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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, February 27, 1998

Russian Federation

Politics

Yeltsin-Kuchma Sign Cooperation Agreements

· Russian President Boris YELTSIN and Ukrainian counterpart Leonid KUCHMA, have reached a series of agreements relating to foreign policy, economic cooperation, and relations with the CIS. YELTSIN and KUCHMA agreed to jointly secure the accession of their nations to the World Trade Organization (WTO). Russia and Ukraine discussed the establishment of transnational financial and industrial groups in the two countries to be the main element of bilateral economic ties. Some might say that this is a trend in Russia, which has had a negative effect. These large FIGS have penetrated governmental policy and are exhibiting more and more influence. The Presidents of Russia and Ukraine signed in the Kremlin the treaty on economic cooperation up to the year 2007. Prime Minister Viktor CHERNOMYRDIN said the agreement will boost trade two and a half times over the next decade. The Presidents also discussed the importance of ensuring a prompt ratification of the three basic agreements on the Black Sea Fleet and documents related to the stay of Russia's Black Sea Fleet in the Ukrainian territory for a specified period of time. YELTSIN and KUCHMA proposed that a summit of Commonwealth of Independent States (CIS), to be held in March, should set the goals and determine the nature of the development of cooperation in the Commonwealth. The dysfunctional CIS, has been a forum where Russia can express its influence over its former republics. Belarus' Ambassador to the US Valery V. TSEPKALO in Foreign Affairs March/April edition, stated that the US should support the territorial integration of the former Soviet republics rather than supporting sovereignty of the former republic. If Russia was allowed to integrate these states, "this would limit Chinese and Iranian maneuvering, intro

duce economic and strategic equilibrium, and improve America's relation with Russia," TSEPKALO said. Comment: Maybe what he is implying is that under these conditions of Russian integration of the former Soviet Republics, Russian military cooperation with Iran and China would cease.

Duma To Vote on Budget March 4th

· Duma budget committee deputy chairman Aleksei GOLOVKOV hopes the Russian State Duma will pass the draft 1998 federal budget on fourth reading March 4th. He said that his committee is working on the budget which the Duma turned down in the fourth reading debate on February 20th. He is optimistic because Duma factions spent the past week seeking a compromise on the budget. GOLOVKOV laid out the stance of the pro-government faction Our Home is Russia, saying that it is opposed to the government's motion to cut the budget's spending by 27.9 billion redenominated rubles. Our Home urges for an amendment to the budget which allows departures from proportional spending cuts. Prime Minister Viktor CHERNOMYRDIN said he will ask YELTSIN to veto the 1998 Russian budget if the Duma rejects government-proposed cuts. He stressed that the government was seeking a compromise with the deputies but not at the expense of an, "unrealistic budget." He said both were equally responsible for the failure to adopt the fourth reading of the budget.

Iranian Foreign Min. Ends Visit Positively

· Iranian Foreign Minister Kamal KHARRAZI ended his visit to Russia on Thurs

Today's News Highlights

Russia

Iranian Missiles=New Amendmt.

CB Reduces Interest Rates

Gazprom Wins Pipeline Stake

European Republics

New Lithuanian President

South Caucasus & Central Asia

Review of UN Hostage Crisis

US Policy on Caspian Pipelines

US-Uzbek Joint Commission

Politics-Economics-Business

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Friday

February 27, 1998

Intercon's Daily

day. KHARRAZI held talks with his Russian counterpart Yevgeny PRIMAKOV, met Russian Security Council Secretary Ivan RYBKIN, Vice-Prime Minister and chairman of the Russian-Iranian commission for trade, economic, scientific and technical cooperation Vladimir BULGAK and Moscow Mayor Yuri LUZHKOV. In talks with Russian Prime Minister Viktor CHERNOMYRDIN, the two sides exchanged on prospects for bilateral political, economic and regional security cooperation. They also discussed the Caspian issue and the Iraqi settlement. KHARRAZI said Iran believes the Caspian Sea is a lake which is why its juridical status should be decided with all the coastal countries. The sides concluded that it is necessary to speed up the adjustment of the legal status of the Caspian sea and supplement it on a basis of community of views....to ensure optimum solution of pressing economic and ecological problems related to the unique reservoir and to promote the Caspian Sea becoming a sea of peace, good neighborliness and mutually-advantageous cooperation. The sides came out against the construction of pipelines and transportation of oil and gas along the Caspian seabed as this may cause irreparable harm to the ecology of the Caspian Sea," the Foreign Ministry statement says. PRIMAKOV and KHARRAZI having discussed Rus-Iranian relations in a businesslike and open way agreed further cooperate in the political, commercial, economic, scientific, technical and other areas. The two foreign ministers reaffirmed their countries decisive condemnation of terrorism in all its manifestations and denied exchanging missile technology.

Iranian Missile Deals Prompt New Amendment

· The US House of Representatives approved an amendment backed by the CLINTON administration to prevent sanctions against foreigners involved in missile sales to Iran, if they are assisting the United States, The Journal of Commerce reported. The amendment is the result of a conflict between a congressional drive for trade sanctions and a secret intelligence operation aimed at stopping missile transfers. The provision is meant to shield CIA sources from sanctions over Iranian arms sales, specifically the transfer of Russian missile technology to Iran. The conflict is a classic example of what can happen when Congress gets involved in using trade sanctions to achieve foreign policy goals and inadvertently jeopardize intelligence operations work

ing to achieve the same goal. Sanction legislation, is pending approval by the Senate, would bar US aid and exports to the Russian Space Agency,accused of helping Iran build missiles. That in turn, may block funding for the US-Russia space station.

A Russian intelligence spokesman Yuri KOBALADZE dismissed US media reports issued and alleging that Russia and Iran were secretly cooperating on missile technologies. The latest publication alleged that Russia continues to deliver secret missile technologies to Iran through joint scientific centers in Tehran and St. Petersburg. It claimed that Russia's Federal Security Service (FSB) cooperated with Iranian special services to coordinate the exchanges of experts and that three Russian missile experts were to start teaching courses in Iran, including guidance systems and pyrotechnics. KOBALADZE insinuated that US intelligence forces in America are turning against the President and the US government. "It is tempting to report, especially ahead of important official meetings, that Russia is carrying out subversive activity and ignores cooperation with the US aimed at preventing weapons of mass destruction and its carriers from spreading," he said.

Economy

Ruble = 6,070/$1.00 (NY rate)

Ruble = 6,072/$1.00 (CB rate)

Ruble = 6,045|6,099/$1.00 (buy|sell rates)

Sep Oct Nov Dec Jan Feb

Central Bank Reduces Interest Rates Further

· The Central Bank of Russia today issued a reduction of the interest rate from an annual 39 to 36 percent, effective March 2. The Central Bank also

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	Friday		February 27, 1998
	Intercon's Daily
	decreased from an annual 39 to 36 percent the rate of interest on lombard credits which it issues to commercial banks against the pledge of government securities for three to 30 days. This is the third revision of the interest rate in this year, after its increase from an annual 28 to 42 percent on February 2 and decrease to 39 percent on February 17. The Bank said the revision of the interest rate relates to, "positive changes in financial markets." However, some speculate that the Central Bank's move is a result of visiting representatives of three major international credit rating agencies to determine whether to downgrade Russia's sovereign debt rating. Business Gazprom Wins Stake to Pay off Moldovan Debt · Moldova, which imports 3 billion cubic meter of gas from Gazprom per year, Thursday handed over 50 percent stake in a gas pipeline to Gazprom in exchange for wiping out its $650 million debt. Parliamentary speaker Dumitru MOTSPAN explained the decision saying, "Either we settle out debts with Gazprom with cash, or we give it property," The Financial Times reported. The Moldovan pipeline is a key strategically to Gazprom as it lies along the only transit route for Russian gas to the Balkans. Gazprom has offered similar property for debt swap to other former Soviet republics. Moldova is the first to accept the swap. The decision comes on the heals of a Ukrainian protocol with Royal Dutch Shell to evaluate its pipeline network ahead of privatization. Gazprom is opposed to Shell's bid for Ukrainian pipeline, which are a continuation of Moldova's. This new control may give Gazprom an advantage in thwarting Shell's plan. Gazprom's chief executive Rem VYAKHIREV recently visited Tatarstan and Bashkortostan to negotiate methods for settling those republics' debts to the company. Leaders in Bashkortostan today agreed to transfer to Gazprom the right to manage controlling stakes in three large companies. In Kazan, a preliminary agreement was reached to pay Tatarstan's debts to Gazprom partly in airplanes and partly in shares of several large companies.	live music, and even complimentary champagne, Valdas ADAMKUS was sworn in Thursday as the President of Lithuania. ADAMKUS a retired US Environmental Protection Agency official decided to return to his country after 50 years an run for President. He defeated a pro-Communist candidate in a run off election in January by less than one percentage point. In his inaugural address, ADAMKUS stated, "The key objectives of Lithuania's foreign policy are membership to NATO and the European Union as soon as possible," and develop friendly relations with Russia. I will do everything to achieve this during my presidency." ADAMKUS hopes to push for economic advancement to increase Lithuania's market reputation and foreign investment. His other goals include a better health care system, improvements in education, and intensifying the fight against crime. The presidential term in Lithuania is for five years. The President has few executive powers, but he does help formulate the Cabinet and foreign policy. He will be the moral guide for the state and is supposed to stand above party politics. He is also now the Commander-in-Chief of Lithuania's armed forces. ADAMKUS takes over the presidency from former Communist Algirdas BRAZAUSKAS, who installed democratic institutions following its bid for independence, but failed to reform the habits of Soviet-style bureaucracy or restore citizen confidence in the government. This will be the challenge he leaves for ADAMKUS. South Caucasus & Central Asia Review of UN Hostage Crisis · The UN military observers hostage crisis ended Wednesday when Georgian President Eduard SHEVARDNADZE met with Nemo BURCHULADZE and supporters of GAMSAKHURDIA. The four UN observers, a Czech, a Swede, and two Uruguayans, were taken hostage February 19 from their headquarters in Zugdidi, along with some local residents. The kidnappers were demanding the release of seven men arrested for a recent assassination attempt on SHEVARDNADZE on February 9th. They said the men are innocent and denied involvement in the plot. Most of the kidnappers gave up on Wednesday, when the group's leader Gocha ESEBUA was given an escape corridor. Authorities are now searching for him, although it is believed he is already outside of Georgia. He is one of the prime
	European Republics Lithuanian President Sworn Into Office · In a western style inauguration filled with fireworks,

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Friday

February 27, 1998

Intercon's Daily

suspects in the failed attempt to kill SHEVARDNADZE. United Nations Observer Mission in Georgia (UNOMIG) head Liviu BOTA praised the resolution, "I should state clearly that the peaceful resolution of this problem is a result of the wisdom of President SHEVARDNADZE and the Georgia government." SHEVARDNADZE believes these connected attacks were planned by forces outside Georgia in an attempt to start "controlled chaos and disorder," in the country. He says in an address to the Civic Union Conventions that, "their objective is to harm and discredit Georgia, so that they can indirectly control Georgia via their mercenaries."

US Senate Hearing On Caspian Pipelines

· In a US Senate Hearing on Wednesday Commerce and Energy department officials backed the pipeline from the Caspian Sea to a Mediterranean port in Turkey to transport Caspian oil to western markets over any pipeline route through Iran. Senator Chuck HAGEL said, "the [CLINTON] administration has changed its previous policy from merely supporting `multiple pipelines' to support for the construction of a Main Export Pipeline from Baku to Ceyhan in Turkey...It is the right policy." He called for, "a firm and effective US policy to help develop a viable western export route for Caspian oil." He said that the policy is connected to the need to build stability, sovereignty and territorial integrity in the region. The choice of pipeline routes is a strategic factor which will increase the power of nations that control them, altering the political balance in the region. Assistant Secretary of Energy for International Affairs Robert GEE said that the CLINTON administration wants Turkey to become "an anchor of stability in the region," stressing the need for the US to cooperate with its NATO partner to make this possible. GEE noted that the US policy in the Caspian, "is not intended to thwart Russia." Instead, the policy welcomes Russia's role in production and transportation. However, regarding pipelines running through Iran Department of Commerce's Jan KALICKI said the policy is simple, "we opposes them. Iran is a competitor, not a partner, when it comes to oil and

gas exports." He added that Turkmenistan and Kazakhstan, who have had difficulty breaking its reliance on Russia, should not compromise their independence and economic well-being by becoming hostage to Iran's hand on the oil and gas spigot. The US cites three reasons for opposing pipeline in Iran: Tehran sponsors terrorism; seeks to acquire weapons of mass destruction; and subverts the middle-East peace process. Turkey's Energy Minister Cumhur ERSUMER will visit Washington next week to promote pipelines across Turkey.

US-Uzbek Cooperation Commission Meets

· A new joint commission between the United States and Uzbekistan began its first session in Washington Thursday to promote bilateral cooperation between the two countries. The two-day session is chaired by Uzbek Foreign Minister Abdulaziz KAMILOV and the US ambassador-at-large for the Newly Independent States Stephen SESTANOVICH. US President Bill CLINTON said, "America looks forward to helping Uzbekistan achieve its goal of building a vibrant, pluralistic society, one that draws strength from its diverse cultures, religions and ethnic groups." He emphasized that the foundations of peace and security in the Central Asia region are being laid due to Uzbekistan's participation in NATO's Partnership for Peace program and the Organization for Security and Cooperation in Europe. Uzbek President Islam KARIMOV said, "To Uzbekistan, the development of large-scale long-term relations with the US as the world's leading power is a strategic priority in its foreign policy...Uzbekistan in every way supports the US efforts aimed at ensuring security and cooperation in Central Asia. Experience has shown that the US can become a reliable support and guarantor of the independent and free development of the newly-independent states in the region." The commission is composed of four committees: political; military; trade, investment and energy; and economic reform and assistance. SESTANOVICH said in particular that the two sides are discussing not only for areas in which they agree but also areas in which their opinions diverge.

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

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