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

Monday, December 15, 1997

Russian Federation

Politics

Luzhkov's Candiates Sweep Duma Elections

· Regional elections for city Duma positions held on Sunday showed 27 candidates supported by Moscow City Mayor Yuri LUZHKOV emerging victoriously in a majority of polls, while pro-communist forces, represented by the block "My Moscow", failed to win any seat in the City Duma. Well-known Russian politicians Nikolai GONCHAR, Gleb YAKUNIN, Valeria NOVODVORSKAYA, as well as several other pro-communist candidates have lost in the Moscow City Duma elections. GONCHAR, who stood as a candidate to the City Duma from the second District, conceded to present deputy, a member of the "Democratic Choice of Russia" party Mikhail MOSKVIN-TARKHANOV. Leader of the block "Citizens' Union" NOVODVORSKAYA also could not get a single seat in the City Assembly. Among others, who failed to win a seat, are former commander of the Black Sea Fleet Admiral Eduard BANTIN, head of the Center for Strategic Analysis and Predictions Dmitri OLSHANSKI, writer Andrei NUIKIN and former deputy Bella DENISENKO. Current chairman of the Moscow City Duma Vladimir PLATONOV won by a moderate margin from his constituency, Itar-Tass has learned from sources among his close associates that PLATONOV may once again head the City Assembly. According to reports, 17 deputies of the outgoing Moscow City Duma, have retained their mandates. Returns in the Moscow City Duma elections suggest that independent candidates have the lead.

Election committee chairman Valentin GORBUNOV said the elections had passed, "in an effective and organized way, without excesses," and no serious irregularities were reported. "If it were not the cold spell, far more people would have come,"

GORBUNOV said. The elections were held in 35 districts, 30 percent of the eligible electorate voted.

Also linked with the election, residents were asked to vote on whether they agree that the number of budget-paid full-time deputies in the Moscow regional Duma should not exceed a half of the elected deputies total number. The Russian State Duma has strongly condemned the idea of putting the question to a popular vote and appealed to the Russian president and Supreme Court of the Russian Federation to challenge the legitimacy of the plebiscite.

Chernomyrdin Visits Turkey; Signs Gas Deal

· Russian Prime Minister Viktor CHERNOMYRDIN arrived in Ankara, Turkey today for an official visit with Turkish President Suleyman DEMIREL, Prime Minister Mesut YILMAZ and chairman of the parliament Cetin HIKMET. The visit will concentrate on enhancing bilateral ties, signing a multi-billion gas deal, seeking a solution to the disputed straits, increasing bilateral trade and military technological exchange, and a $45 million telecommunications information transfer. The sides signed an agreement on Russian gas supplies to Turkey—the transportation of 16 billion cubic meters of Russian gas through an underwater pipeline to pass via the Black Sea by 2010. The Russian Gazprom project, valued at $13.5 billion, proposes constructing within two years a 1,213 kilometer pipeline with 400 kilometers of it to run on the Black Sea bottom at a two kilometer depth. Russia and Turkey point to the existing opportu

Today's News Highlights

Russia

Wage Arrears to be Paid

FiGs Threaten Russian Stability

European Republics

EU Expansion Includes Estonia

Lithuanian Census in 1999

South Caucasus & Central Asia

Georgian President in Bulgaria

Georg. Passes 1998 Budget

Armenian-France Visit

Politics-Economics-Business

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Monday

December 15, 1997

Intercon's Daily

nities for the further increase of the volume of gas deliveries by Russia, and the construction of power stations fueled by gas, of gas storages and distributing networks by Russian organizations in Turkey.

CHERNOMYRDIN is expected to submit Russia's request for Turkey to make some changes to the rules of traffic in the Turkish straits, the Bosphorus and the Dardanelles. He said Russia objects to the Turkish self-policy of arranging and implementing the rules for the straits, which limit the number of ships carrying oil through the straits. The rules violate the Montreaux Straits Agreement signed between Turkey and the Soviet Union in 1936.

Russia and Turkey hope to develop conditions for increasing their mutual trade to $6-7 billion in the years ahead and to $9-10 billion by the year 2005. Rus-Turkish trade turnover is expected to reach $4.5 billion this year. The two countries are determined to create favorable conditions for the development of long-term ties, to use opportunities of free economic zones, promote the creation of an effective system of insurance of investment, technologies and products and increase banking activity. CHERNOMYRDIN, plans to sign a $45 million agreement to exports of the latest equipment, know-how and parts for joint production of telecommunications.

YILMAZ said on Saturday, "We regard this visit as important also from the viewpoint of a search for ways of improving the political dialogue which was eclipsed by dynamically developing trade and economic relations. We are sure that such cooperation will meet the interests of not only Turkey and Russia but will help to ensure stability and prosperity in the region surrounding them."

Economy

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

Ruble = 5,939/$1.00 (CB rate)

Ruble = 5,919|5,959/$1.00 (buy|sell rates)

IMF Loan to Russia

· The International Monetary Fund (IMF) will grant Russian $1.7 billion after prompting from Russian officials to reach a new accord, reported the New York Times. The accord will enable the Russian government to fulfill its promise and repay wage arrears to the State sector workers before the end of

this year. The amount will include Russia's regular installment of $700 million from the $10 billion loan. The accord will make it possible to unfreeze $1,050 million from the World Bank (WB) funds. Prior to the granting of a WB loan, the WB wanted the IMF to make sure that Russia was reliable financially and economically. According to IMF spokesmen, if Russia manages to improve the situation in the collection of taxes, next installment of $700 million will be provided in February. The accord is not yet officially approved by the IMF Board.

Gov't to Pass Budget, Amendments Tabled

· Russian First Deputy Prime Minister Anatoly CHUBAIS said the government tabled amendments to a 1998 budget to the Russian State Duma on Thursday to account for the effect of recent world economic problems on the Russian market. The amendments reflect Russia's new market realities following the world financial crisis, which could not be foreseen when preparing the budget. "Due to soaring interest rates, we will have to spend more on the servicing of the internal debt in the next year, while hiding ourselves from unpleasant realities is senseless and merely irresponsible," CHUBAIS said.

The first amendment raises the spending on the servicing of the internal debt by 10 billion new rubles. The government plans to withdraw three billion new rubles from donations to Russia's social security fund which were necessary as budget allocations to this body had been subject to a spending cut according to the government's draft budget. However, the Duma retained the allocations at the previous year's level which seem to be unaffected. The government is planning to get the remainder of funds ($1 billion or about six billion rubles) by redistributing foreign loans. The second amendment aims to entitle the government to spend more for the servicing of the internal debt. "This is not an easy step, and the reaction [to it] will be not very easy. But it is absolutely clear for many deputies—who understand what the budget is—that the government must solve the problem of increasing expenditures for the servicing of the internal debt," CHUBAIS said.

Wage Arrears Will Be Paid This Year

· Russian First Deputy Prime Minister Anatoly CHUBAIS said on Friday the government will fulfill its promise to pay the federal half of wage arrears to state workers already this year. CHUBAIS told the

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press the government will earmark 5.9 trillion rubles from the federal budget for back wages. "The rest is the regions' business," the vice premier said to remind local governments that the federal center would cover a half of the debt with the remainder to be paid off by 88 Russian provinces. He noted that the ability of the regions to pay off state employees varies. CHUBAIS said it is not, "people's fault that their governments have failed to find the resources. Therefore, the [federal] government will use harsher methods towards the regions which have failed to hit the goal of paying off state employees."

Business

FiG Battles Threaten Russian Statehood

· Vice-Prime Minister and Interior Minister Anatoly KULIKOV said Saturday that Russian business leaders should settle their differences because their battles over companies being privatized threatens the stability of Russia. " One mistake could destroy not only the basis of the whole system of economic and political institutions painfully constructed over the past few years but also the whole basis of Russia's statehood." On Friday Intercon reported on the battle lines being drawn between Menatep-Sibneft, Gazprom-Royal/Dutch Shell, and Uneximbank-British Petroleum for the privatization of the oil company Rosneft. Although the details on the bid for Rosneft have not yet been finalized, the sale is already a source of controversy. "The key question here is a reconciliation between financial and industrial groups," said KULIKOV. "One possible way of resolving the conflict could be the creation of a high economic council made up of bankers and entrepreneurs. Each member of this high council should have the status of financial adviser to the president." However, this idea appears to be contradicting many attitudes in the cabinet that government and business should remain separate.

Munition Plants to Sell Civil Goods

· 250 Russian munitions factories are prepared to supply domestic and foreign markets with 14,000 civil good items produced through a conversion of their plants. Expert economists predict that during 1998 to 2005, the Russian defense complex is capable of meeting annual requirements of the domestic market in civil goods worth 10,000-16,000

billion rubles and of the foreign market worth $1.2 billion. Russia established a shop for wholesale trading in goods of munitions factories; earlier each factory operated on its own store. The Russian Goods Shop to sell conversion products opens in Moscow today.

European Republics

EU Expansion Includes Estonia

· The heads of state and government of 15 EU countries decided on Saturday at the Luxembourg summit to begin preparation for accession of 10 Central and East European countries, as well as Cyprus, to the alliance. Official talks will be held with six candidates—Cyprus, Estonia, Poland, the Czech Republic, Hungary and Slovenia. Latvia, Lithuania, Bulgaria, Romania and Slovakia will be able to join the union later. All candidates have been promised equal participation in a program of preparation for accession, including financial aid. The first new members are expected to join the EU no earlier than 2002-2003; all applicant countries received political assurances in Luxembourg that from now on they are part of Western Europe. President of the European Commission Jacques SANTER said at the summit, "The process of a peaceful unification of the continent has been started."

Estonian Prime Minister Mart SIIMANN and Foreign Minister Toomas ILVES told journalists that according to the recent poll, the majority of the population supports Estonia's drive to join the EU. ILVES commented that Estonia will be ready to join the European Monetary Union (EMU) by the time it joins the EU. IVES said that Estonia already meets, "nearly all criteria" for EMU membership. Latvian Prime Minister Guntars KRASTS thanked the EU leaders and stated that he sure Latvia will be able to begin official talks in a year. KRASTS believes that Latvia's admission to the EU will give a new impetus to the development of a political and economic dialogue with Russia and will invigorate multifaceted cooperation with its neighbors.

Lithuania To Take National Consensus in 1999

· The Lithuanian parliament passed a law that Lithuania will conduct a national census on December 1-10, 1999. All Lithuanian citizens living in or outside the country, foreign nationals and stateless

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persons who have permission to permanently live in the country, as well as buildings of all forms of ownership and living quarters in them are subject to census. The purpose of the census is to find out the exact size of the country's population, and to obtain data about the demographic, social and economic situation, and about housing and its quality. Lithuanians who conceal or provide false information will be fined 500-3,000 litae or $125-750. This will be the first census since Lithuania regained independence on March 11, 1990.

South Caucasus & Central Asia

Georgia President in Bulgaria

· Georgian President Eduard SHEVARDNADZE arrived in Sofia, Bulgaria to meet with Bulgarian President Pyotr STOYANOV, Premier Ivan KOSTOV and Parliament Speaker Iordan SOKOLOV. The visit aimed at establishing a Eurasian transport corridor. SHEVARDNADZE has already visited several other countries involved in the project. During the visit, eight interstate agreements, including a joint declaration by presidents of the two countries, and a consular convention were signed. The Presidents discussed the development of the transport communications, including a ferry line linking Varna with Poti and Batumi, and also economic cooperation between the two countries, said Georgian Presidential spokesman Vakhtang ABASHIDZE. The two nations agreed to open embassies and consulates in their respective capitals and Black Sea ports next year.

Georgian Parliament Passes 1998 Budget

· The Georgian Parliament on Friday approved the 1998 budget by vote of 125 to 45, praising its western-style economic plan. Mikhail CHKUASELI, Georgia's 28 year-old finance minister, said, "This budget is realistic, will make the mechanism of distribution more economical and provides enormous support for economic reforms. He emphasized that the deficit will be covered through methods aimed at helping to ensure the continued stability of the lari currency, which has been held in a range of

1.25 to 1.31 to the dollar for more than two years. Foreign aid made up as much as two thirds of state income in the 1990s. In 1998, however, 84 percent of income is expected to come from domestic sources. The IMF and other international organizations have praised Georgia for its radical economic reforms, but still views its tax collection as a downfall. However, the sum transferred by Tax Service exceeded last year's parameters by 1.5m GEL. The measures on revealing the cases of tax evasion are continued. 304.5m GEL was mobilized from the budget form the beginning of this year. Budget revenues from customhouses are as follows: customs tax -330,500; VAT-613,500; excise -53,300; tabacco tax -150,000.

Armenian PM Visits France

· Armenian Prime Minister Robert KOCHARYAN ended an official six-day visit to France on Friday after meeting with French President Jacques CHIRAC to discuss settlement of the Karabakh conflict. CHIRAC called on residents of Nagorno-Karabakh to accept proposals of the OSCE Minsk Group, which includes representatives of Russia, France and the United States. The Minsk Group proposes a gradual settlement of the conflict and a strict observation of security measures, including the withdrawal of Armenian troops, from one fifth of the Azeri territory, the return of one million Azerbaijan refugees home, and a lift of the Azeri blockade of Armenia and Nagorno-Karabakh before a discussion of the region's status.

Armen. Court Sentences Dashnak Members

· The Supreme Court on Friday sentenced 31 members and supporters of the opposition Dashnak Party (HHD) to prison. President Levon TER-PETROSSYAN suspended the party in December, 1994. The defendants were arrested and brought to trial on charges of publicly calling for the overthrow of the Armenian government. The key defendant Vahan HOVANISSIAN received a four year prison sentence. The court declared four other defendants guilty of the murdering two policemen during their arrest. One of the four was sentenced to death, reported RFE/RL Newsline.

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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