DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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

Monday, April 20, 1998

Russian Federation

Politics

Russia-Japan Informal Summit

· The Russia-Japanese "no neck tie" summit in Kawana this weekend where Russian President Boris YELTSIN met with Japanese Prime Minister Ryutaro HASHIMOTO failed to make progress on the disputed Kuril islands, which both Russia and Japan claim as their territory. Japan was flexible in discussing the line of the border in the South Kuril area, offering various solutions primarily the dividing line in the 1855 treaty of Shimoda. HASHIMOTO referred to his New Year's Day speech in which he said, "There will be no peace treaty without determining a borderline. I believe a peace treaty will confirm Japan's sovereignty over the four islands." But Russian presidential spokesman Sergei YASTRZHEMBSKY said, "the Constitution of the Russian Federation declares Russian territory inviolable and indivisible." YELTSIN and HASHIMOTO also agreed that the joint commission on drafting a peace treaty between the two countries to end World War II must speed up its work so that it may be signed by 2000. YELTSIN said he favors expanding the treaty to make it a "friendship" document as well. YELTSIN proposed to HASHIMOTO that Moscow and Tokyo jointly build large-scale facilities for processing marine products and infrastructure such as roads, ports and airports on the islands. HASHIMOTO, apparently wary that Japanese participation in the economic development of the islands might overshadow the sovereignty issue, replied that Tokyo will "consider" the proposal , "in parallel with negotiations for a peace treaty," the Japanese officials said. YELTSIN-HASHIMOTO plan to discuss the Russia-Japan peace treaty on the sidelines of the Summit of Eight meeting in Birmingham, Britain. HASHIMOTO will come on an official visit to Russia in the autumn, which will be the first official

visit by a Japanese prime minister since then Prime Minister Kakuei TANAKA in 1973. Another YELTSIN-HASHIMOTO meeting is planned at the meeting of the Asia-Pacific Economic Cooperation Organization due in Malaysia in the end of 1998. YELTSIN will go to Japan on an official visit in 1999. The two leaders, reviewing progress on implementing agreements they had concluded in Krasnoyarsk last November, agreed that a joint investment fund will be established involving both the two governments and private companies.

Defense Funds Not Properly Allocated

· Acting Prime Minister Sergei KIRIYENKO on Friday said that the, "restructuring of Russia's defense complex, which is the important part of Russia's industrial policy, lacks system and comprehensive approach. Its lagging behind the plan of the development of Russia's armed forces has been the most acute problem in the area." KIRIYENKO believes budget funds were not properly allocated for the development of the defense complex, but instead were split among all enterprises. He noted that the funds did not reach enterprises that are leading the scientific and technology progress. Defense enterprises were unnecessarily split and technological chains were broken, he said. KIRIYENKO pointed out that the expenditures for defense determined by the Russian President make up 3.5 percent of gross domestic product (GDP) up to the year 2000 and 3.3 percent of GDP for the period of 2001-2005. The government should soon decide on the core of the

Today's News Highlights

Russia

Russia Pulls OUt of G-8 Meeting

Digitcom-Mordovia Sign Deal

European Republics

Lukashenko Speaks To Legist.

Ukraine Appoints Foreign Min.

South Caucasus & Central Asia

Georgia Plans To Join EU

New Armenian Cabinet Revealed

Uzbek-Belgian Sign Agreements

Tajik Joins ADB

Politics-Economics-Business

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Monday

April 20, 1998

Intercon's Daily

defense complex and those enterprises will earn the right to the state defense commission. KIRIYENKO made assurances that the government will fix the situation that existed last year when the defense complex was financed to only 30 percent. A month-by-month schedule of financing is being worked out.

Rus. General Questions Attacker's Origin

· General Nikolai MUKHIN, who survived the ambush on three cars with officers of the Russian General Staff in North Ossetia on Thursday, said the attack was staged by professionals, but that their Chechen origin was unlikely. He told a Russian independent television that all details of the action were pre-planned due to an, "account of place, time and behavior," of the attackers. He confessed that the convoy's route was known to many people. But the attack's style made the General strongly question the terrorist's Chechen origin. In his words, they fired on the cars in complete silence. They were dressed in black camouflage, and their faces were also concealed, MUKHIN said. He noted that from his experience the attack did not follow the typical pattern of a Chechen attack. Five men, including a major-general, were killed immediately, and the sixth one died from wounds in a local hospital. Five have been hospitalized from wounds, two of them in serious condition. Chechen President Aslan MASKHADOV on Saturday rejected acting Russian Interior Minister Sergei STEPASHIN accusations of Chechen involvement. He suggested that subordinates of former Russian Interior Minister Anatoli KULIKOV planned the assault in the hope of taking advantage of the Russian government crisis.

Aide to Duma Deputy Murdered

· Arkady SOLYAR, an aide to Russian State Duma's deputy Vladimir PCHELKIN a member of the Liberal Democratic Party faction, was killed by an unidentified person in St. Petersburg on Thursday. The killer, armed with a pistol and an attached silencer, killed SOLYAR with a shot to the forehead at 13:12 Moscow time in downtown St. Petersburg. The local police chief explained that the murderer managed to escape through connecting courtyards leading to the busy Liteiny Prospect. It is not ruled out that the killer was not alone. SOLYAR was married to a US citizen and had lived in the USA over the past several years. The purpose for his visit to St. Petersburg is so far unknown. Police have launched an investigation into the case.

Economy

Ruble = 6,111/$1.00 (NY rate)

Ruble = 6,130/$1.00 (CB rate)

Ruble = 6,112|6,148/$1.00 (buy|sell rates)

Russia Pulls Out of G-8 Meeting Due To Status

· Russian officials Central Bank Chairman Sergei DUBININ and Deputy Minister Yevgeny YASIN deliberately skipped a meeting of G-8 finance ministers on April 15th in Washington because they were not invited as full participants. It was the first time in five years that Russian officials did not attend the annual spring meeting of the finance ministers. As in previous years, they were invited only to report on economic reform in Russia. In explaining his intention to stay away from the meeting, DUBININ called for Russia to be treated as a full member of the G-8 in economic as well as political matters. The next G-8 summit is to be held in the United Kingdom in May. Several member states believe Russia is not ready for full membership concerning economic matters.

Danish Energy-Saving Exhibit Tours Russia

· Denmark, which is seeking to build investment in Russia's energy sector, will hold presentations of its energy-saving technologies in Tula, Oryol and Kursk in Central Russia this week. Head of the energy-saving department of the Russian Fuel Ministry Alexei MASTEPANOV said, "Danish companies are interested in expanding investment in energy-saving projects in Russia and advancing their technologies to the Russian market." The exhibition is organized by The Russian-Danish Institute for Energy Efficiency, founded in 1994. Danish energy-saving equipment producers participate in nearly 15 Russian projects aimed at saving heat and electric energy. MASTEPANOV said refurbishing Russia's heat-supply network, energy audits for industries, building wind-driven electric plants, and training energy-saving experts were the most important.

Business

Toyota To Produce Vans in Russia

· Japan's largest automaker, Toyota Motor Corp. has begun initial discussion of producing multi-purpose vans near Moscow by the year's end using part assembled by a Russian factory. It will mark the first time a major Japanese automaker has produced vehicles in Russia. The venture will be partly fi

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nanced by a Russian partner. A spokesman for Toyota Kohei MURAMATSU said, "We are studying all possibilities, although nothing has been decided yet." Toyota plans to produce an initial 1,000 vans per year. During the weekend summit between Russian President Boris YELTSIN and Japanese Prime Minister Ryutaro HASHIMOTO, Russia's First Deputy Prime Minister Boris NEMTSOV said Toyota had expressed a strong interest in getting involved in a proposal for Japanese automakers to build in a manufacturing plant near Moscow.

Digitcom Approved For Telephone Traffic

· Digitcom Corp. Friday announced the signing of an agreement with Russia's Republic of Mordovia to let Digitcom use ground lines and satellite termination points to provide the country with combined switched long distance and Internet phone traffic. The agreement signed yesterday between Digitcom's Russian subsidiary, TLA, and the Republic sets a target of 1 Million minutes per month. Once the target minutes are met, the current agreement provides for a five-year exclusive extension. Inter-regional long distance rates and satellite links within the Russian Federation remain to be negotiated with the various regional carriers. Mordovia will receive a portion of revenues from TLA. Mordovia is a center for the manufacture of many products for export including lighting products, building materials, excavators, industrial rubber products, petroleum and chemical industry machinery, and semiconductor power devices. Digitcom is a telecommunications and data network company working with regional and national telephone companies in Europe and on the Pacific Rim to establish international long distance networks. The company is a leader in Internet voice communications technology and is marketing its Internet-enhanced long distance telecommunications services using Digitcom's "IntraVoice" Internet voice compression and long distance technology.

fatherland, the Union of Belarus and Russia," Belapan quoted LUKASHENKO as saying. LUKASHENKO vowed the Belarus economy will return to the Soviet-era level in 2001, adding that the state will continue controlling prices for oil and gas, public utilities, and transport, RFE/RL Newsline reported.

Ukraine To Eliminate Bombers With US Aid

· Secretary of the Ukrainian Council of National Security and Defense Vladimir GORBULIN announced that Kiev has decided to eliminate 44 TU-95MC and TU-160 strategic bombers inherited from the former Soviet Union. The planes, carrying winged nuclear missiles of a high range, are liable for the reduction under the Treaty on Strategic Offensive Armaments. GORBULIN said that four of them will be kept, two will be refurbished, and the others will be used as exhibits. The United States has pledged to provide financial and technical assistance for the dismantling and destruction of the bombers. The aid will be a separate item unrelated to the assistance to the nuclear disarmament. Ukraine spent $1.3 million a year for limited maintenance of the bombers.

Ukraine Appoints New Foreign Minister

· Ukrainian President Leonid KUCHMA appointed Boris TARASYUK as the country's new foreign minister on Friday, replacing the vacancy left by Gennady UDOVENKO, who quit earlier this month to take up a seat in parliament. TARASYUK had been Ukraine's ambassador to the Benelux countries (Belgium, Holland and Luxembourg) and NATO. TARASYUK said after his nomination that he will, "do everything possible to help integrate Ukraine into European and European-Atlantic structures and strengthen the country's independence by means of foreign policy." TARASYUK reaffirmed that one of the Foreign Ministry's goals will be developing, "normal and fruitful relations" with Russia. He stressed that Ukraine's foreign policy has been shaped and will be shaped in the future by its national interests. The new minister intends to make certain replacements in the ministerial staff both in Ukraine and abroad. TARASYUK, a career diplomat is most know for his negotiations with Russia on nuclear disarmament. Analysts the success of the Ukrainian-NATO partnership charter in 1998, and an accord with the European Union in 1994, which he co-authored, to him. TARASYUK is regarded to be "pro-western." Ukrainian Prime Minister Valery PUSTOVOITENKO

European Republics

Lukashenko Addresses Belarus Legistlature

· In his annual address to the National Assembly in Minsk on Friday, Belarus President Alexander LUKASHENKO stressed that Russia is a "top priority" in Belarus' foreign policy. He said integration with Russia is demanded by Belarus's fundamental interests. "In case of need, we will defend on the Western frontier not only our Belarus but also our common

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said on Friday a number of reshuffles will be made in the country's Cabinet of Ministers within the next few days. He said, "Now it is necessary to considerably reinforce and improve the government team in order to speed up structural changes in the Ukrainian economy."

South Caucasus & Central Asia

Georgia Strives To Join EU In Eight Years

· Georgian President Eduard SHEVARDNADZE told the German Welt am Sonntag newspaper on Sunday that Georgia plans to become a member of the European Union (EU) in eight years. Georgia has already abolished the death penalty, which is a requirement for EU membership. "Tblisi had to build new life on ruins. Before starting the reforms we had to settle fratricidal conflicts on our territory," the President said. He emphasized the need to eliminate poverty. "We need enterprises who have gained a good reputation on the market. Naturally, the republic has rich and very poor companies. However, a social security policy will progress alongside the formation of the middle class," SHEVARDNADZE noted. As for the German assistance to Georgia, SHEVARDNADZE said, "the economic support corresponds to the mentality of the German nation, which is striving to help countries with economies oriented at the free market. We do not want to be a country that uses money from abroad. I stake on a mutually beneficial cooperation between Georgia and Germany."

New Armenian Cabinet Announced

· Armenian President Robert KOCHARYAN issued several decrees today approving the new cabinet of Prime Minister Armen DARPINYAN. Acting Foreign Minister Vartan ASKANYAN, an American citizen, was confirmed as Foreign Minister, while Defense Minister Vazgen SARGSYAN and Interior and National Security Minister Serzh SARGSYAN (no relation to Vazgen) retained their posts. Eduard SANDOYAN, the head of the Armenian Central Bank Department for Control, Regulations, and Licensing,

was named to replace DARPINYAN as Finance and Economics Minister. Levon MKRTCHIAN of the Armenian Revolutionary Federation (Dashnaktsutyun), which was legalized by KOCHARYAN immediately after the February resignation of President Levon TER-PETROSSYAN, was appointed Minister of Education and Science. Addressing the parliament last week, DARPINYAN had said his ministers will be selected on the basis of their professionalism, regardless of their party affiliation, RFE/RL Newsline reported. The new government will be the youngest in the history of Armenia. The Prime Minister is 33 years old, and the cabinet involves his Moscow University colleagues and persons of the same age.

Uzbek-Belgium Leaders Sign Three Documents

· Uzbek President Islam KARIMOV and Belgian Prime Minister Jean-Luc DEHAENE signed a joint statement, an agreement between Uzbekistan and the Belgium-Luxembourg Economic Union (BLEU) on the encouragement and protection of investments, and an additional protocol on amendments to the Convention of Uzbekistan and the Kingdom of Belgium on the prevention of double taxation and the non-payment of income taxes. Assessing the signed documents, the Uzbek President noted that Uzbekistan hopes to cooperate with Belgium in different fields and wishes to extend spheres of trade and economic relations. DEHAENE also met with Parliamentary Speaker Erkin KHALILOV. In 1997, the trade turnover between the two countries surpassed $150 million with four joint ventures with Belgian financing operate in Uzbekistan.

Tajik Joins Asian Development Bank

· Tajikistan today became the 57th member of the Manila-based Asian Development Bank (ADB), according to an ADB press release. The ADB will attend the first consultative group meeting for Tajikistan, chaired by the World Bank in Paris, France on May 20 this year. The ADB plans to send an economic mission to Tajikistan to discuss with the government the priority assistance needs.

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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