DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, April 13, 1998

Russian Federation

Politics

Duma Rejects Kiriyenko in Round One

· The Russian State Duma on Friday rejected, by a vote of 186 to 143 with five abstentions, President Boris YELTSIN's choice of Sergei KIRIYENKO as Prime Minister in its first vote. Analysts and KIRIYENKO were surprised by the results which were better than predicted, but fell short of the necessary 226 votes. A majority of groups, including the Communist Party of Russian Federation (KPRF), Yabloko, Liberal Democratic Party of Russia (LDPR) and the Agrarians were against KIRIYENKO's candidacy. Our Home is Russia (NDR) faction decided to back KIRIYENKO after its leader Alexander SHOKHIN said the country should not be without a government. Just 40 minutes after the vote, the President again nominated KIRIYENKO to the post. The Duma must vote for the second time by April 17th. If the Duma declines to confirm YELTSIN's nomination after three rounds of voting, the President must dissolve the Duma and call for early elections. YELTSIN said, "There will be no other candidate. I proposed KIRIYENKO and I will stand by him to the end." Communist Party leader Gennady ZYUGANOV said the Communist faction is opposed to the second nomination of KIRIYENKO's candidacy. He said the Communists will officially send an inquiry to the Constitutional Court on Tuesday as to whether the President has the right to continue offering the same candidacy for Prime Minister. The Constitutional Court should give a clear answer by Friday, ZYUGANOV added. The Communist Party has claimed that KIRIYENKO lacks experience needed to be Prime Minister of a nuclear power.

Russian Regional Election Results

· On Sunday, people went to the polls in a Moscow district to elect a State Duma member in place of Irina

HAKAMADA, who became Russia's Minister for Small Businesses, in Lipetsk and Penza regions to elect governors, in the Nenets Autonomous District to elect a member of the Arkhangelsk Regional Assembly, and in Sverdlovsk region to elect members of the regional Legislative Assembly. In Moscow, the Duma seat was won by former director of Russia's Federal Border Guard Service Andrei NIKOLAYEV. Five of the 14 candidates dropped out of the race last week claiming that the local media was biased in favor of NIKOLAYEV. The former director had the support of Moscow's Mayor Yuri LUZHKOV, despite the fact that both men have expressed presidential aspirations. NIKOLAYEV earned 65 percent of the votes, far ahead his closet rival Oleg SOTNIKOV with 14 percent. The election puts an end to court proceedings between the constituency election committee and a group of candidates who sought to bar NIKOLAYEV from the elections. In Lipetsk region, the post of administration chief or governor was won by Oleg KOROLYOV, chairman of the regional council and Deputy Speaker of the Federation Council in a landslide victory receiving 80 percent of the total votes. On the eve of the election, more than 40 political parties and movements announced their support for KOROLYOV. Yuri BOCHKAREV, head of Penza's Zheleznodorozhny district, won the position of governor in Penza region polling 60 percent of the vote removing incumbent Anatoly KOVLYAGIN who received only 13 percent. The residents of the Nenets autonomous district in northern Rus

Today's News Highlights

Russia

Chechnya Reviews OSCE

CB and Gov't Sign Statement

European Republics

Ukraine's Economic Stability?

Rus-Belarus Defense Integration

South Caucasus & Central Asia

Rus-Georgia Remain Partners

Azeri Insists Arms Withdrawal

New Armenian Prime Minister

Black Sea Nations Sign Accord

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April 13, 1998

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sia elected Communist Alexander SABLIN as deputy to the Arkhangelsk regional legislature. Of the eight contenders, he won 28 percent of the vote. Results have not been released for the 14 seats in the Sverdlovsk Regional Duma, which were contested by 132 candidates from 10 parties and movements, and 21 seats in the House of Representatives, which were contested by 115 candidates.

Chechnya Considers OSCE Mission's Mandate

· Chechen Foreign Minister Movladi UDUGOV on Friday said that the Organization for Security and Cooperation in Europe (OSCE) mission in Grozny needs an official mandate from the Chechen government to stay on in Chechnya. The OSCE mission in Grozny works in accordance with the mandate issued by the Russian Foreign Ministry. UDUGOV complained that, "It is as if that organization was staying in our home with the permission of neighbors." OSCE representative Melissa FLEMING responded that the OSCE has not changed its position that Chechnya is Russia's constituent republic and that the OSCE mission in Chechnya continues to work by a mandate issued by the Russian government. The OSCE is seeking to facilitate the peaceful settlement of the Chechen conflict. The mission in Grozny is maintaining close contacts with all sides involving in the conflict, joining efforts to strengthen a political dialogue, rendering humanitarian aid and ensuring human rights. UDUGOV said the Chechen Foreign Ministry is going to recommend to the President and government to take appropriate decisions regarding the mission.

Economy

Ruble = 6,121/$1.00 (NY rate)

Ruble = 6,124/$1.00 (CB rate)

Ruble =6,107|6,142/$1.00 (buy|sell rates)

CB and Gov't Sign Joint Economic Statement

· Russia's acting Prime Minister Sergei KIRIYENKO and Central Bank chairman Sergei DUBININ on Saturday signed a joint 1998 economic policy statement, which is critical to receiving $2.8 billion from the International Monetary Fund (IMF), according to a bank press release. The document, to be considered by the IMF board of directors in May, will form the basis for continuing the extended financing facility in 1998-1999. The Russian government and Central Bank have agreed to maintain the,

"achieved level of macro-economic stability and to make crucial progress in the tax and budget sphere, including improved tax collections and reduced budget deficit." The structural reform program in the joint statement, is aimed at creating "transparent" conditions for economic activities, at expediting economic reforms and at stimulating investments to promote economic growth. Privatization in Russia continues to be regulated by law and based on open participation in stable auctions and tenders. The document attaches special importance to the better management and more "transparent" activities of natural monopolies, such as the Railway Ministry, electric monopoly Unified Energy Systems, and gas giant Gazprom.

DUBININ, acting Federal Minister Yevgeny YASIN, top officials from the Finance Ministry, Economics Ministry, State Tax Service and some other federal agencies will meet in Washington this week with IMF Managing Director Michel CAMDESSUS at the spring session of the World Bank and the IMFmeetings to discuss the joint statement, pressing problems of the world financial system, and implementation of the World Bank's current and proposed projects in Russia. They will also discuss the extension to Russia of more than $700 million in the next loan tranche as part of the $10.1 billion three year loan program launched in late 1996.

Unemployment Exceeds 10 Million in Russia

· According to Russia's trade union, approximately every sixth or seventh person in Russia is unemployed. The official number of the unemployed is six percent of the overall number of economically efficient population, while under the statistics methods of the International Labor Organization, which has a different system of calculations and includes figures neglected in Russia, the number of the unemployed is nine percent. According to the Federation of Russia's Independent Trade Unions (FITU) calculations, which take into account people who do not have a status of unemployed, but temporarily have no job or have been on vacation without pay, the real number of the unemployed in Russia totals 14 to 15 percent of the employed population or over 10 million people. Leader of FITU Mikhail SHMAKOV said, "This is a high figure and it tends to increase." According to official statistics, the economically efficient population makes up 71.4 percent of the overall population of 147.2 million people.

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Business

Siberia Air Company To Be Regional Leader

· Siberia Air Company general director Vladislav FILEV on Friday said the company is planning to become the regional leader on the local routes. "The air company is able to satisfy up to 60 percent of the regional needs for air transportation," FILEV said. The new company strategy will aim at, "an access of broad population layers to air transportation." The company will achieve the goal in cooperation with the Novosibirsk regional administration through the use of 30 aircraft. New routes are available, including two flights a week from Novosibirsk to Baku and one flight a week to Dushanbe, Norilsk, Mirny, Odessa, Blagoveshchensk, Simferopol and Mineralnye Vody. It is planned to make more frequent flights to Almaty, Tashkent, Yerevan, Vladivostok, Irkutsk, Krasnodar, St. Petersburg, Sochi and Petropavlovsk-Kamchatsky. Siberia Air Company plans to transport 645,000 passengers this year, which is 45,000 more than in 1997.

Statistics Committee Alexander OSAULENKO, said this was Ukraine's first industrial increase in years, which signals favorable conditions for a sustained steady economic growth. He added the upward trend in industry contributed to the reverse of GDP decline. Among the industrial sectors, he cited, both the timber processing and paper making sectors went up by 25.7 percent, the nonferrous metallurgy sector, 15.2 percent and the building materials sector, 14.9 percent.

Belarus-Russian Air Defense Treaty Ratified

· The Belarus House of Representatives Thursday ratified a treaty on defense cooperation with Russia and an agreement on joint military measures for regional security. In accordance with the document, which were signed in Minsk on December 19, 1997, the two sides will further coordinate their defense policy and strategy, unify legislation in the sphere of defense, develop joint programs on armaments and create a regional group of troops. According to the Belarus parliament deputies, the previous Belarus-Russian treaty on coordination of activity in the military sphere signed in July 1992 was intended only for the transition period of creation of their own armed forces. According to commander of the air defense troops of Belarus Lieutenant-General Valeri KOSTENKO, "the advantage [of the defense integration] is self-evident: both in the military and economic respects." The general claimed that Belarus and Russia will set up a united regional air defense system in the future, with a united command, a single plan of combat training and with common outlays for the upkeep and logistical supplies.

South Caucasus & Central Asia

Rus-Georgia Remain Strategic Partners

· Georgian President Eduard SHEVARDNADZE and Russian Deputy Prime Minister for CIS Affairs Ivan RYBKIN met for about three hours on Friday evening. According to the Georgian presidential press service SHEVARDNADZE and RYBKIN were satisfied with the nature and the content of their conversation that focused on problems in the bilateral relations and the CIS. "To my mind, there are no insoluble problems or contradictions in the relations of Georgia and Russia. There are sensitive issues and things on which a decision should be taken with a due account of mutual interests," SHEVARD

European Republics

Ukraine Economic Stability?

· The Ukrainian Finance Ministry announced on Friday that the financing of Ukraine's budget spending has been cut down by 30 percent starting from early April. According to Irina BEZVERKHAYA, social sphere remains the priority in budget financing. Ukrainian President Leonid KUCHMA told the cabinet of ministers on Thursday that Ukraine's budget deficit in the first three month of the year was twice as much as it was initially planned. As of the end of March, the deficit reached 1.4 billion grivna ($700 million), while it was planned it would not exceed 1.1 billion grivna ($550 million). KUCHMA says Ukraine will hardly manage to bring the budget deficit down to 2.5 percent of gross domestic product(GDP). He added that, "The only thing stable about this economy is its instability." The President placed responsibility for the non-execution of the budget with Finance Minister Igor MITYUKOV.

However, Ukraine's total industrial output value rose by 1.7 percent in the first three months of this year and the GDP in March reversed the decline trend to see an increase of 0.2 percent. Chairman of State

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NADZE said. He believes the two nations remain strategic partners. SHEVARDNADZE did not comment on a Russian Foreign Ministry press release which accuses, "the heads of the ruling party and the members of the Parliament of Georgia" as initiating an anti-Russian campaign resembling, "witch hunting." The Georgian leader confirmed he will attend the CIS summit. He added the development of bilateral relations in the CIS and the functioning of the whole CIS much depend on the Moscow summit.

Azeri Demands Withdrawal of Russian Arms

· During meetings with Russia's Deputy Prime Minister for CIS Affairs Ivan RYBKIN on Friday, Azerbaijan's President Geidar ALIYEV insisted that Russia withdraw weapons from Armenia and stated that weapons supplies to Armenia in no way encourages a peace settlement between Azerbaijan and Armenia. ALIYEV said, the Russian leadership is capable of solving this issue without setting up any ad hoc commissions. A decision to set up a three-lateral commission to investigate into reports on Russian weapons deliveries to Armenia was taken during ALIYEV's visit to Moscow last year. Weapons to the sum of about $1 billion have remained within Armenia ever since they were supplied in 1993-1996 and despite Azerbaijan's persistent demands to withdraw them back to Russia. RYBKIN said this issue will be examined by a commission of Russian, Azerbaijan and Armenian representatives to gather in Moscow after the Russian cabinet is formed. Touching on the issue of Russian military bases in Georgia and Armenia, ALIYEVsaid that his country, which neighbors these South-Caucasian countries, strongly objects to the presence of these bases. RYBKIN said he believed that raising the quality of economic cooperation within the CIS framework will improve the quality of political relations between its members. ALIYEV confirmed that he will attend the CIS summit in Moscow on April 29th. After the meeting with ALIYEV, RYBKIN left for Tblisi.

Meanwhile, Azerbaijan's parliament has ratified an Azerbaijan-Russian Treaty for Friendship, Coopera

tion and Mutual Security signed by ALIYEV and Russian President Boris YELTSIN in 1997. The treaty forms a legal framework for bilateral relations.

New Armenian President Appoints Premier

· Armenian President Robert KOCHARYAN on Friday by decree appointed economist Armen DARBINYAN as Prime Minister. DARBINYAN was instructed by the President to submit proposals on a composition of a new Cabinet of Ministers within ten days. Speaking of DARBINYAN during the presidential election campaign, KOCHARYAN said this professional had managed to add dynamism to his ministry's activity within a short period of time. DARBINYAN, Finance and Economics Minister since last May, was Armenia's representative to Moscow from 1989 to 1992. He has also represented the Armenian government at talks with creditors of the Paris and London Clubs. In January, DARBINYAN was recognized by the Novoye Vremya, a Yerevan newspaper, as "young man of the year" based on the results of the poll conducted among journalists of Armenia, Georgia and Azerbaijan.

Black Sea Nations Sign Declaration

· Black Sea navy commanders from Bulgaria, Greece, Georgia, Turkey, Ukraine, Russia and Romania at their meeting in Varna on Friday signed a declaration to create a structure designed to ensure control over the situation in the region. The participants pledge to cooperate in preventing terrorist acts and smuggling of drugs, goods, and people. Under the agreement, the commanders proposed to establish a hot line between their general staffs to help prevent incidents at sea linked with the violation of the norms of international law and legislation. The declaration stated, "We will continue to expand and strengthen cooperation in developing bilateral and multilateral contacts aimed at confidence-building between navies in the Black Sea region." Regional political concerns such as unrest in Kosovo, outdated infrastructure and aspirations to join the European Union and NATO have stimulated exchanges at the region level in the past few years.

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

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