms were closed down.

Today's News Highlights


Russian GDP Holding Steady

FDI Picture Looks Gloomy

Millicom Buys Petersburg Stake

Ericsson Gets AMPS Order

European Republics

Kuchma's Trip to the US

Odessa Issues Muni Bonds

South Caucasus & Central Asia

Arm. President's Brother Dies

ADB Loan for Kazakhstan




May 21, 1997

Intercon's Daily

The government wants to cut spending by 108 trillion rubles ($19 billion), calling the 1997 budget as its stands "unrealistic." Duma deputies are expected to vote on the budget sequestration bill on Friday.

During Chernomyrdin's presentation, Russian President Boris YELTSIN urgently summoned his two First Deputy Prime Ministers Anatoly Chubais and Boris Nemtsov, and the premier, to the Kremlin for an unexpected meeting. The two minister left during CHERNOMYRDIN's report, but CHUBAIS quickly returned. The premier completed the question and answer session with legislators and then phoned the Kremlin instead of leaving. The summons was surprising as the ministers were supposed to spend the whole day at the Duma.

Jan-April GDP Steady from 1996

· Russia's State Statistics Committee (Goskomstat) said Tuesday that the country's GDP for the first four months of 1997 totaled 810 trillion rubles, putting it at virtually the same level as the same period last year, reported Prime-Tass. Russia's GDP grew by 0.2 percent during the first quarter of the year, compared with 1996.


FDI Picture Looks Gloomy

· The unfavorable investment climate in Russia is continuing to preclude a large inflow of foreign investment into the country. In late 1996, then Economy Minister Yevgeny Yasin predicted that foreign direct investment (FDI) in Russia would reach $7-8 billion, but this seems overly optimistic because rather than working to improve investment legislation in Russia, the parliament seems determined to make investing more difficult.

This week, the State Duma is holding hearings on the law "On Foreign Investment" and an accompanying bill "On the List of Production Facilities, Types of Activities in the Territories Where the Activity of Foreign Investors Is Limited or Prohibited," reported Monday's Trud. According to State Duma economic policy committee deputy chairwoman Svetlana GVOZDEVA, the new laws will cause the foreign investment situation to worsen.

"Is it reasonable to impose bans on 14 sectors of the national economy where foreign capital may not be

invested and on as many as 59 sectors, where foreign investors will face restrictions? For comparison's sake, there are only seven prohibitive sectors in the USA and Germany, five in Italy and Great Britain, and nine in France. Russia actually is imposing an iron curtain for investors! This is a law fit for a totalitarian state," she is quoted by Trud as saying.

The conservative Russian parliament's continued reluctance to allow foreign ownership or foreign competition in certain industrial sectors is the main break on FDI in the country. If legislators are determined to block foreign investment, then Russia's economic revival will have to be driven by domestic sources of capital.

It appears that a major inflow of foreign capital to Russia must be preceded by a change of attitude as well as legislative initiatives.

Siemens Involved in Moscow Phone Upgrade

· Speaking at the international exhibition Communications-Expocomm `97 on Tuesday, Robert Schmidt, head of the Moscow office of Germany's Siemens, said Moscow will have automatic telephone stations with an overall capacity of 500,000 telephone numbers by 1999, reported Itar-Tass.

The telephone stations will be supplied in accordance with an agreement between Siemens and the Moscow city telephone network company. According to Schmidt, 30 regions of Russia are using Siemens equipment, including telephone stations, fiber optic cable, radio relay equipment, and mobile communication stations.

Siemens telephone stations are functioning in Moscow, St. Petersburg, Samara, Angarsk, Astrakhan, Kaluga, Tyumen, Cheboksary, and other Russian cities. Siemens investments in Russia have reached DM250 million in the past five years.

Millicom Buys Petersburg Telecom Stake

· Luxembourg-based Millicom International Cellular SA said on Tuesday it has agreed to purchase a 60.6 percent stake in Russian cellular company St. Petersburg Telecom from Motorola Inc. and Soyuzkontrakt, reported Dow Jones. Petersburg Telecom operates an AMPS-based cellular telephone system. Terms of the sale were not disclosed.

When you need to know it as it happens




May 21, 1997

Intercon's Daily

Following the purchase, Millicom will become the operator of St. Petersburg Telecom, making Millicom the majority owner and operator of cellular systems in 10 Russian cities covering 40 million people. Millicom said it intends to continue to acquire Russian cellular operators.

Ericsson Receives VimpelCom Order

· Sweden's LM Ericsson Telefon has received a D-AMPS order valued at $54 million from Moscow's wireless communications operator VimpelCom , said a company press release. This is the largest order ever for any D-AMPS/AMPS cellular system in Russia, and is the seventh expansion of the network. The order is for the supply and installation of additional RBS 884 Radio Base Stations and additional mobile switch (AXE 10). The first deliveries are scheduled for August 1997.

VimpelCom, selling its services under the Bee Line trademark, is the biggest cellular operator in Russia and the CIS, with more than 65,000 subscribers in its Moscow network. VimpelCom is the first, and so far the only, Russian company listed on the New York Stock Exchange.

As a result of this expansion, VimpelCom and Bee Line will be able to increase the capacity of its network and provide wider coverage in the Moscow region and several adjacent regions.

Ericsson and VimpelCom have been working together since January 1994, when VimpelCom first contracted with Ericsson for the supply and installation of its first wireless network, a sophisticated D-AMPS network covering the central Moscow area.

scored by Motorola's pullout from the country.

While in Washington, KUCHMA met with, World Bank and IMF leaders, several US legislators as well as President CLINTON and Vice-President GORE. KUCHMA was admonished for the slow pace of reform and for tolerance of bribery and red tape. He was reminded that Ukraine received the largest portion of US foreign aid, after Israel and Egypt, and warned that unless things shaped up in this country, this aid would be cut.

On Friday, a plenary meeting of the US-Ukrainian Bi-national (GORE-KUCHMA) Commission was held, which was followed by work in four committees: on foreign policy, security, economic development. trade and investments. Following the meeting, GORE and KUCHMA signed a series of measures aimed at boosting trade.

The two sides signed a joint initiative to develop Ukraine's gas sector and a bilateral civil aviation accord was initialed, according to the Journal of Commerce. In addition, GORE indicated that President CLINTON will soon give Ukraine more secure access to the US market by essentially eliminating the annual congressional review of Ukraine's most-favored-nation trade benefits. The two also announced the commencement of negotiations on a nuclear cooperation agreement which could lead to significant US nuclear-related exports, including fuel and reactors.

KUCHMA promised to forward new measures to further privatize Ukraine's energy and agricultural sectors, to improve the investment climate, and to combat official corruption.

US-Ukraine trade turnover reached $900 million last year, a 40 percent increase from the 1995 level. US foreign direct investment in Ukraine is estimated at about $700 million.

Crimean Privatization Head Killed

· Aleksei Goloviznin, chairman the Crimean Property Fund, was killed in Simferopol as he was leaving his home in the early hours of Friday, reported Itar-Tass. Goloviznin left his apartment and was going down the stairs when a killer fired nine shots in his chest and head with a handgun. A noted economist, he came into the political foreground as

European Republics

Results of Kuchma Visit to the US

· Ukraine's President Leonid Kuchma spent three days in Washington last week, making some headway in his efforts to convince Western leaders that economic reforms will continue and widespread corruption will be combated. During the last few months, Ukraine has been the subject of heavy criticism for a lack of progress in market reform and for allowing corrupt officials to hinder foreign investment. This criticism was peppered with complaints and anecdotes by foreign firms attempting to operate in Ukraine and finally, the problems were under

When you need to know it as it happens




May 21, 1997

Intercon's Daily

Crimea's lead campaigner for Leonid Kuchma during his presidential race. His efforts were rewarded by the Property Fund post.

Odessa to Issue Municipal Bonds

· Odessa Mayor Eduard Hurvits said on Tuesday that Ukraine's largest seaport has successfully completed its first municipal bonds issue, reported Xinhua. The mayor's promise of a "no risk, high return" investment in Odessa, prompted a rush of buy offers from individuals as well as corporate investors, said the report.

Preliminary figures indicated that investors placed orders for almost all the 61 million hryvnias ($33.5 million) worth of bonds on sale. The securities first went on sale on May 1. Six million hryvnias (3.2 million dollars) worth of low-denomination bonds were transferred to the State Savings Bank in Odessa for sale to the public. Large investment firms are expected to get the chance to make purchases on June 1 when the next issue of city bonds is due.

The Odessa Mayor's office and the bonds underwriter, the Porto Franco Bank, is currently accepting purchase applications. Several large orders from foreign investors are said to have reached the bank.

Odessa bond issuers are offering dividends as high as 50 percent, to mature a year later, on May 1 and June 15, 1998. The city administration plans to earn the money for dividends by investing bond revenues in high profit construction projects. Yields on Odessa city bonds are considerably higher than those on national internal loan bonds, which yield dividends ranging from 24 percent a year for three-month bonds, to 34 percent a year for 12-month bonds.

WTO Tells Lattelekom to De-Monopolize

· The World Trade Organization (WTO) is demanding that the Latvian government accelerate by a decade plans to de-monopolize the Lattelekom telephone company, reported M2 Communications. It is calling for Latvia to change the monopoly situa

tion of the company by 2003, rather than by 2013, as originally planned, if it wants to join the WTO. Latvia has protested that it will not be able to continue upgrading the country's telephone system if the monopoly period is cut short.

Lattelekom is 49 percent owned by Tilts Communications and [which] was formed by C&W Telecom and the International Finance Corp., while the state owns the other 51 percent. The Latvian Privatization Agency is planning to sell off its 51 percent stake in a public offering during the first half of 1998.

South Caucasus & Central Asia

Armenian President's Brother Dies

· Well-known industrialist and parliamentarian Telman Ter-Petrosyan, the elder brother of Armenian President Levon TER-PETROSYAN, died suddenly on Tuesday at the age of 59, said Itar-Tass. No details on the cause of death were available.

During the Soviet-era, he headed the big defense plant Razdanmash. More recently, he was one of the organizers and leaders of the Armenian union of industrialists and entrepreneurs.

President TER-PETROSYAN today postponed a trip to Turkmenistan, scheduled to begin on Thursday, in light of his brother's death.

ADB Loan for Kazakhstan

· The Asian Development Bank (ADB) will extend a $100 million loan to Kazakhstan to reform its pension system, reported Itar-Tass. ADB vice-president Peter Sullivan said the loan amount may be increased if Japan joins the project. The bank is holding active negotiations with Japanese lenders.

A draft law on pension reform, prepared by the Kazakh government, is currently being considered by the parliament. The pension debt in Kazakhstan has reached 36 billion tenge (some $477 million), and elderly people have been protesting.

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