DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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Daily intelligence briefing on the former Soviet Union

Tuesday, November 11, 1997

Russian Federation

Politics

Plan to Boost Tax Collection

· The Russian government is considering the implementation of a plan to boost tax collection, reported the Financial Times. Pressures from the International Monetary Fund (IMF) and Russia's need to collect revenue to repay World Bank loans coming due, has motivated the government to take a stronger approach to tax collections. The IMF First Deputy Manger Stanley FISCHER backs the plan and is pleased with Russian's initiatives in economic reform. "Very rapidly, the Russian government prepared an action plan for dealing with both the revenue and spending sides of the problem," he said.

Two measures are included in the plan: (1) the ending of tax breaks granted to companies in exchange for goods and services provided to the government and (2) moving the budget moneys to a treasury system. However, this approach underlines the continued preoccupation with collection of corporate taxes rather than individual tax payers. Individual taxpayer returns account for over two-thirds of US tax revenue.

Russia's New Stance on Baltic's NATO Mem.

· The speaker of the Russian State Duma said that Russia will revise its accords with NATO if it offers a membership to the Baltic states, reported Itar-Tass. "They are insistently saying at present that they will join NATO. If it happens, we shall reconsider an accord with this bloc," Gennady SELEZNYOV emphasized. SELEZNYOV appears to have been psychologically bolstered to make such a provocative statement since being awarded a high decoration to coincide with his 50th birthday and the October Revolution anniversary.

In contrast, NATO's Secretary General stated in

Berlin on Monday that passing the Founding Act between Russia and NATO was a first step in uniting Russia to Europe. "I believe that today NATO and Russia have not only an option to cooperate and confront common security challenges such as ethnic conflicts or nuclear proliferation but a responsibility to do so ... we must continue to develop trust, unity of purpose and habits of consultation and cooperation between NATO and Russia," he said.

Duma Considers Tax Bill and Budget

· The Russian State Duma on Thursday will consider a draft federal budget for 1998 and a package of tax bills, Duma Speaker Gennady SELEZNYOV, reported RFE/RL Newsline. He said the Duma's decision followed, "... the fact that the budget Committee finished the consideration of the bills only yesterday, and they must now be submitted to factions and deputy groups." He also said that the Duma part of the three-party conciliatory commission on the budget, believes that the budget is ready, "to be passed in the first reading," reported Itar-Tass.

Raise for Public Sector Employees?

· Russian Prime Minister Viktor CHERNOMYRDIN said today that the government intends to pursue a policy of raising wages and allowances for workers on the state payroll starting January 1, 1998, reported Itar-Tass. CHERNOMYRDIN announced this during his visit to Komi in northeastern European Russia. This approach will only increase the gap between income collected and expanding budgetary deficit.

Today's News Highlights

Russia

St. Petersburg Investment Rises

Gazprom Project on Hold

European Republics

Slavneft Stakes to be Sold

South Caucasus & Central Asia

UN on Abkhazia Progress

Georgia-Kazakhstan Relations

Tajikistan Import Tariffs

Uzbek Applies for WTO

Politics-Economics-Business

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Tuesday

November 11, 1997

Intercon's Daily

Economy

Ruble = 5,898/$1.00 (NY rate)

Ruble = 5,899/$1.00 (CB rate)

Ruble = 5,890|5,908/$1.00 (buy|sell rates)

Russia Raised Interest Rates to Protect Ruble

· The Central Bank raised interest rates in an effort to defend the ruble, reported the Financial Times. Central Bank chairman Sergey DUBININ said, "We are stimulating a flow of funds into government securities and eliminating returns from foreign exchange speculation." Chase Manhattan Bank's senior emerging markets economist Michael MARRESE commented that the Central Bank's move was smart. "They realized that they did not have the reserves to protect GKO [treasury bill] yields and that it was much more important to defend the ruble," said MARRESE which will attract investors who left Russia to reinvest. The government had to help foreign investors hold ruble assets by increasing interest rates. The bank raised refinancing rates from 21 to 28 percent and commercial banks' reserve requirements for foreign currency from 6 to 9 percent.

High interest rates have been a traditional disincentive for Russian firms to reinvest into the Russian economy. This has contributed to a lack by Russian banks to systematically lend to small and medium Russian firms.

St. Petersburg Mayor Hopeful For Investment

· Mayor of St. Petersburg Vladimir YAKOVLEV said that Foreign Direct Investment in St. Petersburg is expected to double in 1998 and reach $400 million. The total amount of investments in the city this year has reached about 11 trillion rubles ($2 billion) and foreign investments amounted to $170 million. "We have created all conditions for attracting foreign investments in St. Petersburg," reported Itar-Tass.

The Mayor cited major projects in the city the reason for this increase. He said that Britain has shown interest in linking transport routes between St. Petersburg and London by forming a network of sea, river and land routes for carrying freight from Europe to Russia and on to Asian countries. The "Baltic Bridge" project was approved at a meeting of the Baltic states in October, he said. Business leaders from Paris, Bordeaux and Warsaw expressed readiness to participate in the project.

YAKOVLEV mentioned other projects (high-speed railway line from Moscow-St. Petersburg and a highway around the city) pointing out that the preparation for signing an agreement with the European Bank for Reconstruction and Development (EBRD) on a $160 million loan is in its final stages. The loan will fund the construction of an international airport, Pulkovo-3, in St. Petersburg. The "New Holland" tourist complex on an island in central St. Petersburg, a $240 million project likely to attract investors, will transform former naval warehouses into a museum-entertainment center and trading houses.

Business

Gazprom Holds on Project; Reviews Its Budget

· The Russian gas monopoly Gazprom decided to hold on the conversion of the $1 billion bond for the controversial Russia, France, Iran oil project until market conditions improve, reported The Wall Street Journal. This is another sign that investors are weary of committing cash to a volatile markets.

Gazprom executives will meet today to review the company's 1998 budget. A source told Itar-Tass that Gazprom will pay the budget of the Yamalo-Nenets autonomy a monthly 300 billion rubles during 1998 and another two trillion 200 billion ruble worth in gas supplies. This third accord was signed on Monday by company president Rem VYAKHIREV and the autonomy's governor Yuri NEYOLOV.

Nemstov, Oil Heads visit Azeri Oil Fields

· First Vice-Prime Minister Boris NEMTSOV will arrive in Baku on tonight with Vagit ALIKPEROV of LUKoil, Valery CHERNYAYEV of Transneft and Yuri SHAFRANIK of the Central Fuel Company to take part in the AICO ceremony marking the commencement of oil extraction at the Chirag oil deposit. LUKoil holds a 10 percent stake in the project estimated at almost $8 billion. Transneft handles the transportation of Azerbaijani oil to the Black Sea port of Novorossiisk through Russia. 2,500 tons of oil a day has been transported there since October 25.

European Republics

Belarussian Stake Affected by Sells off of Slavneft

· Russia's Ministry of State Property Minister Maxim BOIKO told Itar-Tass that Russia is planning to sell 19.68 percent in Slavneft, a joint oil producer and exporter in which Belarussia holds 17 percent, before

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Tuesday

November 11, 1997

Intercon's Daily

the end of this year. Slavneft extracts about 13 million tons of oil a year and exports up to 30 percent of this amount. Belarussia's stake is shared by the government (10.8 percent) and the Mozyrsky oil-processor.

South Caucasus & Central Asia

UN on Lack of Progress in Abkhazia

· The UN Security Council on Thursday issued a statement on the lack of progress in resolving the political status of break away Abkhazia region of Georgia and the return of refugees/displaced persons. UN sponsored meetings in Geneva in July did not resume as expected in October. The UN Security Council hopes these talks will continue November 17. "The council calls upon all concerned to do their utmost for the resumption of this meeting with the constructive engagement in particular of the Abkhaz side," the released statement said.

The Council commended the efforts of the Secretary-General and his Special Representative, who aim at, "... comprehensive settlement of the conflict, including on the political status of Abkhazia with the state of Georgia, respecting fully the sovereignty and territorial integrity of Georgia." The UN council was pleased that Russia has decided to extend the mandate of the CIS peacekeeping forces until January 31, 1998. "The Security Council welcomes the good cooperation between the United nations Observer Mission in Georgia (UNOMIG) and the CIS peacekeeping force and their efforts to promote stabilization of the situation in the zone of conflict."

Georgia-Kazakhstan to Sign 10 Agreements

· Georgian President Eduard SHEVARDNADZE met today with Kazakhstan President Nursultan NAZARBAYEV in Almaty. They discussed questions concerning the further development of bilateral cooperation, as well as international political and economic problems. During the visit, the two nations signed 16 intergovernmental agreements on military cooperation, oil and gas extraction and free trade to reduce the price of exports and imports. Also among the documents was a memorandum on interaction in the field

transport of hydrocarbons to international markets.

The two leaders also agreed to export Kazakh oil to western markets via the "Caucasian Corridor" and an underwater pipeline connecting Kazakhstan and Azerbaijan. NAZARBAYEV said that Kazakhstan would export 5-6 million tons of oil annually through Azerbaijan and Georgia after its Caspian port is modernized, reported Reuters. "The special memorandum on exporting Caspian oil through Georgia could become the project of the century," said SHEVARDNADZE. Tengizchevroil, the joint venture between Chevron Corp., Mobil, and Kazakhstan is already exporting 165,000 barrels per day from Kazakh Tengiz field through Georgia. SHEVARDNADZE will continue on to Baku for the opening of the Azerbaijan International Operations Company (AIOC) oil deposit at Chirag; US Secretary of Energy PENA will also be in attendance.

Tajikistan Introduces Import Tariff

· Tajik Prime Minister Yakhya AZIMOV announced a 5 percent import tariff for all commodities will begin on January 1, 1998, reported Itar-Tass. He also said that VAT benefits will be abolished for some enterprises and organizations next year. These measures he believes are necessary to reach the targeted figures in the economic policy for the period from October 1, 1997 to June 30, 1998. The government plans to reduce inflation to 21 percent a year and increase GDP by 4.5 percent. The final parameters of the document will be approved by the International Monetary Fund (IMF) by December 19, 1997.

Uzbekistan Applies for WTO Membership

· Uzbekistan Prime Minister Utkur SULTANOV said on Saturday that preparations for his country's admission to the World Trade Organization (WTO) are continuing without complications and that a draft memorandum on accession has been completed, reported Itar-Tass. The draft is being studied by experts. "We have been actively assisted in this process and I do not think we should have any problems as we move in this direction," he said. SULTANOV noted that the specific terms and date of admission will depend on "external factors."

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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