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

Wednesday, January 7, 1998

privatization sales contingent on the Russian State Duma's approval of the privatization plan of 1998. The State Property Ministry is expected to, "make some necessary adjustment" over the management of 29,000 federal enterprises and strengthen control on overseas state property in 122 countries.

Rus-Japanese Peace Treaty Talks in Moscow

· The first few consultations on a new framework of the Russian-Japanese peace treaty talks will take place between Russian Foreign Minister Yevgeny PRIMAKOV and Japanese counterpart Minoru TAMBA in Moscow on January 22-23. President YELTSIN and HASHIMOTO agreed at that meeting in November to make serious efforts to sign a peace treaty by the year 2000. A senior Russian diplomat told Itar-Tass that, "Moscow is seriously preparing for those talks proceeding from the fact that this will be a difficult dialogue which will touch a series of delicate problems which have been aggravating the Russian-Japanese relations for 50 years." Both countries agree there is a need for a new, broader framework of the inter-government dialogue.

Chechnya Comments Strike New Hostilities?

· On Tuesday, Russian Vice-Premier, Interior Minister Anatoly KULIKOV voiced a possibility of preventive strikes at bandit camps in the Northern Caucasus, including Chechnya, which provoked a negative reaction of Grozny, and Ramazan ABDULATIPOV made a proposal to give emergency powers to the Russian Interior Ministry and

Russian Federation

Politics

Russian Lawmakers Attend Asia-Pacific Forum

· A delegation of Russian lawmakers, including Federation Council representative Mukhu ALIYEV, Vladimir VARNAVSKY, Duma representative Alexander VENGEROVSKY, attended the sixth annual session of the Asia-Pacific Parliamentary Forum which opened in the Seoul today. About 300 lawmakers from 25 countries discussed issues of ensuring security in the Asia-Pacific region, economic cooperation, a way out of the current serious financial crisis which hit a number of Asian countries, and the environment protection problems.

"Parliamentarians were the first to speak about the joining the Asia-Pacific Economic Cooperation Organization (APEC), and now, already an APEC member, Russia has won a big diplomatic victory, and our lawmakers have contributed to it...Here we are interested in the problems of economic stability in the region, as the recent financial crisis which shook the Asia-pacific region, concerns Russia too," VENGEROVSKY stressed.

Gazizulin Announced Privatization Plans

· Russian Deputy Prime Minister and State Property Minister Farid GAZIZULIN said Tuesday that about 130,000 enterprises have been privatized in Russia as of January 1, 1998. GAZIZULIN said that 31,000 enterprises were privatized last year, while the number was 5,000 in 1996 and 10,000 in 1995, respectively. The State Property Ministry and the Russian Federal Property Fund raised 280 percent of the budget in 1997, which has increased the country's income by 17.9 trillion rubles (about $3 billion) last year and 1.1 trillion rubles (about $187.4 million) in 1996, reported Xinhau. GAZIZULIN plans to raise 8.1 trillion rubles (about $1.4 billion) through

Today's News Highlights

Russia

Russia-Chechnya Heat up?

CB Withdraws Bank Licenses

Renault-Moscow Joint Venture

European Republics

Ukraine-Russia Relations

Ukraine Farmers Gain Control?

South Caucasus & Central Asia

Russian Military in Georgia

Kazakh Considers Nuclear Power

Kyrgyz Promotes Rural Economy

Politics-Economics-Business

Page

Wednesday

January 7, 1998

Intercon's Daily

himself. Chechen leaders believe that a statement from KULIKOV on strikes at bandit camps may result in the resumption of hostilities. They expect an official reaction of the Kremlin to the statement. Chechen first vice-premier Movladi UDUGOV said, "We hope for a corresponding reaction of the Russian president, the government chairman, and pronouncements of Anatoly KULIKOV may again break the fragile interaction and result in the resumption of combat operations." A source in the Chechen government said these statements are being viewed for internal Russian consumption especially in the Interior Ministry and that the statements were made for popular consumption.

A Russian government spokesman, said the pronouncements of Russian vice-premiers Anatoly KULIKOV and Ramazan ABDULATIPOV on anti-crime measures in Chechnya are taken in Moscow as unofficial. These are personal opinions of the officials, which do not express the official stance of the government or the president of Russia, governmental. "Such proposals have not been discussed with the government chairman or reported to the president of Russia," the spokesman stressed at a press conference. Prime Minister Viktor CHERNOMYRDIN took the pronouncements as, "a verbal skirmish, which reflects personal opinions of the aforesaid officials uncoordinated with the government and the President of Russia."

The opinion of Movladi UDUGOV is shared by Shamil BASAYEV, who is forming a Chechen government at the request of Alsan MASKHADOV said, "They won't frighten us with preventive strikes. If there are any, we will act in response." According to BASAYEV, a main task of the new Chechen government is to suppress criminality in the republic. BASAYEV believes these criminal groups are a threat to the regional economic and political stability as well as a tool to destabilize Chechnya. One Source who knows BASAYEV's political views well, claims BASAYEV's true aim is to strengthen "democracy" in Chechnya and combat crime. Intercon source reports that during the Chechen war certain organized crime leaders surfaced in the service of the Russian forces. These sources claim that this is managed by the Federal Security Services. Intercon's source stressed that without Chechen independence, there would be no stability in the North Caucasus. Note: In February BASAYEV's

brother plans to attend an oil energy conference in Houston.

KULIKOV believes a Chechen government under formation will not change the regional situation for the better. "When a man, who has blood on his hands and the whole world knows who he is and what he has done, is instructed to form a government, that leaves either a meager hope for an improvement or null. But that is a problem for MASKHADOV." It should be also noted that BASAYEV fought in Abkhazia against the Georgian government in 1993.

Yeltsin Appoints Permanent Envoy to OSCE

· Russian President Boris YELTSIN on Tuesday appointed Oleg BELOUS Russia's permanent envoy to the Organization for Security and Cooperation in Europe (OSCE) in Vienna. The Russian President relieved Yuri USHAKOV of his duties as Russia's ambassador to the OSCE and transferred him to another job. Alexander BEZNOGOV was relieved of his duties as the Russian Ambassador to Canada in connection with his retirement.

Russian on Com. of Elders of Council of Europe

· Russian Ambassador at large Vladimir SHUSTOV has become member of the Committee of Elders of the Council of Europe. The composition of the new body has been endorsed by the Committee of Ministers of the Council of Europe. Former Portuguese President Mario SOARES has become chairman of the Committee of Elders. In addition to Vladimir SHUSTOV, international envoy to Bosnia and Herzegovina Gret HALLER of Switzerland, Finnish Foreign Minister Tarja HALONEN and Hungarian Foreign Minister Laszlo KOVACZ have been endorsed as members of the committee. The committee of Elders is to draft and study proposals for structural reforms in the Council of Europe.

Economy

Ruble = 5,969/$1.00 (NY rate)

Ruble = 5,969/$1.00 (CB rate)

Ruble = 5,939|5,990/$1.00 (buy|sell rates)

CB Withdraws Licenses From Russian Banks

· Russia's Central Bank on Tuesday revealed it had withdrawn more than 15 percent of the country's banks operating licenses last year in an effort to weed out weak financial institutions, The Financial

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

January 7, 1998

Intercon's Daily

Times reported. Deputy chairman of the Central Bank Alexander TURBANOV said that in the future regulators will be even more aggressive in their efforts to withdraw licenses and encouraging creditors to pursue bankruptcy proceedings against failed banking institutions. Last year, the Central Bank withdrew 316 banking licenses reducing the number of registered credit organizations to 1,719. Merrill Lynch conducted a study on how small the Russian banking sector was in relation to the overall economy. It estimated total banking assets equaled 19 percent of gross domestic product last year, compared with 59 percent of Poland's GDP. The movement of the top 20 banks swallowing up small, weak banks is a process which is not only painful for clients and creditors, but also damaging to the competition in the finance industry. President of Alfa Bank Pytor AVEN warns, however, that even one or two of the top banks could be facing serious difficulties as they try to prosper following the turmoil in emerging markets.

Business

Rostelecom Reduces Cheap Int'l Phone Time

· Russian telecoms giant Rostelecom reduced the daily time interval for cheap international phone calls. In 1998, the period from 22.00 to 8.00 Moscow time international telephone calls will be at a low rate marketing sector head Marina OSADCHAYA at AO MMT said. In 1997, the period was from 20.00 to 8.00 Moscow time. Tariffs remain unchanged for international calls, but were lowered by 5-10 percent for long-distance calls within Russia.

Renault-Moscow City To Form Joint Venture

· French car maker Renault and the Moscow City Government have taken one step closer to forming a joint venture which will assemble and sell Renault Meganes in Russia beginning in the second half of 1998. The two sides signed a "frame work accord" defining the operating conditions of their joint industrial and commercial company, OAO Avtoframos. The venture plans to produce 30,000 Megane Classiques by 2000, with a goal of increasing the number to 120,000 in 2001. Renault plans to invest $350 million in the project for a modern paint line. In return, the Moscow government will provide the AO Azlik facilities for production. The City Government owns a controlling share in AO Azlik.

Russia-Ukraine Relations Best Since 1991

· Following the break up of the Soviet Union, Ukraine was the most anti-Russian of the newly independent states and became a role model for them as it attempted to distance itself from Moscow. Now, however, relations between Moscow and Kiev have reach an all new high. Earlier last year, the two sides disagreed on a $600 million tank deal Kiev had with Pakistan. Kiev back down and as a result 70 Russian plants benefited. This military parts trade war and value added taxes on each others goods caused both sides to suffer. Estimated bilateral trade fell 20 percent in 1997, and Ukraine lost around $1 billion in export earnings. Since the trade war resolution and abolition of the value added tax, the two sides have mutually benefited.

Ukraine's relationship with the west however, has reach a low point. The US Congress has become increasingly fed up with Ukraine's high level of official corruption and its poor treatment of foreign investors. Multilateral credit institutions have curtailed lending because of Ukraine's lack of economic reforms. Former US national security advisor Zbigniew BRZEZINSKI believes the west should not fear this close trade relationship between Russia and the Ukraine. "What would set off alarm bells in the west is if Ukraine signed something which, rather than being about free trade, involved subordination to Moscow, such as what Belarus signed," The Financial Times Reported BRZEZINSKI as saying.

Privatization Gives Farmers More Control?

· In a bold reform meant to turn Ukraine into the bread basket of Europe it once was, authorities have announced the privatization of Khlib Ukrayny (Bread of Ukraine), a state owned conglomerate that controls the storage and distribution of grain. According to the law on agricultural privatization, 51 percent of shares in downstream enterprises will be given to the farmers, allowing higher returns on produce, stimulated production, and increased efficiency of the marketing of Ukrainian agriculture. Analyst Von Cramon TAUBADEL reported that the monopoly and inefficiencies caused revenues denied to desperate farmers to reach $1.5 billion, reported The Financial Times. Chairman of Bread of Ukraine Girgori OMELYANENKO said that 343 out of 550 enterprises will be privatized by December 1998. Past attempts of privatizing Ukraine's agricultural industries, not so successful, ended with a web of cross ownership among a few local level organizations. OMELYANENKO stays optimistic stating that up to a third of shares in privatized Bread of Ukraine will be sold for cash to domestic and foreign investors. With

European Republics

When you need to know it as it happens

Politics-Economics-Business

Page

Wednesday

January 7, 1998

Intercon's Daily

no preparations made for the sale of the enterprises or the shares, it is unclear when and how much control farmers will receive.

South Caucasus & Central Asia

Russian Military Delegation in Tblisi

· Head of the Russian Defense Ministry's international military cooperation department Colonel-General Leonid IVASHOV is in Akhalkalaki, a town located near the Georgian-Turkish border. IVASHOV said, "Today in Akhalkalaki, we will solving practical problems, including the cooperation of Russian and Georgian air defense systems within the framework of the CIS air defense, and a better covering of the border by troops." The Russian military official and Georgian Defense Minister Lieutenant-General Vardiko NADIBAIDZE inspected the Russian military facilities in Akhalkalaki. "In Akhalkalaki we met the local administration and average people who, in my mind, are against a reduction of Russian troops in the region and a withdrawal of Russian military bases. It is hard to imagine a closer cooperation than that between Russian servicemen and the local administration in Akhalkalaki...Thus, we do not plan to withdraw Russian bases from that region. On the contrary, we plan to consolidate military security in the border zone," IVASHOV said. Georgian Defense Minister Lieutenant-General Vardiko NADIBAIDZE said, "There has been progress, and agreements, which were not expected or planned, have been reached." NADIBAIDZE did not specify what kind of agreements they had reached. Intercon previously reported that a number of armed personnel carriers had been transferred from Akhalkalaki to Armenia without notification to the Georgian government. Another source of friction concerning the base operation is the Russian military base commanders refusal to pay ethnic Armenian-Georgians working at the base in Georgian Lari instead of rubles. This has led to local tension. Some Georgian officials maintain that the Russian base has no military purpose other than to potentially aggravate ethnic Armenian tensions in Georgia.

Kazakhstan-Turkmenistan Cooperation

· Kazakhstan President Nursultan NAZARBAYEV and his Turkmenistan counterpart Saparmurat NIYAZOV called for closer cooperation Tuesday between the two countries in oil and gas. During their meeting in the Turkmenistan capital of Ashkhabad, both NAZARBAYEV and NIYAZOV said their nations should coordinate their efforts in order to quicken progress in exporting their huge oil and gas deposits and implementation of large projects concerned with the construction of cross-country and -region oil and natural gas pipelines. They said that giving priority to the development of energy exports would not only help consolidate and develop the two countries' national economies, but guarantee their positions in the international economic arena and strengthen independence from Russian pipelines.

Kazakhstan to Develop Nuclear Power Plants

· Experts in Kazakhstan are calling on the government to develop nuclear power by 2000 through modern nuclear power plants. Experts predict that by the end of 2010 the country will face a serious energy crisis because the thermal power plants, which are the major electricity suppliers of the country, will not be able to meet the demands of economic growth. Kazakhstan boasts abundant uranium and the extraction of the radioactive element is at much lower cost compared with other countries. Using nuclear power is conducive to preventing greenhouse gas emission, the experts said. They added the new-type nuclear plants, which have multilayer security guarantees, would avert a Chernobyl-type incident.

Kyrgyzstan Promotes Rural Economy

· Kyrgyzstan's President Askar AKAYEV signed a decree on Monday announcing that in 1998 the government will work out a special program and raise funds to improve the rural economy. Half of Kyrgyzstan's population live in the rural areas with 60 percent of them living below the poverty line. Kyrgyzstan in 1997 achieved the first economic growth since its independence from the former Soviet Union of 49.1 percent, the highest of all CIS nations.

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

available for non-profit institutions.

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

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1998, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page