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 4, 1997

The real purpose of the detention may be found in the remarks of State Duma lower house vice-speaker Sergei BABURIN. BABURIN referred to the detention as an indication of America's continued hostile activities against Russia. BABURIN used this as a pretext to call for the Duma to investigate, "activities of US `aid and partnership' organizations and their numerous affiliates in Russia," as well as foreign firms. In a letter to Boris YELTSIN and the government, he stressed the need for Russian leadership to "display firmness" when making decisions on BLISS's case. Intercon reports that BABURIN, a well known nationalist and alleged former KGB asset, is promoting a continued anti-US spy mania campaign. Clearly the real target of this provocation is to increase investigation into US businesses, non-profits organizations, and companies in Russia. Comment: This view is short sighted given Russia's dangerous economic and financial position. With foreign investor withdrawing billions of dollars, the stock market falling, and Russian banks teetering, American support is critical to keep Russia afloat. But maybe there are some in the Red and Brown circles that seek Russia's economic collapse for political purposes. This is no time to turn back the clock.

Russia to Reduce Troops in Northwest

· Defense Minister Igor SERGEYEV confirmed President Boris YELTSIN's pledge to cut ground and naval forces in the northwestern Russia by 40 percent by January 1999, reported RFE/RL Newsline. The cuts are possible because of stabil

Russian Federation

Politics

Bliss Detainment Holds Other Implications

· Richard BLISS, an American employee of Qualcomm, Inc. who was detained on November 25th by Russia's Federal Security Service (FSB), supposedly admitted on Wednesday that he did not register satellite receivers on his customs declaration when he entered the country. This is not required in the United States. He is accused of taking land surveys near restricted sites in the cities of Rostov-on-Don and Bataysk using satellite receivers. However, these areas do not contain any militarily significant installations. It should be noted that a Russia SU 25 fighter plane was shot down over Georgia during the Gerogian Abkhaz conflict from the Rostov airbase. Bringing satellite receivers into Russia is prohibited. Chief of Russia's FSB Nikolai KOVALYOV on Wednesday showed BLISS's declaration to reporters to prove that the equipment was not declared by him personally. The question remains whether the company had previously declared the equipment. KOVALYOV said that the FSB office in Rostov fulfilled its duties by detaining the man who met all indications of intelligence activities. He confirmed that FSB investigators were examining BLISS's equipment and checking whether the necessary permits to bring it into and use it in Russia were obtained.

KOVALYOV oddly stressed that Russia, "... is not interested in exacerbating relations and tormenting the conflict." BLISS will face charges only if it is proved that he breached Russian laws. KOVALYOV said BLISS will be freed if investigators find out that he committed no crime. Intercon sources report that BLISS will indeed be released from custody on December 5th. Under Russia's criminal code, a suspect can be kept in custody for ten days; he must be released if not charged with a crime.

Today's News Highlights

Russia

Rus. Millionaire Held in Miami

Ruble Stability for 3 Weeks?

Rus-Sweden Gas Agreement

New United Banking Group

European Republics

Lithuania Raises Defense Funds

South Caucasus & Central Asia

Georgians Protest Land Mines

Rus-Armenia Eliminate Dub. Tax

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ity in the region. Foreign Minister Yevgeny PRIMAKOV emphasized that the cuts would be a part of the Russia's plan for overall reduction in its armed forces. The reduction will certainly reduce tensions in the Baltic region, possibly providing for better cooperation on security. This is an attempt by Russia to soothe the Baltic states security concerns and eliminate their reasons for joining NATO.

Russian Gold Millionaire Held in Miami

· Alexander TARANTSEV, who owns a network of retail stores in Russia and Europe and is head of Russkoye Zoloto, is in custody for violating the US Federal legislation on obtaining an entry visa to this country. TARANTSEV faces prosecution for failing to disclose on his visa application an arrest and conviction record in Russia, where some claim he is connected to an organized crime syndicate. TARANTSEV also told Immigration and Naturalization Service agents the signature on the visa application was forged because it is not uncommon for others to fill out visa paperwork.

A hearing of the case is scheduled to begin in Florida State today, at which a decision will be taken as to whether or not TARANTSEV should be released on bail or if he will have to wait in jail for his trial. If charged TARANTSEV could face one to five years behind bars. The prosecution will insist on an imprisonment for one to one and a half years, since this is TARANTSEV's first offense. Miami attorney Richard LUBIN representing TARANTSEV says his client has given millions to orphans, disabled soldiers and the arts. The Russian Interior Ministry is investigating one of TARANTSEV's companies for smuggling.

Cabinet Approves Measures to Fight Crime

· The Russian government today approved a federal program to combat crime in the country from 1998-2000. Prime Minister Viktor CHERNOMYRDIN told the government that, " ... crime permeates all spheres of society today." Interior minister Anatoly KULIKOV told the Cabinet that, "The aim of the program is to keep the criminal situation in check and raise the results of the law enforcement activity to a socially acceptable level." KULIKOV said the program provides for further improvement of the legal framework of the law enforcement activity in the sphere of combating crime, reform of the law enforcement system, the development and consolidation of international cooperation in the fight against

crime, counteraction to organized crime and corruption. The cost of the is estimated to be over 23 trillion rubles. This is the latest in a series of initiatives which so far produced few results.

The Coordination Council of prosecutor generals of the CIS countries met today in Moscow to discuss coordinating the fight against organized trans-national crime. Participants said education and training of personnel was one of the most important parts of a unified legal space of the Commonwealth in handling international-legal problems of CIS countries.

Russian Minister-Netanyahu Discuss Arms

· Russian Deputy Foreign Minister POSUVALYUK announced in a meeting with Israeli Premier NETANYAHU on Wednesday that Russian Prime Minister Viktor CHERNOMYRDIN plans to visit Israel in 1998. POSUVALYUK is confident that the visit will promote the consolidation of Russo-Israeli relations. During the meeting, NETANYAHU expressed his disgust with Russia for sharing arms and military technology with Iran. "Russia continues assisting Iran in creating long-range ballistic missiles ... missiles possession by Tehran will poses a threat not only to the existence of the Jewish state but also to other countries, including Russia." In a harsh message to Russian President Boris YELTSIN, Netanyahu hinted that bilateral relations could be harmed by Moscow's continued supply of ballistic technology to Iran.

Economy

Ruble = 5,932/$1.00 (NY rate)

Ruble = 5,930/$1.00 (CB rate)

Ruble = 5,905|5,955/$1.00 (buy|sell rates)

Russian Gold Holdings Drop by $3.5 Billion

· Central Bank Chairman Sergei DUBININ said on Wednesday that the Bank of Russia's gold and currency reserves have dropped by $3.5 billion from $21.5 billion to $18 billion in 12 days from November 21. While the CB has used almost 50 percent of its gold and hard currency reserves to combat the financial crisis, DUBININ believes it has adequate reserves to handle capital outflows over the next several months. The IMF and World Bank may soon be called upon to support effort to financially shore up Russia.

Can Ruble Stability last 3 Weeks?

· Russian Minister Yevgeny YASIN said the govern

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ment and the Central Bank of Russia believe stabilizing the ruble stable is a top priority. YASIN along with the IMF's First Deputy Managing Director Stanley FISCHER believe that if the ruble is stable for two to three weeks, the influx of capital to the securities market will resume and Russia will be able to pull itself out of this financial crisis. When asked about rumors of the collapse of some of Russia's leading banks, YASIN responded, "I do not think that there will be a crisis in Russia's major banks. The government will not have to help them ... The Central Bank has no intention of giving them any assistance." He also estimated that $2.5 trillion would be need over the next 20 years for economic restructuring.

The Russian State Duma meanwhile has requested Central Bank Chairman DUBININ and Finance Minister ZADORNOV to report on measures taken by the government to ensure the stability of the Russia's financial market. The Duma also will ask President YELTSIN to put off the re-denomination of the ruble by six months, until the economy is stable again.

Russia to Raise Interest Rates

· Central Bank Chairman Sergei DUBININ said Russia will soon raise interest rates to defend the ruble and calm the treasury bill market. "We intend to raise the refinancing rate, but will do it after determining a balance on the securities market, and this will probably be based on the results of this week." Last month the refinancing rate was raised from 21 to 28 percent. Foreign investors have criticized Russia for hesitating to long to raise the rates in the aftermath of the world financial crisis. Dirk DAMRAU head of research at Renaissance Capital a Moscow investment bank said, "It is a sign that at last the central Bank has awoken from its torpor," reported the Financial Times.

Business

Gas Companies in the Red

· The Gubkino gas-processing plant Sibneftegazopererabotka in the Yamala-Nenets region is facing bankruptcy. The joint-stock company Rosneft-Purneftegaz has appealed to the district arbitration court seeking for 162 billion rubles owed by the Gubkino plant. In turn, the plant is owed 231 billion rubles for deliveries to the Russian gas giant Gazprom. A spokesman for the plant said, "This is the largest of debtors. Should it repay to us, we would

be even with profit." The plant's administration is considering a suit against Gazprom.

Russian-Sweden Gas Agreement

· Russian president's press secretary Sergei YASTRZHEMBSKY announced that Russian First Deputy Prime Minister Boris NEMSTOV and Swedish Minister of Economics Anders SUNDSTROM on Wednesday signed a protocol regarding Sweden's involvement in the construction of a gas pipeline from Russia to Western Europe via Finland and Germany. The press secretary noted that the route of such a gas pipeline had not been yet determined exactly. He added that Russian-Swedish cooperation believes the new "northern" branch of the gas pipeline would not compete with the Yamal-Western Europe gas pipeline; this branch will be independent. At the same time, SUNDSTROM made it clear that Sweden's decisions concerning specific projects to build gas pipelines will be based on commercial, not political considerations. NEMSTOV agreed saying, "We will not embark on anything which incurs losses. We do not need loss-making projects."

Rosvooruzheniye to Remain Arms Leader

· Rosvooruzheniye deputy general director Oleg SIDORENKO has about $10 billion worth of arms orders and hopes to retain its exports at the 1997 level of $3.5 billion. He said the number of arms exports in Russia may increase since there are 130 more companies which seek to obtain export licenses. Rosvooruzheniye remains Russia's leading arms exporter and accounts for 94 percent of all arms exports in the country. SIDORENKO predicts that aircraft will continue to dominate arms supplies, although more attention will be paid to navy hardware. Rosvooruzheniye plans to sell 10-15 kilo-class submarines, dubbed as black holes in the ocean, within the next two to three years.

New United Banking Group Formed

· Uneximbank signed an agreement with Unikombank, Vozrozhdeniye Bank, and Moscow regional government to form United Banking Group. Uneximbank sppokesman Sergei CHERNITSYN said the new group is a managing company formed from an alliance of the four. "By setting up the new group, each bank involved will improve its prospects of work in the Moscow region across the whole spectrum." This agreement may be the first step in Uneximbank plans to swallow the smaller banks.

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European Republics

Moroz Encourages Relations with Russia

· Russian Prime Minister Viktor CHERNOMYRDIN met Ukrainian parliament speaker Alexander MOROZ on Wednesday to discuss trade and economic cooperation and the development of contacts between neighbors. The two leaders discussed European security architecture, NATO expansion to the East, and cooperation between the two countries in the arena of international organizations.

Lithuania Increases Defense Spending

· The Lithuanian budget for 1998 approved by the parliament on Tuesday considerably increases defense spending from 4.8 percent in 1997 to 6.3 percent next year, which is 1.13 percent of the country's gross domestic product. Deputy Defense Minister Povilas MALAKAUSKAS said his ministry,

" ... has already made plans to spend 27 percent of the budget funds in 1998 to acquire modern military equipment." Finance Minister Algirdas SEMETA noted that "appropriations have been increased in light of Lithuania's desire to join NATO. "If we do not do it now, the goal of joining the Alliance will become unattainable," SEMETA said.

South Caucasus & Central Asia

Georgian Border Dispute

· Russian Lieutenant-General Yevgeny BOLKHOVITIN, commander of the Caucasian special frontier district responded to reports of rallies against the Russian border guards by saying that there are no disputed sections on the Russian-Georgian border, only sections which coordination has not yet been established with the Georgian government. A bilateral commission working on border negotiations has not been successful in making decisions on where the Russian-Georgian border should pass, the commander said. The negotiations are to prevent the infringement of interests and dignity of the neighbor-states, "but the Georgian sides has of late been avoiding the discussion of

urgent problems of the frontier." Georgia believes the checkpoint should be toward Russia. "If the bilateral commission decides that the checkpoint is really located in the Georgian territory, it will immediately be removed," BOLKHOVITIN said. At the same time he stressed that the place of the deployment of the Georgian checkpoint Chyortov Most also needs to be agreed upon since Russia justifiably considers it has been set up on its territory. This response further fuels resentment towards Russia.

Ottawa Treaty Will Not Help Georgians

· In Ottawa Canada, 120 countries on Wednesday signed a treaty banning global production and use of land mines. Every 22 minutes a person is killed or maimed by a land mine. However, with major countries like the US, Russia and China not signing the treaty, many people, especially their neighbor countries are still in danger. 200 residents of Muganlo settlement in Eastern Georgia staged a protest rally near a Russian military base in Vaziani on Wednesday. The participants in the rally believe that servicemen of the ex-Soviet and Russian troops have abandoned mines and shells on the territory of Georgia. They hold the Russian military responsible for the death of several people by mines in the area. Representatives of the Russian troops in Transcaucasia told participants it refutes the charges against the Russian military and stated that Georgian law-enforcement bodies should investigate the causes of the explosion in Muganlo.

Armenia-Russia to Eliminate Double Taxation

· The Federation Council of Russia ratified on Wednesday an agreement between the governments of Russia and Armenia to eliminate double taxation imposed on incomes and property. Its main provisions, regulating the order of paying taxes on incomes and property, take into account recommendations of the Organization for Economic Cooperation and Development. The agreement will create conditions for increase investments activities and the development of trade, scientific, technological and cultural cooperation between the two countries.

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