DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, October 15, 1997

tory," said Ilyukhin. "It is assumed in the United States that the Russian banking capital is criminal and all kinds of bans and restrictions are imposed there to prevent the spread of the Russian capital, while in Russia, all the doors are absolutely open," he added.

Karabakh President Visiting Moscow

· The President of Azerbaijan's separatist Nagorno-Karabakh Republic, Arkady GHUKASYAN, held talks in Moscow on Monday with Russian State Duma speaker Gennady SELEZNYEV and the leaders of four Duma factions, reported today's RFE/RL Newsline. In an interview with today's Kommersant Daily, GHUKASYAN said he had met with "understanding" at the talks. He also stressed that the Russian Foreign Ministry has a "monopoly" on mediating a solution to the Karabakh conflict, but said the OSCE Minsk Group is a better forum for these negotiations. He also said he neither shares nor approves Armenia's current "superconstructive" approach to resolving the conflict.

Economy

Ruble = 5,876/$1.00 (NY rate)

Ruble = 5,877/$1.00 (CB rate)

Ruble = 5,861|5,893/$1.00 (buy|sell rates)

Investors' Rights Cttee to Exxon Problem

· Russian minister without portfolio Yevgeny Yasin said on Monday that a state commission for protecting investors' rights will look into alleged

Russian Federation

Politics

Duma Postpones No Confidence Vote

· The Russian State Duma today backed down from a planned vote of no confidence in the government after a last minute appeal from President Boris YELTSIN.

After two hours of debate, the parliament voted 228-137 to postpone the no confidence vote until next Wednesday. Just prior to the debate, YELTSIN phoned Duma speaker Gennady SELEZNYEV asking him to appeal to the Duma not to vote down the government, saying he does not wish a confrontation or new elections.

Interior's Kulikov to India

· Russian Interior Minister Anatoly Kulikov arrived in New Delhi today on a six-day visit to discuss ways of combating drug trafficking with his Indian counterpart Indrajit Gupta, reported Russian television. Kulikov will also take part in the 66th Assembly of Interpol, which opens today in Delhi.

Deputy Wants Less Foreign Investment

· Russian State Duma Security Committee chairman Viktor Ilyukhin told Itar-Tass that Russia should legally prevent foreigners from access to economic and financial secrets of the country to protect national security. "Foreigners unscrupulously penetrate into Russian enterprises. Americans, in particular, are already beginning to manage the aircraft-building industry and communications systems and Boris Jordan, for instance, has been managing in the banking sector," he said.

"We demand equal relations of partnership from the US, while the US does not allow to open a single branch department of a Russian bank on its terri

Today's News Highlights

Russia

Rosgosstrakh Auction Off

Abortion Rate Down

Hitachi in Semiconductor JV

European Republics

CIS Airline Newsbriefs

South Caucasus & Central Asia

CIS Members Getting Restless

New Kazakh Govt Members

IFC Invests in Kazakh Eximbank

Kyrgyz Pres. on the Economy

Politics-Economics-Business

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Wednesday

October 15, 1997

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discrimination against the US oil company Exxon, reported Itar-Tass. The State Commission for Protecting Rights of Investors on the Russian Financial and Stock Market, led by Prime Minister Viktor Chernomyrdin, will consider the case at its next session, he said.

Last year, Exxon won a tender to develop an oil deposit in the TimanPechora basin. Exxon was to hold a 50 percent stake in the project and three Russian oil companies were to equally split the remaining 50 percent. But in August, Natural Resources Minister Viktor ORLOV signed an order canceling Exxon's participation in the project, saying that the tender was illegal.

Rosgosstrakh Privatization Canceled

· The Russian State Property Ministry has announced that it has canceled plans to privatizate the country's largest insurer Rosgosstrakh, reported today's Journal of Commerce. The Ministry also said it had appointed two senior ministry officials, Aleksandr BRAVERMAN and Igor CHUVALOV, to the Rosgosstrakh board of directors.

The government had earlier planned a cash auction of 500 million units of stock with a starting price of 500 rubles per share. The auction was halted after the Russian State Duma and the Accounting Chamber independent auditor criticized the plan as a giveaway to the management.

Half of Rosgosstrakh's stock has already been privatized, with a 20 percent stake distributed to the company's employees and another 30 percent going to a nine-man management team, headed by Vladislav REZNIK. According to REZNIK, the planned auction was aimed at attracting foreign investors.

Total premium revenue last year in Russia's insurance market reached about 27 trillion rubles ($5 billion). Rosgosstrakh's share amounted to 3.1 trillion rubles, or 12 percent of the total.

Abortion Rates Falling in Russia

· Fewer Russian women have been using abortion as a means of family planning over the last few years, according to a draft report on Russia's compliance with the UN Convention of the Rights of a Child during 1993-97. Official Russian statistics show that the abortion rate fell by 23 percent from 1993 to 1997.

During this time, the rate dropped to 69 abortions per 1,000 women ages 15 to 49 from 88 in 1993.

Experts attribute the decrease in the number of abortions to the increasing popularity of modern contraception methods. The number of women using oral contraceptives more than doubled during 1993-97. Sterilization as a means of preventing undesirable pregnancy is now used 1.6 times more frequently than in 1994.

Business

Hitachi in Semiconductor JV

· Japan's Hitachi Corp. has agreed to set up a joint venture with the Russian Railways Ministry, and St. Petersburg companies Svetlana and High-Speed Railways (VSM) to produce semiconductors for locomotives and other railway equipment. Svetlana general director Vladimir Popov told the Prime-Tass on Tuesday that the project is a part of a federal target program for railways' modernization.

Yakutia in Deal with Foreign Banks

· The government of Russia's northeastern Siberian Republic of Sakha (Yakutia) has signed an agreement with Germany's Deutsche Morgan Grenfell bank and South Korea's Samyang Merchant Bank on a syndicated credit worth $75 million, reported Interfax. According to Sergei YARYGIN, deputy chairman of the republican government, a certain portion of the credit will be invested in the development of Sakha's oil processing industry.

Vladivostok Buys Stake in Vneshtorgbank

· The Vladivostok mayor's office has acquired 14.99 percent of the stock of the Vneshtorgbank of the Asian-Pacific Region for 1.6 billion rubles, the bank's chairwoman Galina Markelova told Prime-Tass on Monday. The mayor's office could even increase its stake in the bank by the end of the year.

The city administration reportedly plans to give Vneshtorgbank the status of a municipal bank, which may be necessary for the bank's survival. Vneshtorgbank has accounts payable totaling 11.8 billion rubles. In July, the Russian Central Bank imposed temporary restrictions on its banking operations. According to Markelova, the Central Bank may revoke Vneshtorgbank's license unless measures are taken to straighten out the situation.

When you need to know it as it happens

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in Bishkek last week to discuss economic integration ahead of the annual CIS summit of heads of state in Kishinev October 23. Away from the meeting, however, some CIS leaders have criticized these integration efforts as ineffective and sought alternative bilateral and multilateral arrangements to bring about closer political and economic relations.

On the sidelines of the Council of Europe summit in Strasbourg Friday, the presidents of Azerbaijan, Georgia, Moldova, and Ukraine met and issued a joint communiqué calling for greater cooperation among themselves "in order to create a stable and safe Europe."

During his Monday radio address, Georgian President Eduard SHEVARDNADZE criticized the idea of integration without trust, blasting Russia for giving lip service to free trade within the CIS while blocking the entry of goods from Georgia. "Georgia has always been ready for any useful and helpful integration ... but when decisions of the CIS summit are not implemented, when Russia suggests the creation a common market within the CIS without borders, but it does not allow transit cargo through its borders and even threatens air strikes [to prevent this transport], it is unacceptable to talk about deep economic integration when at the same time trying to discredit the image of a neighbor and ally as a transit country."

In Almaty Tuesday, Kuchma and his Kazakh counterpart Nursultan Nazarbayev signed a declaration on bilateral cooperation and package of five intergovernmental agreements promoting cooperation in space exploration and between the judicial departments, defense ministries, and the banks of both countries.

European Republics

CIS Aviation, Airline Newsbriefs

· According to the CIS Interstate Aviation Committee, 76 people were killed as a result of 10 crashes involving civil aircraft in the 12 CIS states during the first nine months of this year, compared with 224 people dying in crashes during the same period last year. Nine out of the 10 fatal air crashes this year occurred in Russia. In 1993, 349 people died in 17 air accidents in the CIS.

Azeri airline AZAL added a second regular weekly flight to Tel Aviv, with new Sunday service. Azeri IMAIR airline has begun service to Minsk.

British Airways for a third time has postponed the introduction of service to Almaty. Beginning on November 10, BA will fly its newest aircraft, a B-777, to Almaty twice a week.

Air Moldova started a joint-venture flight with Air Ukraine from Kishinev to the Crimean capital Simferopol. An Antonov-24 aircraft will leave Kishinev every Monday and Wednesday evening.

Russian private carrier Transaero will begin offering service to Ashgabat and Bishkek from Moscow.

The Russian government has agreed to help finance the development of a new Tupolev 50-seat jet, the Tu-324. The project will be 50 percent financed by Tatarstan, which will allocate oil export revenues to the project. Tatarstan wants the program to provide work for Kazan's Tupolev aircraft production plant. The prototype for the plane is expected to be ready in 1999, with Russian certification following within two years. Such a jet would have export potential to markets in China, the Middle East, and the CIS. It will meet the demand to replace aging Yakovlev Yak-40s, Antonov An-24s, and Tupolev Tu-134s.

South Caucasus & Central Asia

CIS Countries Seek Extra-CIS Ties

· Ukrainian president Leonid KUCHMA completed a two day visit to Kazakhstan today and now heads to Kyrgyzstan for another two days in what some analysts see as a continuing effort by CIS states to develop cooperative relations outside the framework of the Russian-led CIS. CIS prime ministers met

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During the visit, KUCHMA told journalists that the CIS "in its current form" has exhausted itself as an institution, said RFE/RL Newsline. KUCHMA was particularly critical of the customs union of four CIS countries—Russia, Belarus, Kazakhstan, and Kyrgyzstan—which, he said, is a serious obstacle to trade within the commonwealth as a whole.

During KUCHMA's visit, NAZARBAYEV also gave a negative appraisal of CIS economic integration efforts. "When there is no economic equality there cannot be any talk about a unified economic space," he is quoted by the Financial Times as saying.

In Bishkek later this week, KUCHMA and Kyrgyz President Askar Akayev are expected to sign a package of six documents, including agreements on the prevention of double taxation, and on mutual assistance in the observance of tax legislation.

Although the leaders of former Soviet republics still attend CIS meetings, they have clearly given up on it ever becoming a viable organization and are seeking other means to boost economic and political ties. These new arrangements tend to omit Russia.

New Kazakh Government Being Formed

· Newly appointed Kazakh Prime Minister Nurlan Balgimbayev, the former head of the Kazakh state oil company, has begun forming a new cabinet. On Tuesday, he named Altynbek Sarsenbayev as Information Minister and Baurzhan Mukhamed-zhanov as Justice Minister, reported Itar-Tass. He also announced that Foreign Minister Tokayev, Interior Minister Suleimanov, and Minister of Science Shcholnik will retain their posts. The formation of the new Cabinet, which will be cut to 18 ministries, will be completed next week.

Also on Tuesday, Kazakh President Nursultan NAZARBAYEV issued a decree naming Baltabek QUANDIQOV as the new president of the Kazakh state oil company, reported RFE/RL. QUANDIQOV was the director of the Kaspiishelf consortium.

IFC to Invest in Kazakh Eximbank

· The International Finance Corp. (IFC) announced on Friday that it has committed an equity investment of $9 million for a 15 percent stake in Kazakhstan's Eximbank, said an IFC press release. as part of the privatization of Eximbank, Malaysia's Bank Bumiputra Berhad will invest $21.6 million for a 26 percent stake in Eximbank, diluting the government's share in the bank from 100 percent to 49 percent.

The government of Kazakhstan has pledged to sell its remaining stake in the bank and a share package is expected to be listed on the Kazakh Stock Exchange. Eximbank's capital will increase to $60 million equity following the capital increase from the two equity investments.

Privatization will enhance Eximbank's capacity for term lending and enable it to address the financing needs of Kazakh companies. In addition, technical assistance by Bank Bumiputra will bring Eximbank in line with international standards and help raise the Kazakhstan's banking sector's overall level of service by reducing systemic risk.

Bank Bumiputra is the second largest bank in Malaysia. Although fully owned by the government, it operates along commercial lines.

Kyrgyz President Presents 1998 Budget

· Kyrgyz President Askar Akayev addressed a joint session of parliament on Tuesday on the current economic situation in the country and the state 1998 draft budget, reported Turkistan News.

According to AKAYEV, the country's GDP increased by 19.2 percent during the first nine months of 1997, comparing with the same period last year. Consumer prices have risen 10 percent so far this year and annual inflation is expected to be 17 percent.

The draft budget foresees GDP growth of 7-8 percent next year and annual inflation of under 15 percent. AKAYEV said that Kyrgyzstan needs to attract more direct foreign investment.

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

Svetlana Korobov, Contributing Editor

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