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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, May 27, 1997

Russian Federation


Russia-NATO Founding Act Signed

· Russian President Boris Yeltsin, NATO Secretary-General Javier Solana, and the leaders of the 16 NATO countries today in Paris signed the Founding Act on Mutual Relations, Cooperation, and Security, clearing the way for Poland, the Czech Republic and Hungary to join NATO in July. NATO is touting the Act as a means of bringing Russia into a new European security order and easing tensions over the inclusion of former Warsaw Pact nations in the Atlantic Alliance.

"The logic of confrontation between former adversaries is yielding to a new era of cooperation. The Paris accord does not shift the divisions created in Yalta. It does away with them once and for all," the Associated Press (AP) quoted French President Jacques CHIRAC as saying.

The agreement gives Russia a voice at the table with the alliance under a new body called the NATO-Russia Permanent Joint Council. It does not, however, allow Russia to veto Council decisions, as was requested by Moscow.

Following the signing of the agreement, YELTSIN unexpectedly announced that he had ordered that all missiles aimed at NATO member countries be dismantled. This caused confusion among those present until it was clarified by YELTSIN advisors who said the president meant that Russia would detarget nuclear missiles from NATO countries.

Later, Foreign Minister Yevgeny PRIMAKOV said that what YELTSIN really meant was that Russia would aim its missiles away from NATO state that did not possess nuclear weapons.

Before traveling to Paris to sign the agreement, YELTSIN once again voiced his general opposition to NATO's planned eastward expansion. He has presented the Founding Act as a victory for Moscow in light of the planned expansion, but still faces considerable criticism at home because of the agreement. In an interview published in today's Izvestia, former Russian Security Council secretary Aleksandr LEBED called the agreement an "act of capitulation" and said it shows Russia's extreme weakness.

New GRU Chief Named

· Russian President Boris Yeltsin has signed a decree appointing Col.-Gen. Valentin Korabelnikov as the new head of the Main Intelligence Directorate of the General Staff (GRU), reported Kommersant-Daily on Saturday. Korabelnikov will replace Fedor Ladygin, who has directed Russian military intelligence since 1992.

The newspaper points out that LADYGIN directed the agency quite successfully—that is, there were no serious debacles during his tenure. The personnel changeover was apparently prompted by Ladygin's 60th birthday in March, as 60 is the official retirement age in the military.

Little is known about Russia's new director of military intelligence. Korabelnikov is a career intelligence officer. He graduated from the Military-Diplomatic Academy serving in the military intelligence service overall about 20 years. Recently, he was first deputy chief

Today's News Highlights


Yasin Has Heart Trouble?

Moscow Educ. Chief Attacked

2nd Eurobond Issue Planned

Foreign Investment in Q1

Russia Launches Loral Satellite

New Investment Fund in Russia

South Caucasus & Central Asia

CIS Meets on Afghanistan

Turkmen-EU Accord Initialled

US, Japan, Uzbek Gold Deal




May 27, 1997

Intercon's Daily

Happenings This Week

¨ A Russian State Duma delegation, led by speaker Gennady SeleznyEv, will pay official visits to Denmark, Norway, and Slovakia during May 25_June 1.

¨ The Paris-based Organizatin for Economic Cooperation and Development (OECD) holds its annual meeting on May 26_30. Ministers from 29 OECD member-nations will attend. Russia is not a member, but its representatives, including possibly Foreign Minister Yevgeny PRIMAKOV, are expected to be present. On May 27, the OECD and Russia are expected to sign a protocol on the setting up of a working group on cooperation.

¨ On May 26_27, Russian President Boris Yeltsin will travel to Paris to sign the Russia-NATO Founding Act with the heads of the 16 NATO member-nations. While in Paris, Yeltsin will also hold talks with French President Jacques Chirac, US President Bill Clinton, and British Prime Minister Anthony Blair.

¨ A Russian delegation, headed by deputy prime minister and co-chairman of the Russian-Hungarian intergovernmental commission on trade and economic cooperation Vladimir Bulgak, will visit Hungary on May 26_28.

¨ Russian Prime Minister Viktor Chernomyrdin will visit Ukraine on May 28_29 to prepare for the Russian president's official visit.

¨ On May 30_31, Russian President Boris Yeltsin will make a long-delayed trip to Kiev to sign a post-Soviet political agreement between Russia and Ukraine. Yeltsin's visit has been postponed several times because of disagreements over the division of the Black Sea Fleet and the status of its base at Sevastopol. An accord on the Fleet would clear the way for a friendship agreement to be signed between the two neighbors.

¨ On Saturday, May 31, elections for mayor of the city of Grozny will be held in Chechnya. Ten candidates, including current Mayor Lecha DUDAYEV, have registered to vie for the post. Also on May 31, a by-election for 18 seats in the Chechen parliament will be held.

of the GRU overseeing, among other things, the Chechen sector, said Kommersant-Daily. According to the paper's sources, Korabelnikov spent about a month in Chechnya and was wounded there.

Yeltsin Orders Restructuring of FSB

· Russian President Boris Yeltsin on Thursday signed a decree on the departmental structure of the Federal Security Service (FSB). The decree aims to optimize the FSB's internal administration system and adapt it to Russia's social, economic, and political situation, FSB spokesman Aleksandr ZdanoviCh said in an interview with Itar-Tass on Saturday. He said the presidential decree does not stipulate any new powers or functions for the FSB.

The decree orders the formation of units, to be called departments, which will comprise the present directorates handling common tasks. Zdanovich cited a paragraph in the decree which bans new dismissals of FSB staff. The entire operative staff will remain in service in contrast to previous re-organizations of the Federal Security Service which led to personnel changes.

Yasin Hospitalized with Heart Trouble?

· Russian minister without portfolio Yevgeny YASIN was reportedly admitted to the hospital on Friday with heart trouble, reported Reuters, citing sources at a banking conference in Moscow. YASIN was expected to address the conference on Monday, but did not show up. A secretary in YASIN's office would not confirm that the minister was in the hospital, but admitted that he had not arrived at work because he was "not well," said the report.

The 63-year-old YASIN was Economics Minister until the March government reshuffle, and now he helps oversee economic reform in the government as a minister without portfolio.

Attack on Moscow Education Chief

· The Moscow city government's top education official was wounded in an apparent assassination attempt on Monday night, reported Russian Public Television (ORT). An unidentified gunman fired on Lyubov KEZINA, who heads Moscow's education committee, as she sat in her government car. She suffered a serious wound to the head and was taken to the hospital where she underwent surgery.

When you need to know it as it happens




May 27, 1997

Intercon's Daily

ORT said that police suspect that the motive for the attack could be related to the allocation of government funds for school construction.

This is the second attack on the Moscow education department in two years, said the report. In 1995, unknown terrorists tried to blow up the building housing the education committee.


Ruble = 5,751/$1.00 (NY rate)

Ruble = 5,773.5/$1.00 (CB rate)

Ruble = 5,754|5,793/$1.00 (buy|sell rates)

Russia Plans its Second Eurobond Issue

· The Russian Finance Ministry, headed by Deputy Minister Mikhail Kasyanov, will launch a promotion campaign for a third issue of US dollar-denominated Eurobonds during June 11-18 at world financial centers. The roadshow will start in Seoul and continue through Zurich, London, Chicago, Hartford, Boston, and New York.

The new Eurobond issue will be for "hundreds of million of dollars," First Deputy Finance Minister Aleksei Kudrin told Prime-Tass. The interest rate is expected to be around nine percent and the maturity of Eurobond will be between 10 and 20 years. Proceeds from the issue will help Russia to reduce its budget deficit.

The first DM2 billion Eurobond issue in November 1997 brought Russia $1 billion. This second issue of Eurobonds will establish Russia as an active player in the international financial market.

Foreign Investment Substantial in Q1

· According to the Russian Economics Ministry, some $2.2 billion was invested in the Russian economy by foreign companies in the first quarter of this year, a three-fold increase over the same period of 1996, reported RIA Novosti. Some estimates put the amount of foreign investment in the Russian economy at $20 billion by the end of this year.


Russia Launches American Satellite

· A Russian Proton booster rocket on Saturday successfully put into orbit US Loral Skynet's newest

broadcast video and data communications satellite Telstar-5 from the Baikonur cosmodrome in Kazakhstan, said a Loral press release. Manufactured by Space Systems/Loral of Palo Alto, Calif., Telstar 5 was launched aboard a rocket manufactured by Moscow's Khrunichev Space Center, in association with International Launch Services (ILS), a joint venture between Lockheed Martin Corp., and Russian companies Khrunichev and RSC Energia. The cost of the launch was estimated at $65-75 million.

The Khrunichev Space Center expects to earn $500-600 million in 1997 as a result of commercial launches, the center's press service told Itar-Tass on Monday. Russia's 1996 revenue from commercial

launches was $470 million. Launches from the Khrunichev center's booster rockets accounted for 60 percent of the 1996 total, commercial programs of the Russian Space Agency—25 percent and of the Defense Ministry—15 percent. The Khrunichev center has a total of 20 contracts, worth over $1 billion, before 2001.

Price Set for Svyazinvest Stake

· The Russian government has set the starting prices for a 25 percent plus one stake in telecommunications holding company Svyazinvest at $1.18 billion, reported Interfax. A presidential decree signed last month ordered the government to privatize the government's 49 stake in the company. The 25 percent will be sold at an auction for foreign and

When you need to know it as it happens




May 27, 1997

Intercon's Daily

Russian investors, but the other 24 percent will be available to Russians only.

Under the conditions of the tender, the winner will be prohibited from selling the shares, putting them in trust, mortgaging or withdrawing them until the tender's investment terms have been met. The date of the auction is expected to be announced next week and the results of the auction will be made public one month after bids are opened.

New Investment Fund in Russia

· Dublin-registered investment fund ICFI Securities Fund Ltd. launched operations in Moscow on Monday with Russia's Bank MFK co-managing the fund in Russia, reported Reuters, citing an MFK statement. ICFI will invest in high-yield, short-term promissory notes of Russian companies, banks, and municipal governments, and its shares will be listed on the Irish Stock Exchange.

Russia's Oneksimbank will act as subcustodial bank, drawing up and registering share deals as well as holding and carrying out audits on the share deposits. MeesPierson Fund Services (Dublin) Ltd. will act as custodian, handling fund share sales and calculating net assets.

Bank MFK also said it will participate in the creation of another investment fund in the Russian economy, Eastern Gate Fund Plc., which will deal with a wide range of financial instruments, from company shares to securities to Russian government promissory notes and structured financial products.

ghan rebels are currently approaching the border with Tajikistan. Central Asian countries are also worried about the possibility of a large influx of refugees from Afghanistan.

Russia has put the 20,000 troops its has stationed along the Tajik-Afghan border on full alert, according to Russian Public Television (ORT). Russia warned the Taliban militia that it would respond to any breach of the Afghan border with CIS states.

Turkmenistan Close to Agreement with EU

· Turkmenistan and the European Union (EU) initialed a Partnership and Cooperation Agreement in Ashgabat on Saturday, reported Itar-Tass. The agreement will enter into force after it is approved by the EU Council of Ministers and signed by Turkmen President Saparmurat Niyazov and EU Commission President Jacques Santer.

Turkmenistan will be one of the last former Soviet republics to conclude such an agreement with the EU. Only Tajikistan is farther behind in the process.

Uzbek-Newmont Gold Venture Planned

· The government of Uzbekistan will soon lend its support for a project to set up a joint gold mining venture with US Newmont Mining and Japan's Mitsui & Co. Ltd., reported Reuters, citing a Newmont source. "The project will be approved by a special government decree in the near future. This will be followed by a technical and economic appraisal of the project which will take up to 10 months," the source was quoted as saying. The agreement to set up the venture was signed in October 1996.

The cost of the venture, which will function in the Tashkent region and produce about 10 tons of gold a year, will amount to $200 million, said the source. The two foreign companies own a 60 percent stake in the venture, while Uzbekistan's Committee on Geology and Natural Resources holds the remaining 40 percent. The venture will develop the Kyzylmasai and Kochbulak gold fields whose reserves are estimated by the Uzbek government at 270 tons.

South Caucasus & Central Asia

CIS Meets on Situation in Afghanistan

· Representatives of nine CIS countries held a meeting of the Collective Security Council today in Moscow to discuss the volatile situation in Afghanistan, where the Taliban militia has captured the northern part of the country, reported United Press International (UPI). The CIS countries are obligated to defend each other from aggression and the Af

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When you need to know it as it happens



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

Svetlana Korobov, Contributing Editor