DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, December 11, 1997

of directors of the World Bank will meet December 18, to consider three loans totaling $1 billion.

Duma Adopts Bankruptcy Law

· The Russian State Duma on Wednesday voted to adopt a federal bankruptcy law aimed at preventing a debtor's liquidation and defines bankruptcy procedures for certain categories of legal and physical persons. The law describes bankruptcy procedures for individuals, the self-employed and farms which were not defined in the past. Only the Arbitration Court can name a debtor insolvent. A debtor has a right to nominate its representative at the Arbitration Court, can attend meetings of creditors, and file an appeal against creditors or trustees. The debtor's payroll is exempt from assets subject to a moratorium in the course of bankruptcy procedures.

Skuratov Speaks at The Heritage Foundation

· Attorney General of the Russian Federation Yurii SKURATOV spoke today at The Heritage Foundation on crime in Russia. He said the crime rate in Russia is over dramatized. Commenting on the CIS report on Russian organized crime, he said it was based more on emotions than researched statistics. SKURATOV believes the one-sided review will hinder Russia's integration into the world community and international organizations. However, he did note that crime in Russia has become more professional: contract murders, corporate crimes, money laudering. Organized crime in Russia accounts for only 1 percent of all crime. He expressed dissatis

Russian Federation

Politics

Yeltsin Orders Spending Cuts

· Russian President Boris YELTSIN signed today a decree to shore up the government's finances by cutting spending and tightening control over how funds are used. This decree will help boost revenue and control spending. The order follows pressure from the International Monetary Fund (IMF) for Russia to put its finances in order. The IMF suspended installments of Russia's $10 billion loan until new measures to improve fiscal responsibility were in place. The Russian Finance Minister Mikhail ZADORNOV said the IMF board of directors is unlikely to make a decision to release the $700 million installment earlier than January 5.

Foreign Borrowing to Increase

· Russia's State Duma adopted a draft law allowing the government to increase the 1997 foreign borrowing from 45.9 trillion rubles ($8.4 billion) to 52.45 trillion rubles ($8.86 billion), the Interfax news agency reported. The law sets the upper limit of the 1997 foreign borrowing at $10.9 billion. This draft law is aimed at reducing the soaring cost of borrowing on domestic and foreign markets, said a statement released by the budget committee. It said that yields on government securities increase and exceed the yields on borrowings on external financial markets.

However, The Russian Finance Minister Mikhail ZADORNOV has canceled the plan to seek a $2 billion loan from Western banks. First Deputy Prime Minister Anatoly CHUBAIS had asked Salomon Brothers, Credit Suisse First Boston, Chase Manhattan, and Deustche Morgan Grendfell to consider an emergency financial package to cover budget deficits and pay wage arrears, as Intercon reported on December 3, 1997. ZADORNOV said the board

Today's News Highlights

Russia

Financial Market Improves

Athena Group-Mos.Logistic Park

European Republics

Lith. Telecom to be Privatized

Estonian CB Earns BBB+

Rus-Belarus Union Budget

South Caucasus & Central Asia

Georgia Wins in Border Dispute

Georgia-Romanian Oil Relations

Turkmen-Azeri Com. on Oil

Politics-Economics-Business

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Thursday

December 11, 1997

Intercon's Daily

faction with the lack of financial resources to solve and prevent crimes, as well as the failure of the US and Russia to agree on an extradition treaty.

The head of the Russian Interior Ministry's public order department Lieutenant-General Ivan GOLUBEV said that every ninth crime in Russia is committed by a teenager or with the assistance of one. Juvenile delinquency increased by 17 percent in 1991-1996 in Russia, and the number of juvenile criminals went up by almost 20 percent. Every tenth teenager on the police books has a mental disorder and every fifth of them committed a grave crime at an age too early for criminal responsibility. He said an average age of juvenile delinquents was lowering. Investigation into 12 criminal cases that involved juveniles were closed in the January-October 1997 period in Moscow, reported Itar-Tass.

Economy

Ruble = 5,917/$1.00 (NY rate)

Ruble = 5,936/$1.00 (CB rate)

Ruble = 5,914|5,958/$1.00 (buy|sell rates)

Russia's Financial Markets Improve

· Both foreign and domestic investors are returning to the market of state securities; the Russian ruble is stabilized; and profitability is satisfying once again. Chairman of the Russian Central Bank Sergei DUBININ said the situation on the Russian financial market, "has changed for the better radically." Deputy director of the Central Bank Denis KISILIEV said that, "We have an impression that the nervousness of investors about emerging markets is passing." He further reports that more than tens of millions of dollars in foreign investments had returned to the domestic treasury bill market. DUBININ said, "The investors, who have returned to the market, are now fully satisfied with the profitability of state short-term bonds which they considered unacceptable early this month." He believes that part of this money is the "previously exported" capitals. KISILIEV also noted that he believed the commercial banking sector would survive through the crisis. He insisted the Russian Central Bank would not bail out domestic banks if they collapsed. Instead, the Central Bank would sell failing banks to investors able to cover their liabilities, reported the Financial Times.

Bulgaria-Russia Revise $100M Debt

· Bulgaria's Bulbank and Vneshekonombank on Wednesday signed an agreement resolving Russia's repayment of $100 Million debt to Bulgaria. Bulbank's executive director Chavdar KANCHEV said, "The agreement settles outstanding financial issues between the two countries." Russia agreed two years ago to repay the debt with spare parts for the military and equipment for their steelworks. The two sides are still working on developing better bilateral trade relations, which will be within the standards of the World Trade Organization (WTO) of which Bulgaria is a member. Bulgaria has asked Russia to reconsider its high customs fees levied on Bulgarian goods, which make their goods less competitive.

Business

Athena Group, NY Finances MLP

· Moscow Logistics Park (MLP) announced that is it has formed a strategic partnership with The Athena Group, LLC of New York for a build-to-suit, Western standard warehouse. MLP is located adjacent to Sheremetyevo Airport, placing it ideally to become the regions leading distributions center. The location also is on the Sherrizone Free Economic Zone, thereby providing significant tax concessions to potential tenants. According to a company press release, the units are due to be operational by the summer of 1998, and it is expected that 60-70,00 sqm of space will be completed by the end of next year.

MLP's other key partner in this project is Stolny Grad, a major real estate firm in Moscow. Stolny Grad developed and manages the Moscow City Government's Usadba Center's office development.

US Banker Permit Revoked in Bank Rivalry

· US banker Boris JORDAN's, head of MFK Bank and Renissance Capital, work permit was revoked on Wednesday. A spokesman from Renissance Capital, which is due to merge with MFK Bank next year to form Russia's largest investment bank, said that this was just a technicality as a result of a paper work mix-up. "One of the applications landed on the desk for approval and because it was out of order it was disapproved." He also noted that this was only one form out of many needed to formally head the bank. This is not JORDAN's first time dealing with a revocation; his visa was revoked in October. First

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Intercon's Daily

Deputy Prime Minister Boris NEMSTOV said, "This is all a continuation of the banking war, and I would add by unclean methods," referring to the constant battle matched media groups controlled by rival banking groups, especially following the sell off of the state telecom company in July.

"The high credit rating after recent events in rapidly developing countries shows once again that the government's and the central bank's economic and monetary policy has found international acceptance and preserved Estonia's confidence," the Central Bank added.

Rus-Belarus Discuss Union Budget

· The parliaments of Belarus and Russia have coordinated draft programs and an agenda for the third session of the Parliamentary Assembly of the Russian-Belarus Union to be held in Moscow on December 15. On the agenda of the meeting would be 11 issues, including the draft budget of the union for 1998. The budget, in particular, calls for spending on joint projects in agriculture, industry, power engineering, construction, transport, environmental protection, scientific research and projects dealing with after effects of the Chernobyl nuclear plant disaster.

South Caucasus & Central Asia

Georgia Wins in Border Dispute With Russia

· Georgia has won back 1,380 meters of territory from Russia through an agreement reached between Russian Vice Prime Minister Valery SEROV and Georgian President Eduard SHEVARDNADZE. It is unknown what was said during the two hour long meeting to convince Russia. Segodnya reported that Moscow has given into Georgia's demand for the movement of the check point because of its desire to support the SHEVARDNADZE government. Georgian Ambassador to Russia Vazha LORDKIPANIDZE said that, "in keeping with the agreement reached on Tuesday in Tblisi and formalized in a protocol, the status quo will be restored on the Russian-Georgian border in the near future and the sides will return to the positions they held in July 1997." Russian Deputy Minister PASTUKHOV signed the protocol agreement and said that the two sides have resumed work of the commission for the demarcation of the border.

It is not clear when or if this agreement will be implemented by the head of the Russian Federal Border Service General Andre NIKALIEV, who in the past has taken great latitudes in loosely interpreting decisions of the foreign ministry. Intercon reported one of his interpretations of the rules when NIKALIEV permitted the transfer of arms from Tblisi to Batumi without notifying the Georgian government . Russian

European Republics

Yastrzhembsky to Strengthen Ties With Kiev

· Sergei YASTRZHEMBSKY, deputy head of the Russian president's administration, left for Kiev today to meet with Ukrainian President Leonid KUCHMA and other leaders to discuss problems connected with the strengthening of Rus-Ukrainian cooperation. Presidents Boris YELTSIN and Leonid KUCHMA, during their informal meeting in Zavidovo on November 17, had decided to set up such a group, which is assigned to provide the two presidents with a specific list of immediate and long-term tasks, the accomplishment of which must help strengthen contacts between Moscow and Kiev. Ukrainian diplomats believe that the implementation of the economic accords reached by the two presidents during the informal meeting in Zavidovo, will probably be discussed during YASTRZHEMBSKY's talks in Kiev.

Lithuania to Privatize its Telecom

· Head of the privatization department for Lithuanian's European affairs Vytenis JUNEVICIUS announced today that 60 percent of Lithuanian Telecom will be sold in an international tender to take place in April. Lietuvos Rytas newspaper reported that France Telecom, Italian STET International, Telecom Danmark, Finland Telecom, Greek OTE, and Swedish Telia all expressed an interest in the tender. Lithuanian Telecom posted a 110.3 million litas net profit on a turnover of 473.3 million litas in the first nine months of this year. Lithuania also plans to privatize Mazheikiu Nafta oil refinery and Lithuanian Airlines sometime next year.

Estonian Central Bank Receives BBB+

· Estonian Central Bank was pleased with Standard & Poor's foreign currency rating of BBB+. "The Standard & Poor's rating is a sign of Estonia's economic policy success and confidence," said a bank statement. The rating reflects Estonia's success in managing the fiscal and monetary system, by demonstrating falling inflation and a budget surplus.

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Thursday

December 11, 1997

Intercon's Daily

Public TV aired his response, "There is no doubt whatsoever that the Russian Border Troops are on Russian territory. But here, it just so happens that there is a link between politics and actual practice, and, during the demarcation work, the Russian delegation has no doubt that this section of the border should be guarded within precisely these boundaries." He later added that the troops would continue to, "fulfill the task set by the Russian Federation in the interests of safeguarding security of this stretch of the border within the existing boundaries."

Russia Remains Mediator in Abkhazia

· Georgian Ambassador to Russia Vazha LORDKIPANIDZE said that Russia will remain as, "one of the main mediators in the settlement of the Abkhazia conflict." The ambassador said on Wednesday that, "the Abkhazia issue cannot be resolved without Russia's participation."He is confident that Russia will step up its efforts to resume the talks. "We wish to accelerate the process of determining the status of Abkhazia within a single state of Georgia. Some progress has been reached in this respect, but not enough to ensure a comprehensive and fair resolution of the issue." Others believe Russia is dragging its feet on purpose to keep its hands in Georgia's internal affairs.

Georgian- Romanian Ties Strengthen on Oil

· Romanian President Emil CONSTANTINESCU had a successful visit with his Georgian counterpart Eduard SHEVARDNADZE Wednesday, agreeing to enhance economic and trade cooperation between the two countries. They are expected to sign a series of documents, including one canceling double taxation promoting and protecting investment, and the training of Georgian border guards in Romania.

The two presidents focused on the transport of oil and gas to western Europe from central Asia via Romania. The Romanian President said he was cautiously optimistic that his country will be apart of planed oil routes. However, he realistically said that,

"Romania was very late in becoming involved in this endeavor and when it did become involved the routes had already been set down." Romania's favored route is to transport oil through Georgia and across the Black Sea to Constanta.

President SHEVARDNADZE said the stakes involved in extracting and transporting oil are so high that, "it will be realized that you cannot do without Georgia and Romania." He added that, "Russia and other countries should see it as normal for parallel routes to appear. No one has anything to fear. Russia is not a competitor here. Most of the routes linking east and west of across Russia," reported Reuters. Romania and Georgia have broad prospects for future cooperation, as Romania will not only become a transit point, but also an important refining center of oil from central Asia. Romania has a 31 million ton refining capacity which is underutilized. This meeting appears marks the beginning of a developing relationship on a broad spectrum of political and economic issues based upon each Presidents' similar progressive philosophies.

Turkmenistan-Azeri Com. On Oil Dispute

· Turkmen President Saparmurat NIYAZOV and Azeri President Haydar ALIYEV, agreed to set up a joint commission to resolve their territorial disputes of oil deposits in the Caspian Sea. The Turkmen Foreign Ministry said the commission would be cochaired by Turkmen Foreign Minister SHIKHMURADOV and Azeri counterpart GASANOV, reported Reuters. Three oil fields are in dispute: Azeri, Kyapaz, and Chirag. Turkmenistan believes that Azeri and Kyapaz are its property and that Chirag is its common territory with Iran. Azeri and Chirag are already being developed by Azerbaijan International Operating Company (AIOC). Turkmenistan has put Kyapaz, with a capacity of 50 million tons of reserves, up for international tender. The Caspian Sea states disagree over how to divide the regions resources. Russia and Iran argue that Caspian projects should be developed jointly. Kazakh, Turkmen, and Azeri prefer to divide the Sea into sections.

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