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

Tuesday, March 17, 1998

Russian Federation

Politics

Chernomyrdin to Attend Tripartite in Kiev

· Ukrainian President Leonid KUCHMA, and his Moldavian counterpart Petru LUCINSCHI, have invited Russian Prime Minister Viktor CHERNOMYRDIN to attend a tripartite meeting, scheduled to be held in the Black Sea port of Odessa on March 20. The meeting will focus on the settlement of the conflict in Moldavia's breakaway Dniester region. Russian government spokesman Igor SHABDURASULOV said that Dniester leader Igor SMIRNOV was sending word on Tuesday that he would attend the meeting. KUCHMA and CHERNOMYRDIN also discussed bilateral cooperation and the progress of the implementation of the economic cooperation program signed recently by the Russian and Ukrainian heads of state.

Yeltsin Postpones CIS Summit

· Russian President Boris YELTSIN's illness has forced him to cancel the planned summit of heads of Commonwealth of Independent States (CIS), meetings of the group of four integrating states, and the Rus-Belarus Union. Kremlin officials say the CIS summit has been postponed until mid-April, which was initially scheduled for this Thursday in Moscow. CIS Executive Secretary Ivan KOROTCHENYA suggested April 23 and 24th as possible summit dates. Doctors advised the president to stay in bed until full recovery and cancel all meetings this week, "to avoid possible bronchial and lung complications." A spokesman for the Kremlin said, "President YELTSIN still remains at Gorki-9 state countryside residence where he is being treated by antibiotics, medications to improve breathing functions and stop cough." The Kremlin stressed that YELTSIN attaches great importance to the meetings which will influence the future of the CIS.

Nemtsov Reviewed by Public Opinion

· First Deputy Prime Minister Boris NEMTSOV received a mixed approval rating from a public opinion poll, after completing a full year in office. The respondents were asked to rate NEMTSOV on a five-point scale in a descending order from 5 to 1. Nearly 15 percent said NEMTSOV's performance was good, and another 15 percent said it was bad. The bulk of the poll participants said he performed satisfactory, according to a survey of VTsIOM, the Russian Center of Public Opinion Studies.

In an attempt to boost his public approval rating, NEMTSOV on Monday opened a server and page on Internet. His press secretary Andrei PERSHIN said this is an, "opportunity to address Boris NEMTSOV directly." Questions and answers will be made public on the web page. All information is in Russian, but NEMTSOV plans to have it translated into English in the future. The server consists of five sections, News, Politics, Dossier, Library, and Feedback. His server location is http://www.nemtsov.ru. Page location is http://www.boris.nemtsov.ru.

Russia-Greek Military Cooperation

· The Russian-Greek joint intergovernmental commission on military and technical cooperation gathered in Athens on Monday to discuss defense interaction between the two countries. The Russian delegation is led by General Leonid IVASHOV, head of the Defense Ministry's main department for international military cooperation. The commission meets two times

Today's News Highlights

Russia

Crime Rate Declines

Three Tobacco Cos. Invest

European Republics

Rus-Estonian Commission Meets

IMF/WB Delay Loans To Kiev

Tallinn Receives Moody's Rating

Belarus Rubel to Collapse?

South Caucasus & Central Asia

No Clear Presidential Winner

Politics-Economics-Business

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Intercon's Daily

a year in Moscow and Athens respectively. During the Athens session, which will last until March 20, Russian military will confer with Greek Defense Minister Apostolos TSOCHATZOPOULOS and other officials to discuss issues of mutual interest, including supplies of Russian S-300 missile complexes to Greece. The session participants noted progress in the development of Russian-Greek military cooperation. Russia and Greece will also discuss defense cooperation during the Greek defense minister's visit to Moscow, which is scheduled for March 31 through April 2, 1998.

Crime Rate Declines in Russia

· Russian Vice-Premier, Interior Minister Anatoly KULIKOV announced that the number of crimes committed in Russia is two times smaller than in the United States. Nearly 2.4 million criminal offenses were registered in Russia in 1997, a drop of nine percent over the previous year. Criminal offenses in major cities such as Moscow declined by as much as 20 percent. However, the report said that criminal offenses, which often involve mafia, weapons and explosives, are becoming more organized and dangerous. It is predicted that the number of crimes committed against people, including murders, will be smaller, but the number of economic crimes will grow larger. KULIKOV called for law-enforcement bodies to increase their efficiency and provide security for Russian citizens.

Economy

Ruble = 6,090/$1.00 (NY rate)

Ruble = 6,090/$1.00 (CB rate)

Ruble = 6,067|6,113/$1.00 (buy|sell rates)

Chernomyrdin Discusses Trade Barriers

· The Consultative Council for Foreign Investments opened its conference on Monday with representatives from major Western banks and companies, the federal government, Russian parliament and heads of local administrations in attendance. Prime Minister Viktor CHERNOMYRDIN spoke to the conference on the stabilization of the Russian economy and the need to lift trade barriers. He said that, "quite perceptible transition to normalization of the economic situation," took place in Russia late in 1997-early in 1998." CHERNOMYRDIN added that the government has developed a model of responding economically to turmoil on the world market. Accord

ing to the Prime Minister, Russia loses about $1.7 billion annually because of the trade discrimination. He said that the Russian government hopes to reduce these barriers by joining international organizations, including the World Trade Organization and Organization for Economic Cooperation and Development. CHERNOMYRDIN noted that Russia's admission to the organization of the Asia-Pacific Economic Council, "may considerably facilitate the inflow of foreign capital to Russia's Far East and Trans-Baikal region." The Cabinet is drafting a national plan for the liberalization of trade and investments, which Russia will offer its partners in this international organization, CHERNOMYRDIN said. He added that, "Russia's markets are open to healthy competition and we expect adequate and symmetrical steps from other countries." CHERNOMYRDIN said the government will draw up regulatory acts reducing customs duties for goods brought into Russia under investment agreements by 50 percent. These cuts will not be applied to such goods as alcoholic beverages and tobacco. Customs duties will be halved for the period needed for investments to pay off, but not longer than five years.

International Accounting Standards in Russia

· The Russian government has approved a program to reform Russia's accounting system to bring it in line with the internationally recognized accounting and audit standards. One of the objectives identified by the program is to create a system of accounting standards which would provide users, primarily foreign investors, with useful information. Following the international accounting system will ease negotiations with international loan institutions and foreign investors.

Crackdown On Economic Crimes Approved

· Director of the anti-economic crimes bureau Ivan SARDAK said Sunday that the Russian government has approved plans to crack down on financial and credit crimes. The bureau plans to become more involved in the illegal circulation of negotiable securities, mining and alcohol. He said the number of financial and credit crimes and corruption in government offices had risen rapidly in Russia. Recorded cases of economic crime totaled 210,000 in 1997, an increase of 7.5 percent over 1996 figures. The authorities confiscated 790 kilograms of gold, 928 kilograms of silver, 135 kilograms of platinum and

When you need to know it as it happens

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about 13,000 carats of diamonds last year from such crimes. Counterfeit bills worth about $18 billion were seized and 2,200 underground alcohol factories smashed. On March 4, Russian President Boris YELTSIN signed a decree authorizing the severe crackdown of economic crimes.

Business

Three Tobacco Cos. Invest in Russia

· Three top tobacco companies, Philip Morris Management Services part of Philip Morris Company Inc., R.J. Reynolds International part of RJR Nabisco Holdings Corporation, and Britain's B.A.T. Industries PLC, separately have announced plans to expand their Russian operations, which will add nearly $500 million to Russia's economy. Philip Morris plans to build a $250 to $300 million cigarette factory in the Leningrad region outside St. Petersburg. R.J. Reynolds will invest $120 million over the next two years in cigarette production. B.A.T. Industries will invest another $60 million. Russia is the world's fourth largest tobacco market and according to World Health Organization statistics two-thirds of Russian men and a third of Russian women smoke. Foreign cigarettes account for 40 percent of the Russian market, where an estimated 220 billion cigarettes were smoked in 1997.

Rosneft Valued at $2.3-2.4 Billion

· Britain's Kleinwort Benson Ltd. with the approval of the State Property Ministry has agreed to Rosneft's capitalization estimate of $2.4 billion. Government spokesman Igor SHABDURASULOV said at the briefing that the government so far had not made final decision on size of a stake to be sold-off in the state-run oil company Rosneft. Nor has been the mode of the sell-off decided. SHABDURASULOV explained that the government is to decide whether to sell 75 or 50 percent of Rosneft's shares. SHABDURASULOV said an, "official figure of assessment of the company Rosneft will be published in the Russian government's decree with indication of size of the sold package," which is expected by the end of the week. The sale is scheduled for late May or early June 1998. Kleinwort Benson Ltd. said a block of 50 percent plus one share could bring in revenues worth $1.2 billion to $1.3 billion, whereas the sale of 75 percent plus one could bring in as much as $1.6 billion to $1.7 billion.

European Republics

Rus- Estonian Commission

· Russian Deputy Prime Minister Oleg SYSUYEV and Estonian Prime Minister Mart SIIMANN met in Tallinn on Monday to discuss cooperation in various areas between the two countries, including the structure and the tasks of the Russian-Estonian joint intergovernmental commission. SYSUYEV stressed that Russia had set up such commissions with the governments of over 70 countries, and the gained experience would be of use to develop similar cooperation with Estonia. SIIMANN, in his turn, noted that Estonia had also received experience from the cooperation in the framework of the Estonia-Ukraine commission. SYSUYEV and SIIMANN signed a protocol on setting up three working groups in the framework of the intergovernmental commission. The first will deal with trade and economic issues, science and technologies. The second will focus on social and humanitarian problems, and the third on culture. The first meeting of the group heads is scheduled to be held in April 1998, and the first session of the intergovernmental commission is expected to be held in June in Tallinn. SYSUYEV also met with President Lennart MERI.

Lith. To Sell Oil Companies To Williams

· The Lithuanian government has asked the parliament to approve the sale of up to 33 percent of Lithuania's major oil companies to Williams Companies Inc. Economics Minister Vincas BABILIUS supports the sale saying that, "Williams fully meets the economic and political targets of the Lithuanian government." The draft law included an option for Williams to buy up to 33 percent in the unfinished Butinges Nafta oil terminal, oil refinery Mazheikiu Nafta and the Birzhu oil pipeline. Williams can buy a stake in Butinges and Birzhu through a share capital boost and in Mazheikiu through a share capital boost or direct negotiations to buy a stake. The government wants to retain no less than 34 percent in Butinges and Mazheikiu and a minimum of 51 percent in Birzhu, Reuters reported. The parliament is expected to vote on the draft law Thursday.

IMF Fails to Release Loan to Kiev

· The International Monetary Fund (IMF) is withholding for the second consecutive month the installment of a $585 million stand by loan to Ukraine, The

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Financial Times reported. Talks will resume in April to determine if Ukraine is eligible to receive the loan and that IMF terms have been met. The Ukraine is ineligible to receive a $49 million installment because it failed to meet macro-economic targets specified by the IMF for the end of January and February. Ukraine exceeded the limit on growth in wage and pension arrears and net international reserves fell below a specified floor. The IMF was also dissatisfied with Ukraine's plans to reduce government expenditure, and its failure to deregulate its dormant market for domestic treasury. Because of the IMF decision, the World Bank has delayed a decision to grant Ukraine $600 million. The World Bank was to decide today to release $300 million for a business development project and the remaining $300 million for a finance sector project. The World Bank loan was contingent upon Ukraine receiving the IMF stand by loan.

Tallinn Receives High Moody's Rating

· The international rating agency Moody's has given the City of Tallinn the second best credit rating among Eastern European cities. The rating, Baa1, is just one step lower than that of Prague and equals the general rating given to Estonia last September. Moody's attributed the credit increase to Tallinn's good management of municipal finances and the expectation that its debt is not expected to rise significantly, RFE/RL Newsline reported.

Minsk-Moscow Coordinate Financial Markets

· Belarus and Russia agreed, during Belarus Prime Minister Sergei LING's visit to Moscow last Friday, to set up a joint intergovernmental working group to ensure coordination between the two countries' financial markets and measures to stabilize the Belarus ruble. The joint group will include representatives of the ministries of finance and economics, and bankers from both countries. The Belarus ruble continued to fall against the dollar. Last week, the Belarus ruble fell below 50,000 rubles per dollar on the inter-bank market. Now, the ruble's exchange value is 60,000 rubles per dollar. President Alex

ander LUKASHENKO said he will personally watch the situation on the country's currency market and ordered the Security Council, the Committee of State Control, the National Bank and the KGB to work out concrete measures to stabilize the financial market. Russian First Deputy Prime Minister Anatoly CHUBAIS said on Sunday that Russia may provide financial aid to prevent the collapse of the Belarus ruble. He added that the Belarus economy was to due poor policies and lack of reform.

South Caucasus & Central Asia

Armenian Presid. Elections To Enter Run-Off

· According to preliminary data, the early Armenian Presidential election will head into a run-off round on March 30th, as no candidate won a clear majority of the votes (50 percent plus one) in Monday's election. The run-off is likely to pit acting President and Prime Minister Robert KOCHARYAN against former Armenian Communist Party leader Karen DEMIRCHYAN. According to the Central Election Commission (CEC), KOCHARYAN received 38 percent of the vote and DEMIRCHYAN 27 percent. Even before the counting began on Monday, six out of the twelve candidates, including Karen DEMIRCHYAN and Vazgen MANUKYAN accused the election as being marred by fraud and corrupt acts. A statement concerning the charges said, "The entire election process has shown that there are large amounts of violation, falsification, and terror. We declare that the extraordinary election in Armenia, regardless of the results, cannot be considered free and fair." The statement blames supporters of KOCHARYAN for the abuses. KOCHARYAN aide Aghvan VARTANYAN said, "The statement by the six candidates is an expression of their panic and is an attempt to cast a shadow over the Presidential election." Deputy chairman of the CEC Ruben MANUKYAN said, "We have no information that there has been massive falsification...If we have documented information, then we will address it, but so far we have nothing like that." He said there have been five or six violation reports, but none that would effect the election results significantly.

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

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