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

Thursday, November 13, 1997

Russian Federation

Politics

Iranian Oil Minister in Moscow

· Iranian Oil Minister Birjan Namdar ZANGANEH arrived in Moscow for talks on expanding cooperation in oil and gas industries. The contract for development of Iran's offshore gas fields in Southern Pars recently signed by the Russian gas monopoly Gazprom, France's Total and Malaysia's Petronas was discussed. The Iranian minister met with Gazprom executives and Deputy Minister of Fuel and Energy Boris NEMTSOV, who repeatedly stated that the government backs Gazprom's contract with Iran despite the US threatened sanctions. NEMTSOV said that the Iranian "project benefits Russia, it consolidates positions of Gazprom is Asia and Europe...It is absurd to believe that a law passed by the State Duma would cover, say (American) General Motors." He continued by saying that other Russian oil companies have not been active in developing oil fields with Iran, but thinks, "the situation will change from the results of these talks."

Chubais Book Scandal in Duma

· The Russian State Duma unanimously approved by 302 votes, with no abstentions, to send its inquiry to the Prosecutor-General's Office about royalties to contributing authors of the book The History of Russian Privatization. The book is the center Alexander MINKIN's attack on Finance Minister CHUBAIS, which was written along with key movers of Russia's privatization program: Pyotr MOSTOVOI, Maxim BOIKO, Dmitry VASILYEV, Alexander KAZAKOV, Alfred KOCH and Arkadyi EVSTAFYEV. Duma security committee chairman Viktor ILYUKHIN presented the inquiry to the Duma, saying that a fee of $90,000 was paid to each of the authors by the publishing house Segidnya-Press, whose co-owner is Uneximbank. CHUBIAS told Itar-Tass reporters on Wednesday that future

fees of each of the authors would reach $90,000, adding that they plan to donate 95 percent of the fees to the Fund for Private Property Protection, chaired by Yegor GAIDAR. CHUBAIS said the book had been finished, shown to journalists and submitted to the publisher, with official paperwork available to confirm this. Delaying his trip to Kiev, CHUBAIS spoke to the Duma, which debated the draft 1998 budget. He said the Duma was out to "present the compromising material" in order to "kill" the 1998 budget agreement.

Note: the Russian State Duma faction of the Yabloko movement has again declared its decision to vote down the 1998 draft Federal budget of Russia.

Primakov Suggests Quadrilateral Relations

· Russian Foreign Minister Yevgeni PRIMAKOV in a meeting with former Japanese Premier Yasuhiro NAKASONE, a leader in the ruling Liberal Democratic Party, suggested the idea of establishing a system of political consultations among the leaders of Russia, China, the United States, and Japan in order to strengthen confidence-building measures.

Economy

Ruble = 5,900/$1.00 (NY rate)

Ruble = 5,900/$1.00 (CB rate)

Ruble = 5,893|5,908/$1.00 (buy|sell rates)

Russian Foreign Trade Declines

· Russian Minister for Foreign Economic Relations Mikhail FRADKOV said that Russia's foreign trade volume decreased in the first quarter of 1997, leaving the country vulnerable

Today's News Highlights

Russia

Foreign Trade Declines

CentreInvest Sec. Opens in NY

European Republics

Ukraine GDP Declines

US for Baltics to Join NATO

South Caucasus & Central Asia

Kazakh President to Visit US

Iran Against Azeri Oil

Politics-Economics-Business

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Thursday

November 13, 1997

Intercon's Daily

to the world market. For the first time in the past four years, Russia's foreign trade turnover in the first half of 1997 decreased by four percent from the respective period of 1996. FRADKOV said exports declined by two percent, while imports fell six percent.

Exports decreased because of poor world market conditions for the export of raw materials, he said. FRADKOV said imports decreased because investment activity remains low and measures of tariff and non tariff regulation on imports have been tightened in order to protect domestic producers. "The flow of imports via unregistered channels, through the Belarussian corridor and shuttle trade, has increased considerably as a result of complex of protective and administrative measures taken by Russia at the end of 1996 and the start of 1997," he added.

Next year, FRADKOV hopes foreign trade will increase, noting Russia's new credit rating and admission into international organizations as attractions. "One should not forget that Russian foreign trade will be impaired further by the low level of industrial production, insufficient state support for the development of the country's export potential, weak investment activity on the domestic market, low competitiveness of national industrial products, and the exhaustion of extensive growth factors with regard to the export of fuel and other raw materials." The recent 40 percent decline in theRussian stock market, rising government bond interest rates, apparent reversals of privatization plans, falling tax revenues, and declining exports do not bode well for the Russian economy's imminent recovery.

Business

CentreInvest Securities Opens Branch in NY

· Russia's CentreInvest Securities opened offices in New York, London and Kiev. CentreInvest President Igor TSUKANOV said, "We expect that the New York and London offices will allow us to cover our institutional investors in a timelier and more efficient manner." CentreInvest Inc. of New York will be led by Vasily SOFIYSKIY, who previously worked with Herzog Heine Geduld in New York, reported Reuters.

dropped by five percent compared with the same period in 1996, reported Xinhua. He added that the state would achieve an income of 18.5 billion gryvnas ($14.7 billion) predicted by the 1997 budget. The failure to meet the GDP target was caused by the 2.4 percent decline in industrial production in 1997 and unpaid taxes, the finance minister explained. The state budget lost 113 million gryvnas ($60.4 million) in unpaid value-added taxes (VAT), and 86 million gryvnas (about $46 million) in unpaid income tax. The draft 1998 budget forecasts revenues of 28.8 billion gryvnas ($15.4 billion), 1.4 billion gryvnas (749 million dollars) more than the present budget, which will come from heavier taxes and excise.

"The government is proposing to bring the size of the deficit to an acceptable level 4.4 billion gryvnas ($2.3 billion) or 4.3 percent of the forecast GDP," MITYUKOV told the parliament, which must approve the proposals. Planned volumes of Treasury bills would also be reduced, taking into account nervousness on world financial markets, MITYUKOV said but did not specify by how much. Ukraine is under pressure to keep its spending down to qualify for IMF loans. The Economist gave Ukraine a rating of eight on a scale of one (low risk) to 12 (high risk) measuring currency risk, based on current-account data and reserves.

Chubais to Visit Ukraine

· Russian Finance Minister Anatoly CHUBAIS will arrive in Kiev on Friday to discuss the property and debts of the former Soviet Union, and the so-called "zero option" of the settlement of the problem between Russia and Ukraine, with high official in preparation of YELTSIN's visits with KUCHMA next week.

In December 1994, the two countries' governments signed an agreement on the settlement of succession issues concerning the foreign state debt and assets of the former USSR. In accordance, all assets and liabilities of the former USSR are to be transferred by Moscow. The assets represent the cost of the ex-Soviet property, and the liabilities. However, the Ukrainian parliament has not ratified this agreement. The Ukraine insists on the return of financial resources of the USSR Vneshekonombank, part of the diamond stock and the gold reserves from Russia.

Kiev hopes CHUBAIS' visit will give a boost to the sides' economic partnership and help Ukraine slow down the fall of its trade turnover. CHUBAIS is ex

European Republics

Ukraine Economic Slump

· Ukraine's Finance Minister Igor MITYUKOV said that real GDP in the first nine months of this year

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Thursday

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pected to discuss deliveries of Ukrainian sugar to Russia, governmental sources told Itar-Tass. It is planned the two nations will sign an agreement under which will set a quota of Ukrainian sugar without 25 per cent import duty. Also they will debate an issue of widening a list of the so-called "critical import". This list, introduced by the Ukrainian side, envisages that a value-added tax shall not be imposed on 60 percent of Russian goods exported to Ukraine. The Russian side proposes to extend this list so that it would cover about 93 percent of Russian export to Ukraine.

US Supports Baltic Countries Interest in NATO

· The US supports the Baltic states' aspirations to join NATO, said Deputy Assistant Secretary for European and Canadian affairs Ronald ASMUS. Further, the Baltic states have the right to join NATO, geography does not exclude any country from membership, a high-ranking official of the US administration said.

ASMUS pointed out that the US-Baltic Charter being prepared for signing is "a confidential document yet." The document outlines general vision by the US and the three Baltic republics of new Europe and the trans-Atlantic society based on common principles and common values, the US official said. ASMUS pointed out that the Charter was not a guarantee in the area of security and was no substitute for NATO membership, but rather a politically mandatory document determining a strategic direction for development of bilateral cooperation with the Baltic states in years to come.

South Caucasus & Central Asia

Kazakh President to Visit US

· Kazakhstan President Nursultan NAZARBAYEV will visit the US on November 17th to determine new prospects for US-Kazakh cooperation and sum up the results of the two countries' cooperation over the past four years. NAZARBAYEV is to meet with President Bill CLINTON, Vice President Albert GORE and co-chair the 4th session of the joint US-Kazakh commission. Bolat NURGALIYEV the Ambassador of Kazakh

stan to the US said a number of documents, among which an action program for economic partnership between Kazakhstan and the US, are to be signed.

Kazakhstan Grain Harvest Rises

· The Kazakhstan Ministry of Agriculture reported this year's harvest of grain at 12.2 million tons compared with 11.6 million tons last year. While this is an improvement over last year, the harvest is still half what it once gathered during Soviet times. Lack of fertilizers, aging tractors and combines, along with soil erosion have caused poor yields. In addition, stalled reforms see Kazakhstan farms unable to make the transition from Soviet collectives to private holdings, with the state reluctant to end intervention in the troubled sector.

Iran Against Azeri Oil

· Iran lodged strong protests in a letter submitted to the UN Secretary General Kofi ANNAN Wednesday to Azerbaijan's unilateral exploitation of oil from the Chirag reservoir of the Caspian Sea, reported Iranian official news agency IRNA. The protest stated that Iran deems Azerbaijan's unilateral exploitation of the mineral resources in the seabed and the subsoil of the Caspian Sea unacceptable.

The letter noted that Azerbaijan's decision contravened the treaties and agreements, bound by international law, signed between Iran and the former Soviet Union during the past decades on exploitation of the mineral resources in the Caspian Sea. It also warned that the full responsibility for illegal measures and actions, including damage caused to other coastal states, rest with the states violating the legal regime of the Caspian Sea.

Azerbaijan has signed several contracts with foreign companies to form a consortium to conduct oil exploration and exploitation in the Caspian Sea, arousing sharp criticism from other Caspian Sea states such as Iran. Iran has stress before that a legal regime governing the Caspian Sea should be reached unanimously by the five littoral states. Russia and Iran are in agreement over the status of the Caspian Sea region.

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

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