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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, July 2, 1997

Russian Federation


Premier Denies OKing in Arms to Armenia

· Russian Prime Minister Viktor Chernomyrdin on Tuesday denied a report in Izvestia that he had sanctioned illegal arm supplies to Armenia in 1994-96, reported Itar-Tass. He told reporters that he and other government officials "have not passed any decisions and given any sanctions for supplies of the military hardware and ammunition to Armenia."

Former FSB Chief Named Justice Minister

· Russian President Boris Yeltsin has signed a decree dismissing Valentin Kovalyov from the post of Justice Minister, and another decree appointing former Federal Security Service (FSB) chief Sergei Stepashin in his place, said the presidential press service.

Last week, the Russian government recommended Yeltsin remove Kovalyov after a scandal erupted over a videotape that allegedly showed the minister cavorting with naked prostitutes in a mafia-run sauna. KOVALYOV said the video was a fake. It seems, however, that the government did not so much object to the cavorting as to the fact that the tape was found in the safe of a banker charged with embezzlement who claims he paid bribes to the minister.

Stepashin was removed as head of the FSB in June 1995 for his agency's mishandling of a raid by Chechen rebels on the southern Russian town of Budennovsk which left over 100 dead. In November 1995, Stepashin was appointed head of the administrative department of the Russian government.

Tuleev to Kemerovo, Kislyuk to Moscow

· Russian President Boris Yeltsin on Tuesday relieved Aman Tuleev of his post of Minister for CIS

Affairs and appointed him governor of Siberia's Kemerovo Oblast. Kemerovo is the only region in Russia with an appointed governor. The first gubernatorial election is set for October 19, 1997.

Today, Yeltsin appointed Kemerovo governor Mikhail Kislyuk as the director of the Russian Federal Service for Regulation of Transport Natural Monopolies. Kislyuk was named governor in 1991, but recently he has come under fire for mismanaging the region.

Tuleev previously served as chairman of the Kemerovo regional council and regional legislature chairman. He was elected to the State Duma in December of 1995 and became a government minister in August 1996.

The removal of TULEEV and KOVALYOV effectively purges the Russian government of Communists. The two represented YELTSIN's concessions to the Communist-dominated legislature.

Pres. Admin. Responds to Seleznyev

· The Russian presidential press service issued a statement on Tuesday denying that President Boris YELTSIN's appointment of his daughter as an advisor is illegal. The statement is a response to Duma speaker Gennady Seleznyev's charge that the appointment violated a provision in Russia's civil service law against hiring relatives.

The press service said that the law

Today's News Highlights


Shadow Economy Flourishing

US Cotton Exports to Russia

Aeroflot Called Unsafe

KamAZ Stake to Tatarstan

European Republics

Ukrainian PM Dismissed

US Amb. Named to Lithuania

South Caucasus & Central Asia

Armenia-Russia Eco. Accords

Russian Diplomacy in Georgia




July 2, 1997

Intercon's Daily

does not apply to top state officials, including Yeltsin. It notes that the president is not considered a civil servant and the law does not regulate his activities.

However, a Moscow Oblast attorney has reportedly filed a Supreme Court appeal challenging the legality of the appointment, said RFE/RL Newsline.

Another Russian City Closed

· In a return to a Soviet-era practice, Russian President Boris YELTSIN has ordered that a town containing a biological weapons research center be closed to outsiders, reported the Associated Press (AP). The decree means that movement into and out of Shikhany, located in central Russia's Saratov region, will be limited and controlled, and all cargo will be checked.

During Soviet times, hundreds of cities that housed military bases and defense plants were closed to foreigners and to Soviet citizens who were not residents. Most restrictions have been lifted, but some 1.5-2 million Russians still live in about 150 closed cities run by the defense and nuclear power ministries, according to Segodnya.

US Restricts Exports to Listed Facilities

· The US Department of Commerce has listed research facilities in Russia, China, India, Pakistan, and Israel as engaging in weapons proliferation and has required US companies to inquire about whether to submit license applications for all exports to these destinations, said a USIA report. These additions to what Commerce calls the Entity List were published on June 30 in two Federal Register notices.

The list includes Chelyabinsk-70, formally called the All-Russian Scientific Research Institute of Technical Physics, which managed to import a US-made supercomputer last year, setting off a criminal investigation and attempts in Congress to reverse the CLINTON administration's relaxation of computer export controls.

The list also names the All-Union Scientific Research Institute of Experimental Physics (Arzamas-16) "and any other entities, institutes, or centers associated with the Ministry for Atomic Power of Russia located in either Snezhinsk or Kremlev, Russia."


Ruble = 5,783.5/$1.00 (NY rate)

Ruble = 5,782/$1.00 (CB rate)

Ruble = 5,772|5,792/$1.00 (buy|sell rates)

Shadow Economy in Good Health

· Russian Deputy Interior Minister Pavel MASLOV estimates that the country's shadow economy is worth 750 trillion rubles ($129 billion) a year and accounts for 45 percent of overall turnover in the country, reported Interfax.

"The process of redistribution of state property carried out in the absence of an appropriate legal basis and a high degree of corruption have driven up domestic organized crime, which represents a real threat to the country's national security," he is quoted as telling Federation Council hearings on Tuesday.

According to MASLOV, Russian law enforcement knows of the existence of 9,000 organized criminal groups, which control 40,000 commercial structures, including 449 banks.

US Cotton Exports to Russia to Rise

· A recently released report from the US agricultural attaché in Moscow predicts that exports of US cotton to Russia will increase to 15,000 tons in marketing year (MY) 1996/97, according to Futures World News (FWN). However, any further significant increase in imports and use of US cotton may be limited by the restricted market (both domestic and foreign) for high quality cotton fabrics of Russian origin, said the report.

Consumption of cotton in Russia has stabilized at 240,000-250,000 tons per year, a 60-70 percent lower level than at the end of 1980s.

Given the current economic problems in Russia, and the decrease in textile demand, the use of 50 percent of capacity is considered normal at Russian textile factories. As a result of a decline in military consumption in MY 1996/97, the marketing of textile products remains the most important task of cotton textile producers.

Financial constraints of textile factories in many cases prevent modernization which is necessary to increase efficiency of production. Procurement of

When you need to know it as it happens




July 2, 1997

Intercon's Daily

cotton now is based on market approaches, and given the removal of the value-added tax on cotton imported from non-CIS countries, the US now has a better chance to compete with Central Asian cotton, mostly from Uzbekistan.

Better quality US cotton and the increased use of the GSM-102 credit guarantee program by Russian buyers is facilitating development of the market for US cotton in Russia.


Airline Group Calls Aeroflot Unsafe

· An international Airline Safety Report Card, compiled by the US-based travel watchdog group Air Travelers Association airline has given 29 of 260 airlines based around the world failing safety grades, including Aeroflot Russian International Airlines and Russia's Tarom airlines, reported United Press International (UPI).

The Report Card includes airline safety ratings for the fatal accident history of 260 scheduled passenger airlines in 107 countries that used Western-built jet aircraft and operated at least 20,000 flights between January 1, 1987, and December 31, 1996.

KamAZ Cedes Large Stake to Tatarstan

· The board of directors of the KamAZ truckmaker in Russia's Republic of Tatarstan on Tuesday voted to transfer 43 percent of the company's shares to the republic's government, reported Itar-Tass. The board also named Tatarstan's First Deputy Prime Minister Ravil Muratov as chairman of the KamAz board.

The former chairman, Nikolai Bekh, will remains as an ordinary member of the board.

Addressing the board meeting, Tatarstan President Mintimer Shaimiyev said that the Tatarstan government will guarantee loans and investments in the company to help repay KamAZ debts and make the company profitable. Last year, SHAIMIYEV helped negotiate a reduction in KamAZ's huge tax debt to the federal government, probably saving the company from bankruptcy.

The board also outlined measures to fulfill the annual schedule to produce 23,500 KamAZ trucks and 18,000 Oka cars.

European Republics

Ukrainian Premier Tenders Resignation

· Ukraine's President Leonid KUCHMA signed a decree today accepting the resignation of Prime Minister Pavlo LAZARENKO for health reasons, reported Reuters. The president temporarily suspended LAZARENKO on account of illness on June 19, but his resignation letter said he would be incapable of performing his duties for 2-3 months.

The nature of LAZARENKO's illness, or even whether he is sick at all, is not known. Observers have speculated that the news of illness was a ploy by KUCHMA to sack LAZARENKO and also that it was a ploy by LAZARENKO to step down gracefully rather than be fired.

Likely candidates to succeed LAZARENKO include reformist Deputy Prime Minister Sergei TSIPKO, Kharkov regional governor Oleg DYOMIN, and presidential administration head Yevgeny KUSHNARYOV, according to Reuters.

The conservative parliament must approve the prime ministerial nominee and the Communists are expected to forward their own candidates for premier.

US Ambassador to Lithuania Named

· The White House announced on Tuesday that President CLINTON has nominated Keith C. Smith, a career member of the Foreign Service, to be Ambassador to Lithuania.

Smith, of California, joined the Foreign Service in 1962. Throughout his tenure, he has served in Mexico, Ecuador, Venezuela, Hungary, Norway, and Estonia. From 1990_1992, Smith was Special Advisor on US Assistance to Eastern Europe; and from 1992 to 1994, he was Director of Policy and Public Affairs in the Bureau of European Affairs. In 1994, Smith was Charge d'Affaires in Estonia. He is currently the Director of Foreign Area Studies at the Foreign Service Institute.

South Caucasus & Central Asia

Three CIS Presidents to the US

· Three presidents from the South Caucasus and Central Asia will pay official visits to the US in the next month, said White House press secretary Michael

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July 2, 1997

Intercon's Daily

McCurry. The leaders will discuss bilateral issues and regional problems of the former Soviet Union with US officials.

Georgian President Eduard Shevardnadze will come to Washington on July 18 and Azeri President Geidar Aliyev will arrived on August 1. Both will meet US President Bill Clinton. Talks with Aliyev will center on Caspian oil projects that involve US companies, said McCurry.

Kyrgyzstan's President Askar Akayev will come to the US for a working visit on July 11. It is still not certain whether he will meet with Clinton.

Armenian-Russian Economic Accords Signed

· Armenian Prime Minister Robert Kocharyan and Russian Deputy Prime Minister Valery Serov on Tuesday signed a number of cooperation agreements, including an agreement on restructuring the Armenian debt to Russia and an agreement on the distribution of Russian television programs to Armenia, reported Itar-Tass. The accords were signed following a session of the Armenian-Russian intergovernmental commission on economic cooperation in Yerevan.

During the session, Armenian Energy Minister Gagik Martirosyan and Russian gas monopoly Gazprom chairman Rem Vyakhirev agree to launch a project on Russian gas transit to Turkey via Armenia. "The first phase of the project will cost about $20 million. I do not exclude Russia can use part of a credit, received for development of the gas industry in Siberia, on construction of the gas pipeline," MARTIROSYAN is quoted by Itar-Tass as saying.

In addition, Russian President Boris Yeltsin has invited his Armenian counterpart Levon Ter-Petrosyan to pay an official visit to Russia on August 28_29. During the visit, the two sides are expected to sign a new treaty on friendship, cooperation and mutual assistance between, as well as to conclude a package of bilateral agreements.

Two Russian Envoys in Georgia

· Two top Russian officials are in Georgia this week trying to push along the Georgian-Abkhazian peace process and convince Georgian President Eduard SHEVARDNADZE to extend the mandate of Russian peacekeepers in Abkhazia. The peacekeepers mandate expires on July 31 and Georgia's parliament has threatened to demand their removal.

Russian Defense Council chairman Yuri BATURIN met SHEVARDNADZE today to discuss expected Georgian demands for the removal of Russian peacekeeping troops and other military issues. "If there was such a demand then the peacekeepers will of course have to leave. But I don't think that the situation will stay calm and easy after that," BATURIN is quoted by Reuters as saying. "I imagine there may be a renewal of the conflict. I don't think this is in anyone's interests."

On Tuesday, Russian Security Council deputy secretary Boris BEREZOVSKY practiced shuttle diplomacy to try to jump start peace negotiations between Georgia and Abkhazia. BEREZOVSKY held talks with SHEVARDNADZE in Tblisi and then flew to Sukhumi and back for more talks.

US Ambassador to Kyrgyzstan Named

· The White House announced that President Bill Clinton has nominated Anne Marie Sigmund, a career member of the Foreign Service, to be Ambassador to the Kyrgyz Republic.

Sigmund, of Washington, DC, is currently Counselor of the US Information Agency (USIA). Since joining USIA in 1970, her assignments have included Press Attaché in Belgrade; Public Affairs Officer in Tegucigalpa; Public Affairs Advisor for the Bureau of Latin American Affairs at the Department of State; Public Affairs Officer in Warsaw; Director of the Office of Eastern European and New Independent States Affairs (1994-1996), as well as assignments in Leningrad, Moscow, Budapest, Managua and Buenos Aires.

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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