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

Tuesday, March 10, 1998

Russian Federation

Politics

Chernomyrdin Meets WB President

· After arriving in Washington DC on Monday, Russian Prime Minister Viktor CHERNOMYRDIN met with Head of the World Bank James WOLFENSOHN to discuss further cooperation and reasons for the monetary-financial crisis in East Asia. A whole package of new large-scale projects is expected to be launched this year, Johannes LINN, the bank's Vice President for the European and Central Asian region said. LINN believes the priority with Russia is to make the macroeconomics situation in Russia absolutely stable and to overcome the overburdens, which the economy experienced at the end of last year and early this year. "I think that the next three or five months will be a serious test for the Russian government and will show whether or not it is able to effectively draw on the tax existing resources, to control spending and prevent the growth of debts, to continue the open and effective process of privatization. The latter is important both for replenishing the treasury and encouraging the investors both within the country and abroad."

Russia Is Key to Yugoslavian Sanctions

· On Monday top foreign Ministers including Britain's Robin COOK, Germany's Klaus KINKEL, and US Secretary of State Madeleine ALBRIGHT, agreed to support a United Nations arms embargo on Yugoslavia and deny equipment which could be used for internal repression against ethnic Albanians in Kosovo, The Financial Times reported. The agreement was considerably strengthened when Russia, the biggest arms supplier to the Yugoslavian sector which has Serbia at its core, decided to join its western partners support. Russia's backing was attained during a telephone call to Russian Foreign Minister Yevgeny PRIMAKOV, who had only sent his

deputy Nikolai AFANSIEVSKY. When asked about a future deal to sell Yugoslavia $1.5 billion worth of arms, AFANSIEVSKY said it would depend on the UN Security Council.

Compromise With Chechnya?

· Russian Deputy Prime Minister Ramazan ABDULATIPOV said at a meeting with elders of the Northern Caucasus today that Russia is ready for any concessions and compromise to sort out relations with Chechnya. Russian President Boris YELTSIN said on Tuesday that, "the joint work to restore Chechnya is the best medicine to heal the wounds that remain after the military confrontation." The President said it is necessary, "to begin the implementation of the coordinated program for the restoration of the Chechen Republic, which is impossible without proper financing."

Russian and Chechen negotiators will meet again this week to try to work out a comprehensive treaty between Moscow and Grozny, Deputy Prime Minister in charge of CIS affairs Ivan RYBKIN said. A date and place of the meeting has not been determined. He said ABDULATIPOV will chair a meeting of the state commission for stabilization in Chechnya in March. On Sunday, RYBKIN predicted a change in the configuration of the Russian-Chechen negotiating process. He advised using caution in all negotiations. RYBKIN remains the supervisor over the Chechen problem as well as head of the negotiating commission on the Russian side on drafting a compre

Today's News Highlights

Russia

AST Picks Rus. Booster Rocket

New Face for Rus.Households

European Republics

Ukraine Foreign Min. In Japan

EU-Ukraine Discuss Car Import

Belarus-Syrian Presidents Meet

Three Bid on $400M Power Proj.

South Caucasus & Central Asia

Georgia To Host Istanbul Forum

Tajik Appoints Opposition Leader

Politics-Economics-Business

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Tuesday

March 10, 1998

Intercon's Daily

hensive treaty between Moscow and Grozny. The deputy premier denied that his supervision of the Chechen problem means that Moscow has actually recognized Grozny's independence. Such statements, "cannot stand any criticism," he said.

Meanwhile, Air Force Commander-in-Chief Anatoly KORNUKOV denied reports that Russian Air Force planes were flying over Chechen territory in the period from March 6 to 9th. KORNUKOV called the Chechen Foreign Ministry's statement that two Russian fighters made flights over Chechnya last Saturday, "pure invention."

Economy

Ruble = 6,081/$1.00 (NY rate)

Ruble = 6,083/$1.00 (CB rate)

Ruble = 6,066|6,106/$1.00 (buy|sell rates)

Foreign Investors Buy $2.5B Worth of Gkos

· First Deputy Chairman of the Central Bank of Russia Sergei ALEKSASHENKO on Friday stated that in the last three weeks of February foreign investors bought $2.5 billion worth of Gkos (state short-term bonds) on the Russian market. "We witness the process of strengthening confidence in the Russian Gko market both on the part of Russian and western investors," he stressed. According to him, inflation in Russia in 1998 will be at the level of 5 to 8 percent as compared with 11 percent in 1997. "The main task of the Central Bank of the Russian Federation is to guarantee stability of the ruble, as well as a stable exchange rate of the Russian currency against the dollar." ALEKSASHENKO pointed out that an exchange rate of the ruble against the dollar, "will be determined by levels of inflation both in the Russian Federation and the United States correspondingly."

30 Percent of Export Revenues Withheld

· Moscow Tax Police officials on Wednesday said approximately 30 percent of export revenues are withheld from taxation. According to Russian experts monitoring Russian foreign economic activities, last year, Russian exports actually made up $117 billion, including $39 billion withheld from taxation, while the "lost" income tax made up around $14 billion. Chief of the department in charge of tax offenses in the area of foreign economic activities Rustam KHAMZIN said that the tax police are well aware of all possible

ways of tax evasion and violation of currency legislation. The tax police are taking measure to prevent violations. President Boris YELTSIN has made tax collection a priority for the government. Last year, the Moscow tax police inspected 183 organizations involved in foreign economic activities and as a result of the inspection, a total of 250 million denominated rubles have been remitted to budgets of different levels and over half a billion rubles are still to be contributed by these organizations. An inspection of the Procter and Gamble's Russian Department showed that the US Procter and Gamble had contributed currency to the authorized stock of the Moscow-based company without a license issued by the Central Bank of Russia. The Moscow Arbitration court ruled that the claim made by the Taxation Police demanding that $11 million be paid to the Russian budget for violation of financial regulations was legitimate. In the Ukraine, Procter and Gamble is reapplying for new sales certificates, which were canceled following a dispute on import and sales requirements.

PM Urges Russians To Pay Income Tax

· Russian Prime Minister Viktor CHERNOMYRDIN Saturday called upon Russian citizens to pay their income tax voluntarily. He pointed out that since all the tax revenues will be used to meet the need of local budgets, it is the citizens themselves who will benefit the most. CHERNOMYRDIN made the appeal in answering questions from Russian TV audiences. A government spokesman said that the Prime Minister will appear in the question-and-answer program every Saturday evening. The Prime Minister said that he has filled out his own tax form and that all government officials will make public their income tax forms as they did last year.

Business

Hong Kong AST Chooses Rus. Booster Rocket

· The Russian-made Proton space booster rocket has again been chosen by the Hong Kong-based Asia Satellite Telecommunication (AST) company for the launch of a communications satellite in place of the Asiasat-3 which had failed to reach the calculated orbit in December last year. AST Executive Director Peter JACKSON said, "The cause of the December setback has been identified. The recording of the Proton's flight parameters indicates that

When you need to know it as it happens

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the rocket is a very reliable booster. We are confident that Proton specialists will do everything necessary to ensure a successful launch." He added that AST has fixed a re-launch from a launch site in Kazakhstan for next year. An order for the new satellite has been again placed with the previous manufacturer, the American Huge Space and Communication International. Since the new Asiasat-3C will be a replica of the Asiasat-3, its manufacture will take less than 15 months.

Indian Bank Plans To Opens Moscow Branch

· The State Bank of India is preparing for the opening of a branch in Moscow under agreements reached by the Russian-Indian intergovernmental commission on trade, economic, scientific and technical cooperation in 1997. The opening of the Indian bank in Moscow is expected to increase financial flows between the two countries. The branch is expected to open in March 1999. The primary amount of liquidity will reach $20 million. K. GOWINDAM of the State Bank of India said the opening of the bank's branch in Moscow will become an important step in the implementation of agreements reached in 1997 by the Russian-Indian intergovernmental led by First Deputy Prime Minister Anatoly CHUBAIS. The commission also agreed that the Indian Ex-Im Bank will give Russia a credit of $10 million to buy Indian goods and services. A total of 200 Indian export companies have already begun operations on the Russian market. Moscow and New Delhi plan to raise bilateral trade turnover to $5 billion.

A New Face For Russian Households

· Vladimir Ilyich LENIN in the Soviet Union used to be on everything from Communist slogans to chocolate bars. In Russia today a new face represents the budding capitalist country's building empire, Vladimir DOVGAN. The 33 year old car mechanic turned businessman has created his own brand name product line. His face, the official mark of his AO Dovgan Protected Quality Corp., is on all of his 280 consumer goods as a personal guarantee of quality. He offers Russians assurance of a brand name to Russians who fear tainted good, while tapping into their desire to buy domestically produced goods. DOVGAN products range from sausage to shampoo. His charisma coupled with capitalistic drive has made him a Russian phenomenon, selling everything form granola bars to life-style work out tapes.

DOVGAN's company earned $400 million in 1997. The DOVGAN brand was an immediate success. The company adds new products to its line almost every week, recently Dovgan Classic Cola. He claims that his ketchup may soon out sell Heinz in Russia. He claims that, "in ten years, this will be the world's most profitable company." Along with his quest to promote buy Russian, DOVGAN also has established an all-expense-paid business school to train new managers, "the honest way." DOVGAN criticizes the "new Russian capitalism mixed with crony Soviet tendencies saying, "This country's biggest problem is that it's run by stupid people who are stealing from themselves...We need real businessmen," as The Wall Street Journal reported.

European Republics

Ukraine Foreign Minister Visits Japan

· Ukrainian Foreign Minister Gennady UDOVENKO arrived in Tokyo today as chairman of the 52nd UN General Assembly session at the invitation of the Japanese government. UDOVENKO is scheduled to meet Japanese Prime Minister Ryutaro HASHIMOTO, Foreign Minister Keizo OBUCHI, as well as to visit the parliament and address the faculty and students of a local university. The talks plan to focus on the proposed reform of the United Nations and its Security Council. Ukraine backs both Japan and Germany in their drive for the seats of Security Council permanent members, as well as favors the creation of an additional non-permanent member position within the Security Council for the group of East European countries. UDOVENKO following talks will continue on to Malaysia on Thursday.

EU-Ukraine Discuss Used Car Import Limit

· The European Union and Ukraine met on Monday to discuss the decision by the Ukrainian government to limit the imports of used cars. Ukraine banned the imports of second-hand cars over five years old beginning April 1. The European Union regards the measure as discrimination. Earlier, Daewoo of South Korea which signed an agreement with the Ukrainian AvtoZAZ on the joint production of cars, insisted on such a restrictive condition. Many local officials fear that the agreement between AvtoZAZ and Daewoo, as well as the limitation imposed on Ukraine's car market will have a negative impact on relations with the European Union.

When you need to know it as it happens

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Intercon's Daily

Belarus-Syrian Presidents Meet

· Belarus President Alexander LUKASHENKO, on an official visit to Damascus, held talks with his Syrian counterpart Hafez AL-ASSAD on Monday. According to an official at the Office of the Syrian President, the two sides, "expressed mutual striving for the building and development of bilateral relations in various fields." A number of interstate agreements, including those on the encouragement of investments, the prevention of double taxation and on the strengthening of economic cooperation, are expected to be signed during the three-day visit. Accompanying LUKASHENKO are the Belarus parliamentary speaker and foreign affairs, defense, foreign trade, and industry and agriculture minister. Today, Belarus Defense Minister Lieutenant-General Alexander CHUMAKOV and Syrian counterpart Mustafa TLAS discussed improving cooperation between the two nation's armies. Belarus was Syrian's strategic ally and main arms suppliers. In December the two nations agreed to exchange Syrian cotton and wheat for Belarus oil equipment, heavy machinery, and vehicles.

Three Firms Bid For $400M Lith. Power Project

· Lithuanian economic ministry advisor Jonas KAZLAUSKAS said Monday that the ministry has received three bids for the construction of a $400 million power line to connect the country's energy system with western Europe. "We received three proposals from US Enron, Lithuanian-Russian Stella Vitae, and a consortium of Stanton Group, Cal Energy, and Duke Engineering," he said. Bids will be considered in terms of price, experience, and construction time. The ministry will submit the winner to the government for approval by the end of this week. The power lines will link large markets in the west with cheap power available in the east through Latvia and Poland.

South Caucasus & Central Asia

Georgia Will Host Istanbul Forum

· Georgian President Eduard SHEVARDNADZE

announced Monday that Georgia will host the next meeting of Istanbul Forum participants, the Foreign ministers of Turkey, Turkmenistan, Kazakhstan, Azerbaijan. "Georgia is also prepared to invite representatives of other countries concerned to the Tblisi meeting if, of course, the countries participating in the Istanbul Forum agree with this initiative of Georgia," SHEVARDNADZE said. Last Wednesday, the Georgian Foreign Minister stated that, "Russia has been and remains an active participant in the project for the transit of the Caspian oil. Therefore, there are no grounds for Russia's feeling concern over the Istanbul meeting," which took place on March 1 and 2nd.

SHEVARDNADZE also stated he has not decided whether or not to attend the CIS summit meeting in Moscow on March 19 and 20th. Noting that the trail of those who attempted to assassinate him last month, disappeared in the Russian capital, SHEVARDNADZE suggested he might be subject to another attack if he was to attend the meeting, RFE\RL Newsline reported. Comment: From a diplomatic standpoint, President SHEVARDNADZE's statement that the trail end in Moscow concerning the assassination attempt on him, is the first brutally frank accusation to date that forces in Russia, if not the Russian government, are responsible.

Opposition Leader Appointed Tajik Deputy PM

· Tajikistan President Emomali RAKHMONOV has appointed by decree opposition Islamic leader Khodzhiakbar TURADZHONZODA as first deputy prime minister, marking a step toward sealed peace after the civil war in Tajikistan. As first deputy premier TURADZHONZODA, who returned after five years of exile in Iran, will deal with economic and trade relations with member-countries of the Commonwealth of Independent States (CIS). TURADZHONZODA met with RAKHMONOV and Prime Minister Yakhye AZIMOV today. Under an 1997 power sharing agreement, the government pledged to reserve 30 percent of Cabinet posts for the opposition in a coalition government.

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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