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

Thursday, March 26, 1998

Russian Federation

Politics

The Great European Troika Meets

· President Boris YELTSIN, German Chancellor Helmut KOHL, and French President Jacques CHIRAC, "the great European troika," today met in wooded retreat outside Moscow. According to dispatches from all the three capitals, the leaders discussed development of cooperation between Russia and the European Union (EU), Russia and NATO as well as specific programs of tripartite cooperation in the economic, social, cultural and humanitarian spheres. They also focused on pressing international topics,, including the crisis around Iraq and the situation in Kosovo. YELTSIN also planned to brief his guests on his decision to dismiss the government. The leaders agreed to launch a transportation network of rails reaching form London to the Urals. YELTSIN reported that, "As a whole I consider that the meeting was very productive and successful, it must be continued and have an historic place in the world...We agreed on all issues." The Russian leader also noted that, "Europe together with Russia is now a very powerful organism." KOHL stated that the troika is not spearheaded at anybody, and that there would be no problem if other nations wanted to join. The German chancellor stressed that learning lessons from each other is, "the essence of the troika." In the chancellor's opinion, France and Germany bear special responsibility for EU's policies and that the EU's formation is not intended to isolate Russia. The French leader noted that it is very important for the EU to maintain friendly and constructive relations with Russian at a time when the EU stands on the threshold of important internal changes. Russia of today is an important pole of cultural, economic and political development, aimed at the future, CHIRAC emphasized.

The next meeting of the leaders of Europe's three leading countries will be held in France in May 1999. According to Kohl, that meeting will concentrate on the development of a European transport plane on the basis of the Russian Ukrainian AN-70 aircraft. Kohl also said that the leaders of the three countries intended to make a number of specific decisions next year, which will be of "great importance" because they will be made with reference to another eight European countries.

When asked at a press conference if he would recommend Sergei KIRIYENKO as a permanent Prime Minister, YELTSIN said, "Maybe he will be promoted to the post of Prime Minister, maybe not." He added that "the age is not the main criteria."

Yeltsin Considers Rejecting the 1998 Budget

· To added to the drama and uncertainty in Russia following the dismissal of the entire government, Russian President Boris YELTSIN is debating whether to reject the 1998 budget which took four readings for the Russian State Duma and the Federation Council to approve. Deputy Presidential administration chief Alexander LIVSHITS said that the President feels the new spending plan is not realistic. "Mostly it is a question of the reality of the revenues," LIVSHITS said. He added that YELTSIN would probably reluctantly sign the bill in the next several days. Comment: This is yet another one of YELTSIN's classic moves, where he reluctantly signs a bill leaving an out for himself. If the budget fails to meet

Today's News Highlights

Russia

Rus. to Cut 200,000 Employees

LUKoil-Central Fuel Sign Agmts.

European Republics

Tatars Get Right To Vote?

Belarus Orders Energy Debts

Baltic-Belarus Decide Borders

South Caucasus & Central Asia

Armenian Candidate for Change

Tajik Joins Central Asian Union

Kazakh Opens Mission at NATO

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March 26, 1998

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its targets, YELTSIN can cover his tracks saying he knew the plan wasn't realistic. If YELTSIN does not sign the bill, he risks not only the stability of the market, which improved after the Duma passed the budget, but also loans and aid from international institutions such as the International Monetary Fund.

Russia to Cut 200,000 State Employees

· The Russian government plans to cut 200,000 state employees and slash 40 billion rubles ($6.7 billion) in a program aimed to bolster the public finances. Deputy Minister of Finance Alexei KUDRIN insists that political uncertainty will not impede the cost-cutting drive. Over the next three to four months, dismissals will occur in a range of fields from bureaucrats to doctors. KUDRIN indicated that the massive cuts will help the nation by ensuring that those who remain on the government's payroll will be paid in full on time and decrease some of the social tension. He added that the finance ministry has already targeted 208,000 jobs to cut, the Financial Times reported.

CIS Military Conference Opens

· A three-day international conference focusing on parliamentary control over the military sphere of the Commonwealth of Independent States (CIS) opened in Moscow Wednesday. This discussion includes control over military budgets, weapons export- import operations and the role of the military in internal and foreign policies, as well as problems of openness in the military sphere. Representatives of 18 countries and four international organizations, including representatives of parliaments and defense ministries, as well as non-governmental experts will take part in the conference. Other participants in the forum will be represented by members of the parliaments of Great Britain, Sweden, experts of the European Union, NATO and the Organization for Security and Cooperation in Europe (OSCE).

Baltic Council Meets in St. Petersburg

· The Committee of the Senior Executive Officers of the Baltic States Council will gather in a regular meeting in St. Petersburg today at the initiative of the Russian Foreign Ministry. The Council includes Germany, Denmark, Latvia, Lithuania, Estonia, Norway, Poland, Russia, Finland, Sweden, Iceland, as well as the Commission of European Communities. The Council's main task is to coordinate and promote cooperation among the region's countries, in such spheres as the promotion of new democratic institu

tions, health care, environmental protection, power engineering, culture, education, information, tourism, transport and communications, as well as economic and technological cooperation.

Economy

Ruble = 6,100/$1.00 (NY rate)

Ruble = 6,102/$1.00 (CB rate)

Ruble =6,084|6,120/$1.00 (buy|sell rates)

CB Rejects Jordan As MFK Chief

· The Central Bank of Russia rejected American financier Boris JORDAN as chief of the Russian bank International Financial Company, or MFK. The Russian law on banks requires approval of a candidate for a commercial bank governor by the Central Bank of Russia. JORDAN, of Russian descent, has been working in Russia since 1992. Until 1995, JORDAN was one of leaders of the Russian branch of CS First Boston, an American investment bank, in charge of foreign investment in Russia. JORDAN teamed up with several partners to set up, in May of 1997, the investment company Renaissance Capital which in the middle of 1997 announced a merger with the MFK Bank, a new investment bank named MFK-Renaissance. However, there has been no formal merger so far, as Russian law does not provide for bank-investment company mergers and has no definition of an investment bank. A spokesman for MFK-Renaissance said that JORDAN's position as chief of this new group has no relation to his approval as leader of the MFK Bank. Central Bank Chairman Sergei DUBININ is to meet JORDAN on March 31, in hopes that the issue of his approval will be resolved by that date.

Russian Investment Group Sets Up Fund

· The Russian investment group Lenstroimaterialy announced Wednesday that it has completed the set up phase of a public investment fund in the United States, which is aimed at the Russian and American markets. Lenstroimaterialy board member Oleg DYACHENKO said the fund will be the first purely Russian financial institution of this type. It will be registered at the commission for operations with securities and exchange activities. He said, "Our desire to set up such a fund was prompted by the fact that we found out as a result of an analysis of financial markets last year that very many Russian investors would like to invest money in American securities...We

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decided to set up a scheme, enabling Russian investors to operate on the American market and, at the same time, to give a chance to American investors, including conservative pension funds and insurance companies, to work in Russia." In DYACHENKO's opinion, questions of the fund's establishment will be settled at the end of the summer, and its operations are planned to be started in September of this year.

Business

Lukoil-Central Fuel Sign Agreements

· LUKoil, Russia's second largest oil producer, and Moscow's Central Fuel Company today signed a cooperation agreement for joint development of oil and gas fields in Russia and abroad, increasing security of oil products to Moscow, and building and renovating filling stations to a higher standard. LUKoil will modernize the Moscow Oil Refinery, installing equipment to increase the depth of refining and raise the products quality. LUKoil and Central Fuel will jointly undertake crude deliveries and refining as well as carry out investment activities together. Central Fuel had signed a similar agreement with Tatneft Oil Company, while LUKoil had signed with refiner Norsi Oil.

LUKoil today said it will reduce its exports of oil products by 1 million metric tons this year, while exports of crude oil will remain unchanged. LUKoil's chief Vagit ALEKPROV said the company will counter export reductions by concentrating on the lucrative Moscow market. To ease the impact of low world oil prices, Russian oil companies have asked the government for tax relief of 19 billion rubles ($3.2 billion) LUKoil produced 62.3 million tons of crude oil in 1997. Refinery output was 22 million tons.

Diamond Conference Opens

· A three-day Conference Workshop on prospects for the further development of the diamond sector of Russia (DSR) opened in Smolensk Wednesday. It will be attended by representatives of Russia's largest companies the Diamonds of Russia-Sakha, the Uralalmaz and Severalmaz, government agencies concerned, large diamond-cutting works, including the Smolensk-based Kristall, and research institutions. The Conference will focus on the problems of the development of the DSR in the light of the Russian President's decree last year, on a proce

dure for the import and export of rough and cut diamonds. The decree marked a new stage in the organization and operation of the diamond sector. The export of Russian rough and cut diamonds runs at over $2 billion a year.

European Republics

Crimean Tatars A Strong Political Force?

· Crimean police chief Gennady MOSKAL said that a large force of Ukrainian police will be present in the Crimea to keep order on March 29th, the day of elections to parliaments of Ukraine and its enclave of the Crimea. MOSKAL said there will be no repetition of Tuesday's disorder in Simferopol that wounded 19 police as ethnic Tatars attacked them during a rally for parliamentary electoral rights for all repatriates regardless of their citizenship. Twelve of the wounded were hospitalized, three of them in grave condition resulting from knife wounds. Tuesday's action also inflicted significant damage on the city economy, transportation companies and railways. Earlier, head of the presidential administration Yevgeny KUSHNARYOV told Tatar leaders that President Leonid KUCHMA had proposed to the Ukrainian parliament to made amendments to the electoral law on Crimean legislature. However, the parliament did not even put the issue on its agenda because the leftists did not support it, which stirred up the mass protest action. Of 250,000 Tatars living in Crimea, over 80,000 are not Ukrainian citizens, according to the DINAU news agency. Crimean Tatar leaders had said they would block the elections if Ukrainian authorities do not grant suffrage. Local analysts point out that issuing such a decree would not be completely altruistic, as several Crimean Tatars are running for parliamentary seats as candidates of pro-KUCHMA, reformist parties. Tatar pre-election campaigns are continuing. Mejlis chairman Mustafa DZHEMILEV runs for the Ukrainian parliament on party lists of Ukraine's nationalist Rukh. Twenty-four Crimean Tatars are running for the Crimean parliament.

Ukraine-Bulgaria Sign Cooperation Documents

· Ukrainian President Leonid KUCHMA arrived in Sofia for an official visit Tuesday. During his visit KUCHMA intends to clear out, "possibilities and interests of Bulgarian business communities," and to estimate concrete steps in trade and economic cooperation between the two countries. KUCHMA

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and Bulgarian President Pyotr STOYANOV signed seven documents aiming at the extension of contacts between the two countries as a result of the meeting. Among the documents signed were the declaration on the development of cooperation between Bulgaria and Ukraine, agreements on interaction between the customs and statistics services, information agencies, as well as on cooperation in the fields of education, pharmaceuticals, and nuclear power engineering

Belarus Orders Energy Debt Payments

· The Belarus Council of Ministers on Tuesday ordered enterprises to pay off energy debts, warning that if they do not directors of the enterprises will be held personal responsible. Belarus' gas debt to Russia has grown to $217 million in first months of 1998. Prime Minister Sergei LING said this situation threatens the national energy and political security and promised sackings of directors and cut-offs from power of indebted enterprises. National Bank governor Pyotr PROKOPOVICH said in a statement that Belarus' banks are ready to issue loans for gas and electricity payments. The Russian gas giant Gazprom on March 19th announced a 30 percent cut in gas exports to Belarus as a result of its high debts. Belarus' Beltopgaz company said Gazprom's gas deliveries had been reduced from a daily 49,000 to 37,000 cubic meters last week.

Baltic, Belarus Foreign Ministers Meet

· Foreign ministers of Latvia, Lithuania and Belarus on Wednesday in Vilnius signed a three-party border accord. The accord, drawn up in three languages, defines exact coordinates of sites where the three states' borders intersect. A special sign will be installed on the bank of the Lyudvinovo lake where borders of Lithuania, Latvia and Belarus converge. The Ministers said at a news conference that the agreement was, "a common success of diplomats and technical exports." Belarus Foreign Minister Ivan ANTONOVICH and Latvian Foreign Minister Valdis BIRKAVS will have separate meetings with Lithuania's new President Valdas ADAMKUS.

South Caucasus & Central Asia

Armenian Candidate Proposes Constit. Changes

· Armenian Prime Minister, acting President, and Presidential candidate Robert KOCHARYAN in the run off election on March 30th, has proposed to the government changes to the nation's constitution, RFE/RL Newsline reported. He calls for curtailing the "excessively broad" powers of the president and redefining the President's relationship with the Prime Minister, government, parliament, and judiciary institutions. He proposes stripping the President of the right to dissolve the parliament, which, he said, is conducive to creating, rather than resolving, domestic political conflicts. Instead, KOCHARYAN suggests that the constitution grant the parliament the right to disband itself.

Tajikistan Joins Central Asian Economic Space

· The Inter-State Council of Kazakhstan, Uzbekistan, and Kyrgyzstan opened in Tashkent today. Tajik President Emomali RAKHMONOV attend the session where he and the Central Asian leaders signed a document on the entry of Tajikistan into the united economic space of Central Asia. The composition of this single economic space had not changed since its formation in January 1994. The leaders also discussed issues of regional cooperation on peace, security, and stability as well as the expansion of the union to other former Soviet republics.

Kazakhstan Opens Mission At NATO

· Kazakh Foreign Ministry announced today that Kazakhstan has opened a mission at NATO headquarters in Brussels. The ministry said the mission will help, "raise relations with the alliance to a higher political level." Kazakhstan is already a member of NATO's Partnership for Peace program, and its armed forces participated in NATO-sponsored training exercises in September 1997 under that program. The program earmarks political consultations, training of Kazakhstan's peacekeeping force and bilateral coordination in crisis situations.

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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