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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, September 19, 1997

Russian Federation


Duma Passes 2nd Restrictive Religion Bill

· The Russian State Duma today voted 357-6, with four abstentions, to approve a revised version of the bill "On freedom of conscience and religious associations," which is reportedly just as restrictive as the first religion bill passed by parliament in July. President Boris YELTSIN vetoed the first bill on the grounds that it violated the constitutional right to freedom of religion, but the new bill does little to address this issue.

The new bill still gives Orthodoxy the preeminent place in Russian society and defines certain religions as "traditional" and restricts all others, according to the Associated Press (AP). Traditional religions are Christianity, Islam, Buddhism and Judaism. Christianity in this case includes only the main Russian Orthodox, Catholic, and Protestant churches, excluding Baptists, Mormons, and others.

The bill says that religious groups must have been present in Russia for 15 years before they can hold worship services, publish or distribute religious literature, or invite foreigners to preach. Such groups cannot hold worship services in hospitals, senior citizens' homes, schools, orphanages, or prisons.

Russia's Catholic, Baptist, Adventist, and Pentecostal communities have already issued a joint statement saying that the new version was also "unconstitutional" and that, "despite the fact that the preamble has been seriously changed, the essence of the document has remained practically unchanged," according to Interfax. The statement stressed that the new bill will still be discriminatory and will still restrict rights of freedom of conscience and freedom of worship.

Mormons and Scientologists also voiced concern that they could be driven underground by the new regulations.

The bill must now be approved by the Federation Council and signed into law by Yeltsin.

Rokhlin Exposes Plot to Discredit Him

· Lev ROKHLIN, chairman of the Russian State Duma defense committee, announced at a press conference today that unspecified forces are plotting to get him involved in a "drunken" fight in order to discredit him, reported Russian independent television (NTV). He did not disclose how he learned of the alleged plot, but said the aim was to "physically incapacitate" him, perhaps even going so far as to "eliminate" him. ROKHLIN said that he was being targeted by "patriotic forces" who view him as a "dangerous general and provocateur."

Lebed Party to Join with Rokhlin's Group

· Former Russian Security Council secretary and presidential hopeful Aleksandr Lebed on Thursday offered to join forces with General Lev Rokhlin's new pro-military political movement, reported Reuters. A statement, signed by Lebed on behalf of his Dignity and Motherland political group, said it was willing to "cooperate closely" with Rokhlin's group.

"We are ready to offer Rokhlin's movement the existing network of Dignity and Motherland to implement joint decisions," said the statement. "The problem of the armed forces and of the

Today's News Highlights


Stolen Uranium Seized

Industrial Ouput Up in August

Euromoney Lauds Chubais

S&P's Rates Sverdlovsk

European Republics

Top Crimean Official Shot

Ukraine Gets First GSM

South Caucasus & Central Asia

Czech Power Plant for Georgia

Kazakh Stock Market Opens




September 19, 1997

Intercon's Daily

Ruble = 5,857.9/$1.00 (NY rate)

Ruble = 5,853.5/$1.00 (CB rate)

Ruble = 5,844|5,863/$1.00 (buy|sell rates)

CHUBAIS estimated that total foreign investment in the Russian economy more than tripled so far this year to $6 million from $2 billion last year. Britain is the second largest investor in Russia after the US.

According to British Ambassador to Russia Sir Andrew WOOD, however, "stability, transparency, and predictability" are needed to ensure continued capital flows into Russia.

Uranium Seized in N. Caucasus

· Russian authorities have seized 3.8 kg of uranium-238 and have detained a gang suspected of trying to sell the highly radioactive substance, reported Interfax on Thursday. The uranium, kept in a metal cylinder inside a lead isolator, was found at the home of an unemployed man in the North Caucasus town of Ivanov.

The investigators also seized from one member of the gang two jars containing highly toxic red mercury oxide weighing about two kg, said Interfax.

The uranium was traced to the Siberian nuclear research center, Arzamas-16, from where the container had gone missing in 1994. Interfax said the uranium had been offered several times to prospective buyers in Moscow, the Baltic states, and elsewhere.

In June, Arzamas-16 was the scene of Russia's first fatal nuclear accident since the 1986 Chernobyl disaster. An atomic weapons researcher died after receiving a high dose of radiation while conducting a weapons test using small amounts of uranium.

Workers at Arzamas-16 held a protest rally this week demanding the government pay funds it owes the nuclear industry.

Industrial Production Up in August

· Russia's State Statistics Committee (Goskomstat) said Wednesday that Russia experienced a moderate gain in industrial production during the first eight months of this year, reported Itar-Tass. Gross domestic product (GDP) held at essentially the same as last year during January-August 1997, ending the contraction of the economy that began in 1990.

Industrial production increased by 1.4 percent during January-August, compared with the same period

Apr May Jun Jul Aug Sep

country's defense capability has realistically become a national tragedy." There was no immediate reaction from Rokhlin.

Speaking at the Japan National Press Club in Tokyo today, Lebed criticized President Boris Yeltsin for what he terms a failure to institute tax and legislative systems needed to lure foreign investment. "Nobody will invest in a country from which capital goes out. It stands to reason that careful Japanese companies will not invest in (Russia)," Kyodo quoted him as saying.


Russian-British Business Execs. Meet

· British and Russian business and financial leaders held talks at the British Embassy in Moscow on Thursday under the auspices of the Confederation of British Industry, reported Reuters. The talks focused on the oil sector, the chemicals, aerospace, and consumer products industries, and financial services.

British participants included representatives of Royal/Dutch Shell, Unilever, BAT Industries, Cable & Wireless, Inchcape, and British Aerospace. The Russian side included First Deputy Premier Anatoly CHUBAIS and the top businessmen in the country: Mikhail KHODOROVSKY of Rosprom; Vladimir GUSINSKY of Most Group; Vladimir POTANIN of Oneximbank; Petr AVEN of Alfa group; and Security Council deputy secretary Boris BEREZOVSKY.

When you need to know it as it happens




September 19, 1997

Intercon's Daily

last year, including a three percent rise during the month of August. Output grew in nearly every industrial sector, but the recovery in the auto industry was particularly impressive with a rise of 13.8 percent from the same period last year.

Goskomstat estimated that Russia produced 635,000 automobiles during January-August, a 13.8 percent increase from the same period last year. Truck production grew by 11.1 percent to 95,800, while motorcycle output rose 73.2 percent to 39,400, and bus output was up 16.7 percent to 28,600 units.

The average monthly income of the employed population in the first eight months of this year reached 916,000 rubles ($156), up 20 percent from the same period last year.

By the end of August, unemployment was estimated at 6.57 million, which included the officially registered figure of 2.158 million, and accounted for three percent of the workforce.

Chubais Is Euromoney's Central Banker of Year

· In its September issue, Euromoney magazine has named Russian First Deputy Prime Minister and Finance Minister Anatoly CHUBAIS as its "Central Banker of the Year," noting that the Russian Finance Ministry has "developed a new dynamism" under his leadership. CHUBAIS was named Deputy Prime Minister following President YELTSIN's re-election last summer and he took over the finance portfolio in March, but he was already well known to Western economists and businessmen as the architect of Russia's mass privatization campaign.

The magazine credits his presence in the top echelon of the Russian government with helping to spur the spectacular performance of the Russian stock market this year, is currently the world's best performing market.

"Confidence in his commitment to reform, privatization, and a tight fiscal and monetary policy have led to a surge in investment by foreign fund managers and direct strategic investors," said Euromoney.

The magazine says that CHUBAIS two biggest achievements in recent months are the sequestration of the 1997 budget, which significantly reduced government spending this year, and bringing greater

transparency and fairness to the privatization process, first seen in the sale of telecommunications holding company Svyazinvest.

It is interesting that the West's love for CHUBAIS seems to grow in nearly direct proportion to Russian Communists hatred for him.


S&P Rates Sverdlovsk Region

· Standard & Poor's has assigned its double-'B'-minus long-term issuer credit rating to Russia's Sverdlovsk Oblast, said S&P's CreditWire on Wednesday. The outlook is stable. The Oblast is located in the heavily industrialized area of the Ural Mountains on the border of Asia and Europe.

The speculative grade rating reflects:

(1) restricted revenue flexibility because of federal control over tax rates, types, and allocations; (2) the evolving intergovernmental system and re-evaluation of expenditure responsibilities as part of Russia's need to meet its budgets; (3) the low cash-based collections characteristic of Russia resulting in a large barter economy with tax and wage arrears; (4) muted growth expected in 1998 after six years of economic contraction, ongoing restructuring of inefficient heavy and military-related industries, and stabilization of unemployment growth, which is slightly higher than the Russian average (9.4 percent versus 9.3 percent in 1996); (5) the low income levels on an international scale (average annual wage per capita of $1,537); and (6) large capital expenditure requirements in infrastructure modernization, necessitating close monitoring of debt accumulation.

Supportive factors include:

(1) the Oblast's relative fiscal strength reflected in net contributions to the Russian federal budget; (2) the low current and forecast indebtedness (direct debt equaled six percent of 1996 revenues and one percent of 1996 GDP) including the planned 1997 borrowing of $100 million, debt for 1997 will be 12 percent of operating revenues); (3) the stable and proactive government headed by Governor Eduard Rossel; (4) a mostly untapped natural resource endowment (minerals, timber, oil, gas, and precious metals) offering longer term revenue potential; and

When you need to know it as it happens




September 19, 1997

Intercon's Daily

(5) sound budgetary management resulting in operating surpluses until 1996 (small operating deficit) during a difficult tax collecting environment.

Sverdlovsk's economic restructuring challenges are significant; however, the Oblast's output remains the second-highest in Russia. Growth in tax revenues as well as a reduction in arrears is expected at this rating level, said Standard & Poor's.

each by Deutsche Telekom AG, Tele Danmark AS, and Dutch group KPN.

The network will initially operate only in Kiev, but it will be expanded to Odessa and Dnipropetrovsk by the end of the year.

UMC Marketing and Advertising Director Jakov Schleicher said that the UMC has already invested $150 million, and the total investment in 1997 will amount to $57-60 million.

Another telecom joint venture, UTEL, which includes the Netherlands, Germany, the US, and Ukraine is expected to spend $5 million each on digital international telephone exchanges being installed in several places between Lvov (western Ukraine) to Donetsk (eastern Ukraine).

South Caucasus & Central Asia

Czech Co. in Georgia Power Plant Deal

· The Czech company Technoexport has worked out a $160 million project to build a power plant in the Georgian town of Tqibuli, reported the Caucasian Institute for Peace, Democracy, and Development. The plant will be privately-run and Technoexport will be owner. Construction will commence in 1998 and last for three years. Half of the electricity output will be exported to Turkey.

Kazakhstan Stock Market Opens

· Kazakhstan formally launched its new stock exchange today with the trade of shares of Neftekhimbank, a medium-sized bank, reported Reuters. The long-awaited Kazakhstan Stock Exchange (KSE) hold regular trading session for equities in Kazakh companies on Tuesdays and Fridays.

Trading on the new stock market is expected to pick up after the government has selected 13 large companies for privatization. After the sell-offs, Kazakhstan hopes these companies will become real blue chips, the core of the market, said Reuters.

European Republics

Crimean Official Wounded in Shooting

· Dmitri GOLDICH, the deputy tourism minister for Ukraine's Crimean peninsula, was shot twice in the head and badly wounded on Thursday in what was apparently meant as a contract killing, reported Reuters. He was rushed to the hospital in a coma. Ukrainian Prime Minister Valery PUSTOVOITENKO told a government meeting in Kiev that the attack occurred at 9:00am in Simferopol.

GM, Daewoo, & Ukraine Sign JV

· US General Motors, South Korea's Daewoo, and Ukraine's AvtoZAZ on Wednesday signed a long-awaited joint venture agreement to produce automobiles in the southern city of Zaporozhye, reported Dow Jones. The venture will modernize the AvtoZAZ plant and produce 255,000 cars at full capacity, half of them for export and half for domestic consumption.

Daewoo and GM will put up half of the venture's $300 million in starting capital, and the 85 percent state-owned AvtoZAZ will contribute the other half in the form of property.

Mobile Phone Network Planned for Ukraine

· Ukrainian Mobile Communications (UMC), a Ukrainian-Dutch-Danish-German joint venture, has launched a GSM (global system for mobile communications) network in Ukraine, the country's first, reported Xinhua. UMC is 51 percent owned by state telecommunications company Ukrtelekom, and 16.33

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

Svetlana Korobov, Contributing Editor

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