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

Tuesday, January 13, 1998

Russian Federation

Politics

Yeltsin and Nemtsov Discuss Wage Arrears

· Russian President Boris YELTSIN met with First Deputy Prime Minister Boris NEMTSOV today to discuss the progress of payment of salary arrears to workers of the budgetary sector and plans of the Russian government for 1998. NEMTSOV described the government's plans as concrete and rich in content. He pointed out that the government clearly sees what should be done to ensure economic growth. YELTSIN outlined 1998 goals for the executive branch which center around tax, welfare, and military reforms. He declared that government priorities are to: cut taxes, approve a new tax code, increase tax collections, curb insolvencies, ensure welfare benefits, lower bank interest rates, clear defense order arrears, provide housing to army servicemen, and train executive and market economy personnel. NEMTSOV stressed that the government had fulfilled and over fulfilled its obligations to the budgetary sector. He admitted that in some regions, there are problems which have to be tackled on a case by case basis. In NEMTSOV's opinion, to prevent back wages in future, it is necessary to cut the bureaucratic personnel in regions, improve management of municipal property and establish order in appropriation of funds by budgetary organizations. He also added that the government should focus on small and medium business support in 1998.

Note: First Deputy Prime Minister Boris NEMTSOV, presidential Press-secretary Sergei YASTRZHEMBSKY, presidential aide Vladimir SHEVCHENKO, YELTSIN's daughter Tatyana DYACHENKO and her son had to make an emergency landing before reaching the presidential residence in the Valdai region. The pilot of the helicopter owned by Rossia State Transport Company was

forced to land the craft following the signal that one of the helicopter's engine was on fire. The Federal Aviation Service set up a commission to investigate the causes of the malfunction. Since the landing, investigators have found no evidence of a fire.

Russia Against Terrorist Bombing

· Russia, Sri Lanka, Canada, France, Great Britain and the United States are among the first nations to sign a document at the United Nations (UN) to join the international convention to fight bombing terrorism. The convention is based on the principle of inevitable punishment for terrorist bombing. Russian Ambassador to the UN Sergei LAVROV said this new legal document should be implemented in full, "in order to ensure inevitable liability for the crimes punished under the convention without hampering the efficiency of international cooperation in extraditing criminals." He said the document fills a very serious gap in international law and in international anti-terrorism cooperation.

The convention is designed to provide protection from terrorist bombing which explode on the streets and means of public transportation, such as the cases in Paris, Moscow, Tokyo, and other cities. The document employs the widely-used principle requiring that a country either extradite the terrorists involved in the explosion or put them on trial. Sergei LAVROV said that, "To follow next is another document. A convention to fight nuclear terrorism. This document, initiated by Russia during the Lyons summit, is

Today's News Highlights

Russia

Moscow-Harvard Mortgage Agmt

Federation Council Economics

EBRD Buys Inkombank Shares

European Republics

Ukraine Pres. To Visit Moscow

Baltic Leaders Visit Washington

South Caucasus & Central Asia

Georgia Negotiates With Russia

Tajik Hopes Russia Invests

Turkmen Democratic Reforms

Politics-Economics-Business

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Tuesday

January 13, 1998

Intercon's Daily

currently being elaborated at a UN special committee."

Moscow City-Harvard Sign Mortgage Accord

· The Moscow city government and Harvard University signed an accord creating a system of mortgage crediting at the closing of the Foreign Investment Conference held at the Kennedy School of Government. Moscow Mayor Yuri LUZHKOV signed the accord which will allow Muscovites to purchase housing by using a mortgage rather than paying lump sums, which most can not afford. A small one-room apartment on the outskirts of Moscow can be $30,000 to $40,000, while a one-bedroom apartment in central Moscow costs $60,000 to $100,000. The average monthly wage in Moscow is about $200, according to AP Wire figures. Several major Western financial corporations, including Fannie Mae, the International Finance Corp., and Bank of Boston, agreed to participate in the mortgage crediting project providing low-interest, long term loans.

In his speech, LUZHKOV called on American businesses to take a more active role in the Russian market. He said Moscow's present construction and investment boom will last for another five years and then will be followed by, "some saturation," with leaner opportunities for high profits. He laid out Moscow's development, saying that the Russian capital contributes up to 30 percent to the federal consolidated budget. Foreign investment in Moscow has risen from $1.9 billion in 1995 to about $10 billion in 1997. He added that Moscow government sees as a priority economic sectors of social importance, primarily construction. He boasted about Moscow's construction industry, employing 700,000, which annually builds over three million square meters of floorspace in Moscow. A third of all construction is provided free to people on the waiting list for improved housing. LUZHKOV summed up his Moscow sales pitch saying, "Come to us. We shall be glad to find a fitting use to your capital, your experience, your technologies. But remember: if you do not do that, we shall manage on our own, and so all profits will go to us only."

Railways Earn 10 Trillion Rubles in 1997

· Minister of Railways Nikolai AKSENENKO said at a meeting of the government commission for economic reform in Moscow on Saturday that Russia's railways earned 10 trillion rubles in net profit in 1997,

despite losses in the first quarter of last year. He said the ministry transferred over nine trillion rubles to the Pension Fund in 1997, including three trillion rubles to pay a debt which had reached 3.9 trillion rubles by the beginning of the year. The ministry plans to pay off the remaining debt in 1998. AKSENENKO noted that the ministry increased the taxable base by 40 percent, or 3.7 trillion rubles, in the last three quarters of 1997, compared to the same period in 1996. Of 100 railway lines 40 were disbanded last year and 476 local structures were dissolved. This allowed the reduction of cargo transportation tariffs by 10 percent, reported Itar-Tass.

Economy

Ruble = 6,001/$1.00 (NY rate)

Ruble = 5,980/$1.00 (CB rate)

Ruble = 5,940|6,020/$1.00 (buy|sell rates)

Federation Council For Economic Reforms

· Chairman of the Federal Council Yegor STROYEV said on Friday that the main task of the Russian Federal Council for 1998, is to help power branches in developing economic reforms. STROYEV noted that "the economic situation is still grave, although there are some grounds for optimism." In his opinion, the parliament should concentrate on basic economic laws, including a legislative provision of the tax reform. "We should finally cut the tax burden," STROYEV said. He also stressed that the Russian parliament should focus on state building this year. STROYEV said that an acute problem facing the country is the development of federal relations. He added that an uncontrolled establishment of agreement relations between the federal authorities and regions, which does not have a clear legal basis, results in an economic and political inequality of regions and inflicts a considerable economic damage on many large areas.

Yegor STROYEV and a delegation of the Federation Council will visit Georgia, Armenia and Azerbaijan next week. Russian parliamentarians will meet with Georgian President Eduard SHEVARDNADZE, Armenian President Levon TER-PETROSYAN, Azerbaijan President Geidar ALIYEV, and speakers of their national parliaments and ministers. The delegation will visit the partriarchate of Georgia and Echmiadzin in Armenia. In Baku, the Russian delegation will visit the regional office of LUKoil.

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Business

Orders For Tupolev Aircraft Increase

· Chief designer Igor KALYGIN announced that the Tupolev Aviation Science and Technical Complex has received orders from 22 airlines for 192 Tu-334 aircraft. He said these aircraft are in demand, and the demand will increase following test flights in the spring. The Tu-334 short-range 100-seater plane is replacing Tu-134 airliner. Russia is about two years ahead of Western designers in creating a 100-seater. Previously approved technical operations are used in the plane's design, which designers hope will reduce the time for its certification. The Tu-334 airliner will be manufactured mainly at the Kiev Aircraft Factory. In Russia, these planes will also be produced at the aircraft factories in Taganrog and Samara.

EBRD Buys Shares in Inkombank

· The European Bank of Reconstruction and Development (EBRD) has become a shareholder of Russia's commercial Inkombank. Inkombank first vice president Semyon POVARENKIN, who attended a Russian-American investment conference at Harvard, said that Inkombank is Russia's first bank to develop a partnership with EBRD. The EBRD has issued a loan with a prospect of its later conversion to Inkombank shares.

Advanced System For Air Defense

· Russian Defense Ministry announced Saturday that the Novgorod Kvant plant has produced an advanced system to be used and implemented by the air defense forces. "Our system has been presented by the Voyenny Parade magazine and the theme is now open," Kvant General Director Gennady KAPRALOV said. "It is a noise interference station to be used against a possible enemy's aviation. This is a high class machinery, a piece of which costs 26 billion old rubles."

to the agreements reached by KUCHMA and YELTSIN during their informal meeting outside Moscow in November 1997. In particular, documents have been signed by YELTSIN which repeal the President's decree of August 18, 1996, to levy valued-added tax on Ukrainian goods entering Russia. YELTSIN also asked the government with Ukrainian colleagues to study prospects for Russian oil companies's to participate in the incorporation of Lisichansk, Kremenchug and Odessa oil refineries.

While economic factors continue to bind Ukrainian and Russian industries, Kiev has felt pressure from the west and other Commonwealth of Independent States (CIS) nations to concentrate its economic progress within the sphere of Central Europe. Former security advisor Zbigniew BRZEZINSKI on Friday emphasized this saying, "Ukraine can be apart of Europe without Russia." Ukraine's strategic importance is recognized by its neighbors and Washington. The Ukraine is the third largest recipient of US aid after Israel and Egypt, reported Reuters.

Estonian Parliament Speaker Visits China

· Estonian Parliament speaker Toomas SAVI met with Chinese Vice-Premier LI Lanqing today. LI related China's opinion that all nations, big or small, strong or weak, rich or poor, are equal members of the international community. Estonia and China agreed to begin a cooperative relationship in political, economic and trade areas with frequent exchanges between the parliaments and governments of their nations.

Baltic Leaders To Visit Washington

· President Guntis ULMANIS of Latvia, President Lennar MERI of Estonia, President Algirdas BRAZAUSKAS of Lithuania, and President Bill CLINTON of the United States will sign the US-Baltic Charter in the White House's East Room on Friday. The charter outlines, "strategic interests of the US" in the Baltic states and principles of inter-state relations and economic cooperation. The charter states the backing of the US to the quest of Lithuania, Latvia and Estonia for integrating in NATO, the European Union, and other international political, military and diplomatic organizations. Membership to NATO will not come anytime soon. The charter does not provide security guarantees to the Baltic states, and only states Washington's interest in their independence, security and territorial integrity.

European Republics

Ukrainian President Prepares for Visit to Russia

· Ukrainian President Leonid KUCHMA is preparing for a visit to Moscow in February where he will meet with Russian President Boris YELTSIN. Russian Presidential press secretary Sergei YASTRZHEMBSKY said, "Russian-Ukrainian relations are assuming positive dynamics" owing mostly

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South Caucasus & Central Asia

Georgia Hopes To Negotiate Issues With Russia

· In his regular Monday radio address, Georgian President Eduard SHEVARDNADZE said that Georgian leadership is determined to resolve all disputes with Russia through negotiations. He said there are several disputes over economic, financial, border and other issues between Russia and all CIS countries, but these problems should be resolved through fair negotiations. During talks last week with the Russian military delegation headed by chief of the Main Department of International Military Cooperation Colonel-General Leonid IVASHOV, problems emerged which may take several years to be settled. According to Izvestiya, Georgian and Russian officials agreed to draw up regulations for the transfer of 10 sites from the Russian Defense Ministry to Georgia. Russia, however, rejected Georgian Defense Minister Varidko NADIBAIDZE's demand for compensation payments for military equipment removed from Georgia in 1992-1993.

Japan To Build Georgian Oil Refinery

· Georgian International Oil Company President Girorgi CHANTURIA told Interfax News Agency that Japan's Itochu Corporation plans to sign later this month a contract to build an oil refinery at the Black Sea Port of Suspa. The refinery, with a capacity of 3 million metric tons, will be located near the Baku-Suspa pipeline which is under construction. It will produce fuel oil for electric power stations, diesel fuel, gasoline, and petrochemicals for domestic consumption and export to Turkey and the Ukraine.

Tajik Hopes Russian Investments To Increase

· Russian Ambassador to Dushanbe Yevgeny BELOV said that Tajikistan hopes Russian Prime Minister Viktor CHERNOMYRDIN's visit to Dushanbe on Wednesday, will boost Moscow's economic presence in the Central Asian republic. BELOV said, "We have signed many good documents, and experts are making an inventory of them ahead of the

visit, in an attempt to define their significance for the integration of [the two countries'] economies and the strengthening of their interaction both in the context of the CIS and on the international market under current circumstances." Russia and Tajikistan signed 96 interstate and intergovernmental agreements over a period from 1992 to 1998, sources in the Tajik Economics Ministry said.

Russia, which is Tajikistan's biggest partner in foreign trade and whose export-import turnover with Dushanbe exceeded $324 million in 1997, has been losing ground in the sphere of industrial cooperation and integration, Itar-Tass reported. Russian businessmen are surpassed by rivals from Britain, the US, Germany, and South Korea in Tajik economic space. Moscow and Dushanbe leaders are concerned that the current volume of trade and economic cooperation does not correspond with the interests and potential of the two countries.

Turkmen Working Toward Democratic Reforms

· In an interview with regional Trud newspaper, Turkmenistan President Saparmurat NIYAZOV outlined his plans for the nation to work toward democratic reforms. "We are heading towards democracy in our own way...Yes, the Turkmenian leadership has chosen its own, special road of reforms.... The socio-political situation in the republic is stable and, therefore, it is attractive for foreign investments and bank capital." NIYAZOV said that economic motivation partially directs the political course. "To put it in a nutshell, this means economic pragmatism and political neutrality. However, our neutrality does not mean isolation, but on the contrary, openness and positive involvement in the problems of our foreign partners, in the efforts to stabilize the relations in our region." He stated that the nation is actively promoting relations towards southern nations, but also noted that, "this does not mean at all that we are breaking away from the north, from Russia. Our task is to balance out all the mutual relations in the region." He emphasized that time can only show the effectiveness of these measures.

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

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