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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, January 15, 1998

agreements and if it renders effective assistance in the restoration of the Chechen economy, "a third and different way may appear."

US Investigates Russia-Iran Relationship

· Senior American diplomat Frank WISNER, sent to investigate Russia's relationship with Iran, has left empty-handed, according to United Press International. He was to receive assurances that the country isn't supplying Iran with nuclear technology and will limit arms sales to Iran. WISNER met Russian Foreign Ministry officials and discussed Russian aid to Iran. The US and Israel believe Iran is receiving advice from Russian specialists on sensitive nuclear weapons technology. British Foreign Secretary Robin COOK said the European allies, "will do more to stop Iran from getting hold of the sort of materials that could help it build ballistic missiles, or that could be used to make chemical or biological weapons....We will use every tool and every agency at our disposal to obstruct Iran's unacceptable ambitions."

Russia has said it opposes an expansion of the nuclear nations and would prevent Iran from receiving such technology. Russian State Department official said it would "correct" the situation, but failed to provide any details on how Iran was purchasing the technology. Russian officials noted that a multibillion dollar deal signed by Russia's Gazprom and Iran will continue as planned, despite US threats to impose sanctions on companies trading with Iran. The US so far has not taken any action against such

Russian Federation


Chechen Negotiations Become Complicated

· The Russian delegation led by Secretary of the Security Council Ivan RYBKIN, returning from discussions with Chechen leaders, called for the pace of negotiation to be increased. RYBKIN urged the government to solve the problem as soon as possible even though, "the Khasavyurt agreements give the sides a time space until December 31, 2001." The negotiating process and the relations with Chechnya have become more complicated because of the non-fulfillment of the agreements signed by Prime Minister Viktor CHERNOMYRDIN and Chechen President Aslan MASKHADOV on May 12, 1997, as well as other agreements concluded by ministries and other institutions of Russia and Chechnya.

RYBKIN said, "the conversation in Grozny was long and not very pleasant." He said that the economic agreements, concluded before, "on the whole, have not been fulfilled or are being fulfilled in a very small degree." As a result, the sides agreed to create a working group, which would sum up the fulfillment of all the agreements. Their fulfillment will be evaluated, "both in terms of quality and quantity." RYBKIN believes constitutional laws are needed to regulate relations between Russia and Chechnya. He stressed that Chechnya may be, "a full member or an associated member of the Federation. Other mutually acceptable solutions are also possible."

Deputy Prime Minister Oleg SYSUYEV, who also attended discussions, agrees with RYBKIN. SYSUYEV said that two approaches may prevail in relations with Grozny: "to let Chechnya go or to force it to remain within Russia." He expressed dissatisfaction in these two options. SYSUYEV believes, however, that if Moscow fulfills all the economic

Today's News Highlights


Foreign Investment to Double

LUKoil To Buy Kazakh Stakes

GAZ Production Increases

European Republics

Estonian Banks Merge $1.4 bn

Ukraine T-Bills Stability?

US-Lith. Sign Investment Treaty

South Caucasus & Central Asia

Georgia-Israel Sign Treaty




January 15, 1998

Intercon's Daily

companies. Gazprom said it would continue with the Iranian contract regardless of US threats.

Nemtsov on Defense, Pensions, Economy, Cars

· First Deputy Prime Minister Boris NEMTSOV and Russian President Boris YELTSIN discussed many issues concerning the nation and its economy during their visit. NEMTSOV said the payment of debts on the state orders to the defense industry should be a top priority for the government in 1998. He and YELTSIN discussed the payment of wage debts to workers of the budget-financed sectors and the improvement of the pension system in the country, specifically, the creation of non-state pension funds. NEMTSOV said that pension funds might become, "a source of long-term investments," which is especially important in conditions of last year's slump in investment activities in Russia.

NEMTSOV told the President about positive trends in the development of the Russian economy and primarily in the automobile-making industry, which is, "the quickest-growing industry of the country." He described the situation in that industry as an "automobile boom" and added that the number of automobiles, produced and sold in Russia in 1997, was 13 percent greater than in 1996. According to NEMTSOV, the two discussed measures for attracting foreign investments in the Russian automobile-making industry. See Intercon's article on GAZ Company in today's Business section.


Ruble = 5,990/$1.00 (NY rate)

Ruble = 5,995/$1.00 (CB rate)

Ruble = 5,965|6,025/$1.00 (buy|sell rates)

Econ.Min. Predicts Foreign Invest. to Double

· Economics Minister Yakov URINSON said, "I consider that this year, and in 1999 and 2000, the volume of foreign investments in the Russian economy should double annually." URINSON said that foreign investments accounted for 3 to 4 percent of all capital investment in Russia's economy in 1997, while the country needs at least 5-10 percent. He believes his prediction can come true, "if we have a realistic federal budget and realistic regional budgets and if there is strict control over government spending." He also feels that the Central Bank

should continue to implement positive monetary policies. URINSON stated that in 1997, "...direct, not portfolio but direct, foreign investment in our economy grew by 70 percent."


Lukoil To Increase Investment in Kazakhstan

· LUKoil President Vagit ALEKPEROV said today that LUKoil wants to increase its total investment in Kazakhstan from $300 million in 1998 to $740 million by 2000. LUKoil wants to double its stake in the onshore Kazakh Tengizchevroil project. LUKARCO, a joint venture between LUKoil and US Atlantic Richfield Co., has five percent stake in the $20 billion project. "We already have five percent [in Tengizchevroil] and we would like to increase our stake by five percent." The project's stakes are divided by Chevron with 45 percent, Kazakhstan and Mobil Corp with 25 each and LUKARCO with 5 percent. LUKoil is also looking to develop in Kazakhstan's Aktyubinsk region Alibek-Mola.

GAZ Plant Increases Production

· GAZ company president Nikolai PUGIN announced that car production in the Nizhny Novgorod plant grew 5.4 percent in 1997, making 220,000 cars. In 1996, the company produced 124,000 passenger cars and 97,000 trucks, including 93,000 light trucks of Gazel type. PUGIN said reasons for the increase include the start of production of the Volga-GAZ-3110 car, signing of a contract with the Italian Fiat company setting up a joint company for the assembly of 150,000 light cars a year, and production of Gazel-type cars with a German diesel engine. For 1998, PUGIN emphasized negotiations to launch assembly enterprises of the plant in the Siberian cities of Abakan and Irkutsk, ethnic republic of Daghestan, and the opening of the second assembly plant in Georgia on the basis of the Kutaisi car plant.

Sino-Russian Cargo Flights Open

· A Russian-made airplane arrived at the Baita International Airport of Hohhot, capital of north China's Inner Mongolia Wednesday marking the opening of a chartered cargo air route between Inner Mongolia and Russia. The first batch of 47 tons of cargo is expected to be shipped to Moscow from Hohhot on January 16, Xinhua reported. A Russian aviation official described relationship as a good beginning of bilateral cooperation.

When you need to know it as it happens




January 15, 1998

Intercon's Daily

European Republics

Estonian Bank Merger Creates Powerhouse

· Estonia's two largest banks Hansapank and Hoiupank announced they would merge creating the largest financial services group with assets of more than $1.4 billion holding 45 percent of the Estonian banking market. Shareholders of Hansapank will take up 63 percent of the merged group with 37 percent going to Hoiupank investors. The group, combining corporate and retail sector expertise, will retain the name Hansapank. The creation of a large banking institution will increase access to cheaper global debt and raise the interest of foreign investors, who complain that Baltic banks are too small to invest in. As in Russia, small banks in the Baltics will be forced to reconsider their position in the market before they are gobbled up by large banks.

The next biggest bank Uhispank's vice president Margus SHULTS, however, welcomes the merger. "The consolidation is a positive event because there are too many banks in Estonia. The sooner the consolidation continues, the stronger Estonian banking sector will become in the region, " SHULTS said. Uhispank may feel pressure to merge in order to keep up with its competitors and squeeze out other small, weak banks. London UBS analyst James OATES believe this is the first merger of many in the banking sector. "There is pressure to consolidate not just in Estonia but across the three Baltic States."

Estonia-Cyprus Abolish Visa Policy

· Estonia and Cyprus today signed an agreement to abolish visas. Citizens of the two countries are free to visit each other without needless consular formalities. Foreign Ministers of Cyprus Yiannakis KASSOULIDES and Estonian Toomas Hendrik ILVES signed an agreement opening bilateral air communication. KASSOULIDES stressed that Cyprus and Estonia, are determined to establish close business contacts. ILVES said that Cyprus and Estonia understand each other, noting that the role of small countries in the wider political scene of the world is important. He added small countries must work together and cooperate in order to improve their position in the world and the organizations they belong to, and make their voices heard. ILVES met Wednesday with President Glafcos CLERIDES to discuss the issues concerning two countries' acces

sion negotiations with the EU. The sides also agreed to coordinate the two countries' efforts to join the European Union.

Ukraine T-Bills Depend on Coordination

· Central Bank Chairman Viktor YUSHCHENKO on Wednesday said that Ukraine's financial stability depends on its ability to renew interest in Treasury Bills and the coordination of policy between banks and the government. YUSHCHENKO feels the major problem is the lack of agreement on economic reforms between the Economics Ministry, Finance Ministry, and the central bank. "It is mandatory to have agreement between the economic, fiscal, and monetary units...If the first team does not move forward structurally, the second party can do little and the third can react [maintain stability] for a maximum of 30 days," YUSHCHENKO said. He said domestic and foreign investor pulled out investments when they lost faith in the T-Bill market. Western analysts blame the lack of interest on falling yields and tremors on world markets. Ukraine's economy suffered greatly in the last quarter of 1997. It was forced to dip into the budget to repay maturing T-bills.

Ukraine Parliament Approves Treaty

· In a vote 317 to 27, Ukraine's parliament approved Treaty of Friendship, Cooperation and Partnership between Ukraine and Russia. Foreign Minister Gennady UDOVENKO said, "This document has solidified not only firm international obligations to respect Ukraine's independence and sovereignty, but has become the legal basis on which mutual relations will be based in various areas." The treaty laid the foundation of cooperation between the two countries in international security issues, he added.

Ukrainian Prime Minister Valery PUSTOVOITENKO hoped the treaty would inject "new energy" into the two countries' economic cooperation. Russia accounted for 47 percent, $28 billion, of Ukraine's trade in 1997. The Treaty of Friendship, Cooperation and Partnership must still be approved by the Russian State Duma. The Ukraine Parliament has encouraged the Duma to make ratifying the treaty a top priority. Duma speaker Gennady SELEZNYOV said the Duma will consider the ratification of the treaty on February 6,1998.

Kiev Want BSF in Line With Constitution

· Ukrainian lawmakers on Wednesday asked the

When you need to know it as it happens




January 15, 1998

Intercon's Daily

government to prepare documents and proposals concerning the division of the Black Sea fleet and submit them to the parliament. Parliament speaker Alexander MOROZ said agreements on the Black Sea fleet should be brought in line with the Ukrainian Constitution which prohibits foreign military presence in the country, reported Itar-Tass. Foreign Minister Gennady UDOVENKO told legislators that six more bilateral documents are being drafted to add to the three intergovernmental agreements on the Black Sea fleet signed in May 1997. Talks are under way with Russia to sort out legal aspects of the Russian Black Sea fleet's presence on Ukrainian territory. The minister said after the documents are finalized they will be submitted to the parliament for ratification.

US-Lithuania Sign Investment Treaty

· US Trade Representative Charlene BARSHEFSKY and Lithuanian Foreign Minister Algirdas SAUDARGAS signed an investment treaty that will help expand bilateral trade. "This treaty provides a strong basis for trade and investment relations with Lithuanian...The treaty is a key element of an expanded trade relationship and market-opening commitments in the interest of both countries," BARSHEFSKY said. The investment treaty guarantees the right to invest on terms no less favorable than those offered to domestic investors in most business sectors. The treaty must still be ratified by the US Senate before it is put into effect. During the first 10 months of 1997, the US exported $69 million in goods to Lithuania compared with $63 million of all of 1996. Exports include machinery, electronic equipment, soybean meal, cars, and office equipment. The US imported about $71 million in good from Lithuania during the first 10 month of 1997, compare with $34 million in 1996, according to the United States Trade Representative.

The Presidents of Lithuania, Estonia, and Latvia attended the signing. These leaders are in Washington to sign the US-Baltic Charter on Friday.

South Caucasus & Central Asia

Georgia Signs Declaration With Israel

· Georgian President Eduard SHEVARDNADZE and President Benjamin NETANYAHU signed a "Declaration of Friendship" between the two states. It was agreed that Tblisi and Jerusalem would henceforth be united towns, which is assessed here as Georgia's indirect recognition that Jerusalem is the capital of the Jewish State. SHEVARDNADZE invited NETANYAHU, Infrastructure Minister Ariel SHARON, and Trade Minister Natan SHRANSKY to visit Georgia this fall to discuss cooperation between the two countries in the power industry sphere.

Meanwhile in Georgia, an international conference of experts on solar power and prospects for its development opened on Wednesday. Representatives from UNESCO, UN, the Council of Europe, Russia, the US, Israel, France, Japan, Greece, Germany and other countries are also attending. SHEVARDNADZE will attend the conference upon his return.

Tajik Defense Minister in China

· Tajikistan Defense Minister Lt. Gen. Sherali KHAIRULLAEV and Chinese Vice President RONG Yiren met today in Beijing. KHAIRULLAEV said his visit has been successful and that he had nice talks with his Chinese counterpart, CHI Haotian. He said Tajikistan treasures the friendly and cooperative ties with China, and believes the relations between the two nations will be constantly consolidated and strengthened. RONG said that China and Tajikistan have been developing their friendship and cooperative relations in the areas of politics, economy, science and technology, culture and military. He said, the Chinese government puts great importance on enhancing and deepening bilateral links on the basis of the five principles of peaceful coexistence, and China is ready to make joint efforts with Tajikistan to build friendly and cooperative bilateral ties facing the 21st century.

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

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