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

Friday, January 9, 1998

that a director of a telecommunications company was found beaten by gangsters. In connection with this, the broadcast said that spy charges against Qualcomm's Richard BLISS was part of a rival local company's scheme to damage the reputation of Qualcomm. Russian Television said the strategy was to have others question working with a company which has spies and is used by spies. Using the old Soviet practice of accusing someone of spying, has proved once again to produce the intended effects of bad press, legal problems, and loss of profits.

Moscow Mayor Insists on Government Aid

· Moscow Mayor Yuri LUZHKOV on Thursday said that subventions should be granted to Moscow, adding that in 1998. Moscow needs government aid worth 8 billion new rubles. LUZHKOV emphasized that, "we understand the situation in Russia's economy and don't want to demand the impossible....Moscow needs subventions for performing the functions of the capital." He later added that Moscow citizens should not spend additional money on state needs after they have already made payments to the state budget."

LUZHKOV compared this situation to the 1997 State Duma decision on Road Funds. He said that the decision was unjust and that, "as a result of which Moscow and St.Petersburg were put in an unequal position with other Russia's regions." For 1998, the State Duma has prepared a decision, according to which all Russia's regions will get an equal

Russian Federation

Politics

IMF Approves $670 Million Loan to Russia

· The International Monetary Fund (IMF) on Thursday approved Russia's sixth quarterly review of the economic development and agreed to release a $670 million loan under the Extended Fund Facility to Russia. An IMF press statement noted that Russia's economic growth resumed, inflation remained on a downward trend, and structural reforms gained renewed momentum. However, there remain some concerns about fiscal progress, in particular low revenue collection. The IMF welcomes the Russian government's action plan to address the fiscal situation, which includes measures to improve tax collection, strengthen expenditure control, and define realistic spending policies. "Full implementation of this plan will be crucial," the IMF stressed. The IMF was pleased with Central Bank measures tightening the monetary policy in December in order to stabilize financial market conditions.

Director of Moscow's Biggest Hotel Murdered

· Director of Moscow's Rossiya hotel Yevgeny TSIMBALITOV was murdered this morning in what appears to be a contract killing. He was found with two bullet wounds under the stairs of his apartment by his chauffeur. Police found near TSIMBALITOV's body two shells from a 9-mm Makarov automatic. His family and friends could not provide any leads to the police, as they did not know of any recent threats to TSIMBALITOV. In the end, he met the same fate as his predecessor who was murdered with an axe a few years ago. The hotel complex Rossiya has been the property of the Moscow government since 1996. It is an open-end joint stock company.

A New Twist to Espionage in Russia

· Russian Television's Channel 1 reported today

Today's News Highlights

Russia

Russian-Chechen Comm. Meets

Exports Down/Imports Up

Aicraft Indust. Predicts Sales

European Republics

Belarus Opens 5 Embassies

Latvia Lowest Baltic Inflation

South Caucasus & Central Asia

Georgia-Rus Military Protocol

Georgia-GreeceAgreements

Tajik Defense Min. Visits China

Politics-Economics-Business

Page

Friday

January 9, 1998

Intercon's Daily

share of money for road construction. "We had to agree to the figures of the Road fund for 1998, as they are the same for all regions and one region is not robbed at the expense of the other...If an unjust decision has been taken, let it be unjust for all," LUZHKOV stressed.

Russian-Chechen Commission to Meet

· Security Council spokesman Igor IGNATYEV on Thursday said the joint Russian-Chechen negotiations commission is expected to meet next week, although a date and place have not yet been determined. The agreement to hold a meeting of the joint commission was between Russian Security Council Secretary Ivan RYBKIN, who heads the commission from the Russian side, Chechen President Aslan MASKHADOV, and members of the Chechen negotiations commission. The meeting will focus on, "vital problems, linked with the normalization of the situation in Chechnya and around it, and also the unsettled questions linked with the restoration of the republic's economy." As Intercon reported, Russian Interior Minister Anatoly KULIKOV's statement to strike bandit camps in the Northern Caucasus and Chechnya has provoked an angry response from Chechen officials. Following KULIKOV's statements, 4,000 Chechen forces have been put on alert. Chechen first vice-premier Movladi UDUGOV said on Russia's NTV, "Chechen border troops were put on alert...They were moved to the Chechen border in the direction of Russian troops and since 6 p.m. they have been in the trenches." The commission is planning also to discuss problems of promoting better interaction among the different power structures. IGNATYEV believes that the existing agreements between Moscow and Grozny are sufficient to achieve this. It is also necessary to add substance to all the previously signed agreements and accords. This includes those concluded between the different Ministries and Departments of the Russia Federation and Chechen government, particularly the economic agreements.

Note: When MASKHADOV was in Washington in November, 1997, he stated that the future of the independence of Chechnya depends on who rules Moscow. "Russia is unpredictable in its policy. We do not know who takes power tomorrow. In Russia the policy is made by the cabinet, not by the people as it is in the US. So, we have to be prepared for everything." With Russian President Boris

YELTSIN's health surrounded by suspicion, critical negotiator Boris BEREZOVSKY removed from the government, threats of strikes on Chechnya, and a new government forming in Chechnya by First Deputy Prime Minister BASAYEV, MASKHADOV and representatives of the commission have many new variables compromising negotiations.

Economy

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

Ruble = 5,974/$1.00 (CB rate)

Ruble = 5,949|5,999/$1.00 (buy|sell rates)

Aug Sep Oct Nov Dec Jan

Exports Down 1 Percent/Imports Up 9 Percent

· A spokesman the Russian State Customs Committee on Thursday announced that Russia's exports in January-November 1997, was $75.9 billion, which is one percent less than in the same period of 1996. While Russia's exports to foreign countries decreased by 1.7 percent, exports to CIS countries went up by 2.1 percent against the same period of 1996. Products of the fuels and energy sector accounted for 47.8 percent of Russian exports, ferrous and non-ferrous metals accounted for 17.5 percent and machinery and equipment accounted for 10 percent. In January-November 1997, Russia's imports increased by 9.5 percent against the same period of 1996 and reached $46.1 billion. The increase was due to extended purchases of foodstuffs. Imports of raw sugar went up by 44 percent, poultry by 40 percent, fish by 35 percent, frozen meat by 29 percent, butter 2.4-fold, sunflower oil 3.6-fold, white sugar 2.3-fold. Russia's import of

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

January 9, 1998

Intercon's Daily

cereals, canned meat and meat products, chocolates, clothes and footwear went down. In January-November 1997, Russia's imports from CIS countries dropped by 8 percent totaling $12.4 billion.

Tax Reform No Earlier Than 1999

· Russia's deputy finance minister Mikhail MOTORIN said that when the Tax Code enters into force, tax reforms will occur no sooner than 1999. Neither the changes made to the tax legislation in 1997, nor a number of bill to be passed this year will, "cardinally change Russia's tax system," he told Ekho Moskvy radio station. He said the government is expected to pass a resolution on submitting an amended draft Tax Code to the Russian State Duma before February 1. The level of taxation in Russia should be considerably reduced for it is much higher than the capacities of the country's economy, MOTORIN. He added that, the effective simplified taxation system for small businesses should be fixed by that time. He also said that responsibilities of the tax service and tax police will be clearly defined and divided. The tax service will conduct in routine work providing the tax police infrastructure. The restructuring of these two departments will hopefully assist the government in achieving more efficient collection of taxes.

Business

Aircraft Industry Predicts High Sales

· Ilyushin Aviation Complex's general director Viktor LIVANOV says that Ilyushin, Russia's leading aircraft manufacturer, plans to sell more than 1,000 new Ilyushin (Il) planes on the domestic and foreign markets before the year 2005. The complex will sell 1,051 Ilyushin planes, including 99 long-range, wide-body, four-engine Ilyushin-96M/T, Ilyushin-96MD and Ilyushin-96-300 planes; four Ilyushin-98 long-range wide-body, two-engine airliners; 376 Ilyushin-114 and Ilyushin-114T short-range airliners; 455 Ilyushin-103 light general-purpose airplanes; and 117 Ilyushin-76TD, Ilyushin-76MF and Ilyushin-76TF transport airplanes.These figures were determined by the Economics Ministry based on existing contracts and bids, and on theoretically-substantiated world and regional aviation-market development forecasts. Ministerial experts represented the interests of the leading aviation design and development centers and aviation industrial enterprises. A 1 percent growth of the GDP leads to a 1.3 percent increase in the volume of air payloads. LIVANOV said

the complex hopes to get a loan from a commercial bank to restore the test Il-90-300 in the first quarter of this year. This would speed up the process to remove all limitations on the plane. The Aeroflot-Russian international Airlines at present employs six Il-96-300 planes. Two are registered to Moscow's Domodedovo air company and one is a special conversion for use by the Russian president. Seven Il-96-300s of various degrees of completion stay in the assembly bay of the Voronezh Aircraft Association. Their completion will take one to six months.

The Russian aviation industry has been plagued by its failure to modernize basic production assets and equipment which is quickly becoming obsolete. Over the past few years, the government has not invested in modernization plans of the industry. Unless these problems are resolved soon, the Russian-made planes will become less competitive on both the world and domestic markets, LIVANOV said. In his opinion, only a limited number of aviation enterprises can depend on government support. An analysis of the market shows that many enterprises will have to be restructured and converted to production of other goods. Experts estimate that only one-third of all aviation leaders have adapted to new market conditions, and about 70 percent of the management corps continue to use old approaches to attempt to solve new problems. Comment: Russian aviation can oily survive under present conditions, with the investment and support of western aircraft and engine businesses. Russian preoccupation with parochial national concerns has prevented progress from occurring. Recently, Unexim Bank actions gaining control over Perm Motors seem to have turned the tide concerning the I Ilyushin-96MD project.

Russia To Sell Oil to Iraq

· Deputy head of the Zarubezhneft company Yuri AGABABOV on Thursday announced that Russian companies, which participated in the second stage of the UN Oil-for-Food program, are going to sign contracts with Iraq to export its oil in the beginning of next week. After the UN Security Council's approval of price on Iraqi oil, the contracts can be signed. Russian companies' share in the third installments of Iraqi oil exportation will remain unchanged at 35 percent. However, AGABABOV did not exclude that the Security Council might increase Iraqi oil exports from $2 to 3 billion. The ten Russian companies which participated in the second stage of the pro

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

January 9, 1998

Intercon's Daily

gram are the following: Rosneft, LUKoil and Zarubezhneft with 5.5 million barrels each, Tatneft with three million barrels, RAO MES and Mashinoimport with one million barrels, Alfa-Eco with 7.2 million barrels, Nafta-Moskva with 2.6 million barrels, Sidanko and Orenburgneft with 1.8 million barrels each.

Foreign Relations Department, signed a working protocol on the results of the Russian Defense Ministry delegation's visit to Georgia on Thursday. IVASHOV said that, "this document is a sort of protocol on intents of and prospects for cooperation between the defense ministries of the two countries which contains concrete measures and dates, as well as plans, necessary to implement in the interests of the two countries." He noted the two sides agreed that in the near future working groups will be set up to prepare documents on Russia's handover of its 10 military premises to Georgia, reported Itar-Tass. This may also several vessels from the Black Sea fleet. MEPARISHVILI praised the results of the Russian delegation's visit to Georgia and said that Russian and Georgian military managed to solve important problems to strengthen cooperation between the defense ministries of the two countries.

Georgia-Greece Sign Agreements

· Georgian Defense Minister Vardiko NADIBAIDZE and Greek counterpart Akis TSOHATZOPOULOS signed military and defense agreements today providing for the transfer of a Greek vessel to the Georgian fleet and joint training exercises. TSOHATZOPOULOS said that strengthening their cooperation reduces the risk of destabilization in the region. The two countries pledged to enhance their economic ties, signing a peace and friendship agreement and accords on postal and telecommunications last September during a visit by Georgian President Eduard SHEVARDNADZE to Greece.

Tajik Defense Minister Visits China

· Tajik Defense Minister Sherali KHAIRULOYEV arrived today on his first official visit to China. He will meet with Chinese counterpart CHI Haotian to discuss a wide range of issues regarding broadening bilateral contacts and strengthening military cooperation. They will discuss the situation in Afghanistan and ways of ensuring border safety. Also the two sides will discuss proposals on how to implement the reduction of armed forces on the border which the leaders of China, Russia Kazakhstan, Kyrgyzstan and Tajikistan signed in April, 1997.

European Republics

Belarus Opens 5 Branch Embassies in Russia

· Belarus's deputy Foreign Minister Nikolai BUZO on Thursday said Belarus's Embassy to Russia will open branches in St. Petersburg, Kaliningrad, Krasnodar, Murmansk, and Tyumen over the next few months. These regional branches will make it possible for the republic to establish closer relations with Russia's constituent parts, concentrating in the economic field. The branches' basic task will be to promote trade and economic cooperation between the two countries' regions, he noted. However, BUZO stated Belarus does not want Russian troops stationed on its territory. He added that Minsk wants Moscow to, "make full use of Belarus's military potential" as the two countries move toward full integration, RFE/RL reported.

Latvia Lowest Baltic Inflation Rate

· Among the Baltic nations, Latvia had the lowest inflation rate of 7 percent in 1997. Estonia and Lithuanian held inflation at 12.5 and 8.6 percent respectively. The greatest price growth registered in 1997, was in the sectors where tariffs are imposed by monopolies. These include rent, communal services, tariffs on electricity, gas, mail and telecommunications. Food prices increase by 2.3 percent and the price of clothes and footwear by 12 percent.

South Caucasus & Central Asia

Georgia-Russia Sign Military Protocol

· Chief of Georgia's General Staff Zurab MEPARISHVILI and Colonel-General Leonid IVASHOV, head of the Russian Defense Ministry

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

available for non-profit institutions.

When you need to know it as it happens

Page

Politics-Economics-Business

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.