DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, March 13, 1998


Russian Federation

Politics

Norway Expels Five Russian Spies

· Norway on Thursday expelled five Russian diplomats involved in a spy ring and has declares them persona non-grata, in Norway's most serious espionage case in 10 years. All political parties in the Norwegian parliament backed the government decision to declare Russian diplomats persona non grata. Foreign Minister Knut VOLLEBAEK said the five were expelled from Norway because of, "activities incompatible with their status and damaging to Norwegian interests," primarily trying to recruit Norwegians as spies. The five include two diplomats, Valery KOCHKAREV and an embassy counselor Yevygeny SEREBRYAKOV [known as `Gunnar'], who must leave Norway before Monday. The other three, former embassy counselor Alexander MONAKHOV, former embassy attache Igor CHALYI and former vice consul Anatoly ZHIGALOV, are currently in Russia. There is no room for intelligence activities in the relations between neighboring democratic countries, VOLLEBAEK said. He pointed out that the move made by the Norwegian authorities would, undoubtedly, deteriorate political relations with Russia. Norwegian Justice Minister Aud Inger AURE explained that Norwegian police had been tracking the Russian spy ring for several years using a Norwegian Svein LAMARK as a double agent and trading fake documents for money. LAMARK is also a counselor at the ministry of the Barents Sea region, which is a strategically important for both countries. It is the only place where a NATO nation borders Russia and it is also the home for Russia's Northern Fleet. According to the Justice Minister, the decision to declare the diplomats persona non-grata was prompted by "urgent necessity" as the Norwegian police estimated the case. The activities of the Russian diplomats were aimed against political circles,

the Norwegian Justice Minister said. Their activities were illegal, detrimental to Norwegian interests and absolutely unacceptable, she concluded. The spies were interested in acquiring information on NATO, Norwegian oil and Barents policies, and bilateral relations. Prime Minister Kjell Magne BONDEVIK has postponed his visit to Moscow scheduled for March 17-18 in the wake of the expulsions. He said, "I am disappointed. I had hoped that this sort of conduct no longer took place in 1998 in a democratized Russia. Things like this should not happen between democratic neighbors."

An official representative of the Russian Foreign Ministry said, "Our first reaction is complete incomprehension of the action taken by the Norwegian side." According to a Russian Foreign Ministry statement, "The Russian side reserves the right to take corresponding measures against the Norwegian representatives." Head of the public relations center of the Russian Federal Security Service Alexander ZDANOVICH said, "Any spy-scare campaign in this or that country always has ideological and political objectives." He stressed that "there will be no campaign of looking for spies in Russia," and did not forecast any retaliation measures. ZDANOVICH countered that Russian Captain PETRENKO had been tried by a Norwegian court recently. PETRENKO said that during the investigation the Norwegian authorities had tried to make him agree to cooperate and to obtain classified information for them. Comment: It appears Russia's preoc

Today's News Highlights

Russia

Rus-Czech Commission Meets

Rus-Cananda Trade Increases

CB Reduces Refunding Rate

European Republics

Ukraine's Stance on CIS Laws

South Caucasus & Central Asia

Turk-Georgian Presid. Meet

Aliyev Refuses to Attend CIS

Armenian Presidential Election

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cupation with spy mania within their nation may be linked to concerns of their own spy activities outside the nation.

Rus-Chechen Meets In Nazran

· The tenth session of a joint Russian-Chechen negotiating commission opened today in Nazran. Russian Deputy Prime Minister Ivan RYBKIN said that the Russian side had a number of proposals which could lay the foundation of future agreements, including a draft resolution to open the Grozny airport for international flights in the CIS air space. RYBKIN also will present a draft agreement on the payment of pensions to residents of Chechnya, as well as other documents to improve living conditions of low income people in Chechnya. He said, "I would like us to reach agreement on those issues as soon as possible." Russia is represented by RYBKIN and Minister for Nationalities and Federal Relations Vyacheslav MIKHAILOV, while the Chechen side is represented by head of the commission Movladi UDUGOV and Cultural Minister Akhmed ZAKAYEV.

Rus-Czech Commission Meets in Prague

· A three-day session of the Russian-Czech intergovernmental commission on trade, economic, scientific and technical cooperation opened in Prague on Thursday to discuss nine important issues. They include cooperation in such areas as nuclear power engineering, agriculture, transport, space, fundamental physics, Russian oil and gas supplies to the Czech Republic and others. The Russian delegation is led by commission's co-chairman and government member Vladimir BABICHEV. BABICHEV said that, "we believe that all documents prepared for the session will be signed." Among them are two intergovernmental agreements on provisional employment of citizens and on international automobile transportation service. The Czech Republic stated that it is not ready to sign the agreement on employment of citizens because many problems remain unsolved to their satisfaction. Vaclav PETRSICEK, who represents the Czech Republic in the commission, said that his country is drawing more attention to the agreement on international automobile transportation service, primarily, concerning freightage between the two countries. Today, BABICHEV will meet with Czech Prime Minister Josef TOSOVSKY, Lower Parliamentary House Speaker Milos ZEMAN and Upper House Speaker Petr PITHART.

Colombian Foreign Min. Meets With Primakov

· Russian Foreign Minister Yevgeny PRIMAKOV and his Colombian counterpart Maria Emma MEJIA VELEZ held a joint news conference on Tuesday to comment on the results of bilateral negotiations. "The possibilities of economic and military-technical cooperation between Russia and Colombia are considerable," the Russian Minister said. PRIMAKOV announced that Russia has decided to join the international group Friends of Colombia which helps to terminate the long-lasting domestic armed conflict. PRIMAKOV stressed Russia's readiness to do everything to restore peace in Colombia which he called, "the last trench of the Cold War." PRIMAKOV said the two sides stance on Cuba were close and that they think the normalization of the Washington-Havana relations and the termination of the blockade of Cuba will help to develop positive processes on the island. Russian-Colombian annual trade turn over is $130 million. Both ministers called for increasing trade stating that the nations can cooperate in the reconstruction of railroads, gas and oil processing, and other spheres. The two ministers stressed the readiness of their countries to intensify the bilateral cooperation in measures against narcotic drugs.

Rus-Lebanese Commission Open Talks

· Lebanese Prime Minister Rafik HARIRI met a Russian delegation led by Economics minister Yevgeny YASIN on Thursday to discuss trade and economic cooperation between the two countries. During the commission's session, the two sides will sign agreements on tourism and on cooperation between the Central Banks of the two countries. The commission will also discuss prospects of cooperation in the construction of infrastructure facilities (railroads, highways, bridges and tunnels) and trade. Last year, Russia and Lebanon provided a legal foundation of economic relations, including agreements on avoiding double taxation, encouraging and protecting investments and setting up a intergovernmental commission on trade and economic cooperation which began its work Thursday. The agreements contributed to a higher trade turnover which made up $93 million in 1997. Lebanon, which has considerable financial resources, hopes to become one of Russia's large trade partners in the future due to the increasing interest by Lebanese departments in expanding ties with Russia and great demand on the local market for imported equipment and materials

When you need to know it as it happens

Politics-Economics-Business

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for restoring and developing the national economy.

Economy

Ruble = 6,086/$1.00 (NY rate)

Ruble = 6,088/$1.00 (CB rate)

Ruble = 6,066|6,110/$1.00 (buy|sell rates)

Oct Nov Dec Jan Feb Mar

Rus-Canadian Trade Increased By 25 Percent

· Russian-Canadian trade turnover increased by 25 percent in 1997 in comparison with the previous year. The trade amounted to Canadian $977 million, in comparison with $782 million in 1996. The increase is accounted for by the growth of Russian exports from $449 million in 1996 to $626 million, which makes 39 percent. Unfortunately, raw materials continue to make up the bulk of Russian exports. Steel and iron deliveries accounted for $239 million, about one-fourth of the Russian exports to Canada. Canada purchased from Russia $69 million worth of mineral fuel and oil products, as well as $66 million worth of non-organic chemicals and rare-earth metals. Russian fish and sea food are also popular in Canada. Their exports exceeded 95 million dollars. Russian imports from Canada were not significant with an increase from $333 million to $351 million. The main import items were telecommunication and electrical equipment, meat products, machinery and equipment, and tobacco products.

CB Reduces Refunding Rate

· The Central Bank's press service said that the Board of Directors of the Central Bank of Russia reduced the annual refunding rate from 36 to 30 percent, beginning Monday March 16, 1998. The


refunding rate is the value of credits, which the Central Bank of Russia may grant to major commercial banks of the country. The Board also decided to bring down from 36 to 30 percent the rate on collateral credits for a period from three to 30 days. Those are the credits, granted by the Central Bank to commercial banks against state securities. This is the fourth time the refunding rate has changed since January 1, 1998.

Inflation Falls to Less Than 1 Percent

· The Russian State Statistics Committee announced that Inflation reached 1.5 percent in the country in January 1998 and dropped to 0.9 percent in February. The 1998 budget approved by the State Duma set the annual rate of inflation at 5.7 percent. Prices in Russia rose by 0.2 percent during the first 10 days of March, including a 0.1 percent rise between March 3-10. The statistics indicate that the average daily price growth this month decreased to 0.02 percent against 0.032 percent in February.

Shadow Economy Two Times Greater

· A report conducted with the assistance from the US Treasury Department released on Tuesday shows that the Russian shadow sector is two times greater in proportion to the Russian economy than estimated earlier this year. The implication is that ordinary Russians fare much worse than reported by Russian statistics. The report said the well-being of 75 percent of Russians has improved since the break-up of the Soviet Union. A third of the Russian population, or about 50 million make up the middle class with a relatively high income and their own apartments or houses. The report estimates that 100,000 Russians own $1 million. American experts see as underrated the performance of Russia's big state-run enterprises. The report estimates their efficiency to be 17 percent higher than reported by Russia's official statistics. Retail sales are underestimated 50 percent. Official statistics also fail to control for about 20 million Russians who get extra income from black market sales. However, the report said some 20 percent of Russians are below the official poverty line.

European Republics

Ukraine Remains Firm on CIS Stance

· Ukraine's stand with regard to the role and mechanisms of the functioning of the new Common

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wealth of Independent States (CIS) remains unchanged. Ukrainian Foreign Ministry spokesman Vladimir SOLOVEY said, "Kiev does not recognize CIS as an international organization and is not going to sign documents, which run counter to the Ukrainian legislation or national interests." SOLOVEY also said that Ukraine did not recognize any supranational structures or alliances within the framework of the new Commonwealth. A Ukrainian delegation will uphold this stand at the forthcoming CIS summit in Moscow.

South Caucasus & Central Asia

Turkish Presid. Visits Tblisi/Pipeline Support

· Turkish Prime Minister Mesut YILMAZ today began a two-day visit to Tblisi to secure Georgia's official support for the Baku-Ceyhan pipeline via its territory to transport Caspian oil to the world markets. YILMAZ said that he favors the development of comprehensive relations with Georgia, "Turkey's important neighbor." Georgia and Turkey are expected to sign intergovernmental documents on cross-border trading and cooperation between the patent services of the two countries. The Turkish prime minister and Georgian leaders are also due to survey the situation in the region, including bilateral relations, the building of a Kars-Tblisi railway line, and the joint exploitation of the Batumi airport. Yilmaz stressed the importance of the opening in Tblisi of a subsidiary of the Real Estate Bank of Turkey, which, would increase trade and economic ties between the Turkey and Georgia.

Aliyev Refuses To Attend CIS Summit

· Azerbaijan President Geidar ALIYEV will not attend the March 19th CIS summit in Moscow. Unconfirmed reports say the leader would not participate because the question on the illegal turning over of Russian armaments to Armenia to the sum of $1 billion had not been settled. Baku officials maintain that a major part of those armaments is deployed in Nagorno-Karabakh, while the missiles, turned over to Armenia, are trained on Azeri cities. Local observers believe that

ALIYEV's refusal to go to Moscow may be linked to the tense situation in the Transcaucasian Region and Azerbaijan itself, where a number of influential opposition parties demanded two days ago the resignation of the country's leadership. It is quite probable that in this situation ALIYEV does not want to leave the republic. Georgian President Eduard SHEVARDNADZE is also debating whether to attend the Moscow summit. He fears a third attempt on his life, following last month's attempt in which suspects appear to have escaped to Russia.

Armenian Presid. Election Update

· Armenia's early presidential elections set for March 16 may be headed for a second round as Karen DEMIRCHYAN, a former leader of Armenia's communist party, is closing the gap between the top three candidates. DEMIRCHYAN's 30 percent support comes from both the old generation which remember his leadership in the Soviet era and young voters who have suffered through earthquakes, war and economic collapse. Professor Lyudmilla HARUTYUNYAN at Yerevan State University says that DEMIRCHYAN's appeal, "is a new face, untainted by political infighting, but with the credibility of an experienced politician," The Financial Times reported. Prime Minister and acting President Robert KOCHARYAN, leading the race, is known for his hard line on the Nagorno-Karabakh conflict. He is a native of Nagorno-Karabakh, but has been allowed to run for the Presidency. Rounding out the front runners is Vazgan MANUKYAN, who is backed by the National Democratic Union. He served for a short time as prime minister and defense minister under Levon TER-PETROSYAN. In 1996, he narrowly lost the presidential election and accused TER-PETROSYAN of stealing power through fraud. Candidates must get 50 percent of all ballots cast pus one vote to win the presidency. If none of the candidates receive the required majority, a second round of voting will take place on March 30th between the top two vote winners. Central Election Commission chairman BEZIRDZHYAN said the election will be monitored by the OSCE and European parliament.


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