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

Wednesday, April 22, 1998

Rus-Italian Defense Ministers To Meet

· Italian Defense Minister Beniamino ANDREATTA will meet with Russian counterpart Igor SERGEYEV, Russian Foreign Minister Yevgeny PRIMAKOV, Secretary of the Russian Security Council Andrei KOKOSHIN, and Commander of the Leningrad Military District during his four-day visit to Russia this week. The Italian Defense Minister is to call on the Military Academy of the General Staff of the Russian Armed Forces, familiarize himself with the instructional facilities and campus of the Academy and address the faculty members and officer cadets. Military cooperation between Russia and Italy develops under bilateral agreements in the fields of defense and military-technical cooperation. The agreements, signed in November 1996, became the first bilateral documents of such a high level of trust concluded between Russia and a NATO member-country. Rus-Italian military agreements are aimed at developing bilateral cooperation in the elaboration of concepts of security, arms control, reductions in the Armed Forces, and co-development of new military hardware. The agreements also envisage the holding of joint military exercises and peacekeeping operations within the framework of the peacemaking initiatives of the United Nations, the Organization for Security and Cooperation in Europe, and NATO's Partnership for Peace program.

Russia To Increase Arms Export Sales

· Data revealed by director general of Russian arms seller Rosvooruzheniye

Russian Federation

Politics

UN Report Drops Russia's Industrialize Status

· At UN headquarters on Tuesday the UN Development Program (UNDP) agency presented a report on the development of human potential in Russia which shows that Russia by the mid-1990s had dropped out of the group of industrialized nations. Experts took into account many indicators, including the level of production of the gross domestic product in its absolute expression and in per capita indicators, incomes of population, the level of outlays for medical service, property and social stratification, regional differentiation, concentration of wealth and prosperity in some cities and raw material regions as well as a drop in social maintenance in most regions. The experts advise Russia that to resume an economic growth, the government needs to stimulate the investment process, mobilize domestic and foreign sources of financing, define clearly priority areas of investments, and channel them to key industrial sectors. The report's authors give special attention to the role of the state in preserving and developing the human potential in Russia. The report on the development of the human potential in the Russian Federation is the third prepared by independent UNDP experts. Russian chief delegate to the United Nations Sergei LAVROV noted at the presentation that it does not necessarily reflect the opinion of the Russian government on all questions under consideration.

Yeltsin Appoints New Deputy Security Chiefs

· Russian President Boris YELTSIN named two new deputy secretaries to the Security Council of the Russia, Tuesday. The two newly-elected deputies are Vladimir POTAPOV and Grigoriy RAPOTA. Earlier YELTSIN named Mikhail MITJUKOV as the first deputy secretary of the Security Council of Russian.

Today's News Highlights

Russia

Rubles Traded on CME

Sibirenergo Presents Strategy

European Republics

Ukraine Projects Growth In 2006

Belarus On CIS Reform

Lat.Businessmen's Demands

South Caucasus & Central Asia

US,UK Remove Nuclear Material

Uzbek Receives $60.4M Loan

Niyazov'z Official Visit To USA

Politics-Economics-Business

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Wednesday

April 22, 1998

Intercon's Daily

Yevgeny ANANYEV at a closed meeting of the Russian State Duma Defense Committee show that Russian weaponry exports could total $3.5 billion this year, which is an increase of $1 billion form 1997. ANANYEV said the increase reflects the creation of a new system of military cooperation which has been approved by a Presidential decree. According to the Rosvooruzheniye, last year Russia received the scheduled $2.4 billion of net foreign currency receipts. As for now, signed weapon orders exceeds $8.5 billion and may reach $9 billion by year's end, including orders subject for implementation before 2003. The orders will keep the national defense industry to full capacity for years to come. ANANYEV said Russia has stopped, "handing out weapons free of charge, which had been practiced before and often described as a success in yearly reports."

Economy

Ruble = 6,131/$1.00 (NY rate)

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

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

Rubles Traded On Chicago Mercantile Exchange

· Deputy Chairman of Russia's Central Bank Alexander POTEMKIN on Tuesday rang the bell at the Chicago Mercantile Exchange (CME) to open the trading of Russian ruble futures and options contracts. POTEMKIN, Managing Director of the Moscow Interbank Currency Exchange (MICEX) Alexander ZAKHAROV and CME officials signed a memorandum of understanding on future cooperation, formalizing the exchanges' intent to create agreements for sharing information for market surveillance purposes, and for the MICEX to license the CME to use the MICEX dollar/fixing. POTEMKIM said trading in futures and options outside of Russia will help boost foreign capital investments and allow foreign investors to better mange foreign exchange risks. Trading in rubles is also expected to help build liquidity in Russia. The government had been experiencing cash flow problems as it tries to collect back taxes from corporations and individuals. CME chief executive Rick KILCOLLIN said, "The launch of Russian ruble futures and option at the CME opens new opportunities for Western investment in Eastern Europe. CME Chairman Scott GORDON said, "Customer demand for Russian ruble contracts had been strong." Although there is support for the ruble,

uncertainty linked to the political instability in Russia, leaves the ruble futures vulnerable to sharp declines in prices.

Business

IFC Buys 8 Percent Stake of Toribank

· The International Finance Corporation (IFC) has made its first direct equity investment in Russia's banking sector by purchasing an 8 percent stake in Toribank for 75 million rubles ($12.3 million). The IFC investment will support Toribank's development and growth, including the expansion off its branch network and entry into project finance. To date, IFC has approved more than $100 million of investments in Russia's financial market infrastructure and approximately $400 million in other forms of investment in the country. Director of IFC's Eastern European operations Edward NASSIM said that the IFC planned to invest $855 million in the Russian economy by June 1998, including $250 million in industry and $200 million in the securities market. The remainder is to be invested in the electricity, oil and agricultural sectors. Toribank is noted because it established an interbank clearing network that provides a wide range of banking services to more than 500 small and medium sized banks throughout the CIS. At the end of 1997, Toribank, with assets totaling $810 million, was one of Russia's most important government securities dealers. It is Russia's 22 largest bank in terms of assets. Toribank is majority owned by six Russian trading companies.

Chubais To Be Head of UES?

· Acting First Deputy Prime Minister Boris NEMTSOV and Yegor GAIDAR, leader of the Democratic Choice of Russia party and the director of the Institute of Economic Problems of the Transitional Period, on Monday insisted on the appointment of Anatoly CHUBAIS as chairman of the Management Council of the United Energy Systems (UES) of Russia, while former Prime Minister Viktor CHERNOMYRDIN has stated that CHUBAIS is ill-suited for the position. In a meeting GAIDAR held at his institute, attended by representatives of the media controlled by Uneximbank, Moskovsky Komsomolets daily, and Kommersant-Daily, a decision was made to launch a media campaign in support of CHUBAIS and show a difference between the President and the "oligarchs." CHERNOMYRDIN meanwhile said, "I already told him [CHUBAIS]: this work is not for you,

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

April 22, 1998

Intercon's Daily

you're not capable...One shouldn't bring trouble to a company like UES." UES is in the center of a major financial crisis. The company is owed, and owes, hundreds of millions of dollars. Reformers are pushing to have CHUBAIS appointed to UES to cut the knot of unpaid bills, which is slowing economic growth. The Russian government, which owns a controlling stake in UES, can choose the company's top executive, but acting Prime Minister KIRIYENKO has refused to reveal the government's choice.

Sibirenergo Presents Strategy

· The Collegium of the Sibirenergo, a regional branch of the United Power Grids of Russia (UPGR) joint-stock company on Tuesday met to develop a strategy for activities in 1998 and review results of 1997. The debt crisis for the supplied power was discussed. This applies primarily to enterprises and organizations which are financed from the budgets of various levels as well as those of resellers of energy, such as community electric powers and heating networks. Users owe 1,166,000 million rubles to Omskenergo alone, which is a subsidiary of Sibirenergo. Available funds do not suffice even for repair and restoration work and the maintenance of the serviceability of power stations, electricity and heating supply networks, not to mention the reconstruction or building of new facilities. Sibirenergo is the country's major energy association which covers Western and Eastern Siberia.

Ukrainian medium-long-range economic projection since its independence in 1991.

Belarus Proposes CIS Reform Plan

· Belarus said it has its own view on CIS reform and proposed to create two working groups at the level of deputy prime ministers to deal with the CIS structure and a free trade zone. Minister for CIS Affairs Valentin VELICHKO Monday proposed that, "Belarus could oversee structural reorganization" and Ukraine could head the group for a free trade zone. "We should not think that the CIS will enter a new stage of development on the following day after the CIS summit on April 29," the minister stressed. He believes that, "no hasty decisions" should be made now and made it clear that CIS reform will require long and meticulous work which should take into account, "the national peculiarities of each country."

Latvian Businessmen Demand Dialogue

· Latvian businessmen sent a letter to President Guntis ULMANIS demanding that the politicians start a dialogue with Russia and request to estimate the ability of the government to overcome the economic, political and social crisis. The businessmen met with ULMANIS on Tuesday. They agreed that the first move towards the normalization should be made by changing the Latvian citizenship law. They expressed their alarmed at the shortsighted policy of the authorities, which results in the loss of selling and raw material markets in the East. Businessmen believe that the opinion to change the Latvian orientation towards the West as "unjustified." Serious drawbacks of the foreign policy created a possibility of economic sanctions against Latvia. The possibility of sanctions has already affected enterprises, which employ both Latvians and other nationalities.

South Caucasus & Central Asia

US, UK Assist Georgia in Uranium Removal

· The United States and Britain have begun a secret operation to remove nuclear material from a reactor located outside the town of Mtskheta 20 kilometers north of Tblisi, Georgia. American military and civilian personnel are packing up the supply, which includes 8.8 pounds of highly enriched uranium and 1.76 pounds of highly radioactive spent fuel. The materials will be flown to Britain for reprocessing. US Secretary of State Madeleine ALBRIGHT said in Washington on Tuesday that the secrete operation

European Republics

Ukraine Projects 5 Percent Growth By 2006

· Ukraine's annual economic growth rate is expected to reach five percent by 2006, according to government projections. The cabinet approved the medium-long range economic projections up to the years of 2000 and 2010 on Tuesday. Deputy Economic Minister Igor SHUMILO said that these estimates are guided by the principles of financial stability, economic freedom, investment stimulation and structural reshaping. According to the medium range estimation, by the year 2000, the projected gross domestic product (GDP) will increase to 4 percent, with the inflation rate falling to 6.5 percent and total investments amounting to 18.5 billion gryvna ($9.1 billion), Itar-Tass reported. The long-range projection spells out the economic future for the next 13 years, indicating stable GDP growth from 2006 to 2010 of between four and five percent. This is the first

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Wednesday

April 22, 1998

Intercon's Daily

was needed so that the nuclear fluid would not fall into, "the wrong hands," meaning Chechen rebels, Georgian extremists, Iran, or other aspiring nuclear powers. Head of the Georgian Parliament's Defense and Security Committee Rezo ADAMIA explained the secrecy stating, "If there is secrecy, it's because the Americans want it since this involves the movement of some quantity of uranium." Georgia admits that it wants to get rid of the uranium and officials have offered it for sale on the condition that it not be used for military purposes. Washington has offered to buy the material and has also helped install a new security system at the Georgian facility. The US has undertaken a similar operation before, when it removed 600 kilograms of highly enriched uranium from Kazakhstan in 1994. Britain has volunteered to accept the uranium, after the US declined due to potential protests from American environmentalists.

Uzbek Receives IFC Loan For Agriculture

· Uzbekistan has signed an agreement with the International Finance Corporation (IFC) to invest $60.4 million in three different projects aimed to modernize and support Uzbekistan's agricultural sector. UzCaseMash will receive funds to help construct an assembly plant for Case cotton pickers and grain headers through a joint venture between Case Equipment Holdings Ltd, the Uzbek state agriculture machinery association Uzselkhozmashholding, and Uzbek agriculture equipment producer PO Tashselmash. UzCaseService will provide technical support and maintenance for agricultural equipment through a dozen service centers which will be established. This is a project organized through the joint venture of Case Equipment Holdings Ltd, Uzselkhozsnabremont, the Uzbek procurement agency for agricultural equipment, Uzselkhozmashholding, and the Uzbek Banking Association. UzCaseagroleasing will provide will provide farms access to long-term credit by writing medium-to-long-term leases to acquire modern equipment and machinery. This project is a joint venture between Case Credit Holdings Ltd. and the Uzbek Banking Association. Agricultural production ac

counts for 30 percent of Uzbekistan's gross domestic product, 60 percent of the country's export profits, and employs 40 percent of the total labor force.

Niyazov On Pipelines and Democratic Reforms

· Turkmen President Saparmurat NIYAZOV has arrived in the United States for his first official visit. NIYAZOV plans to meet with US Secretary of State Madeleine ALBRIGHT today and US President Bill CLINTON on April 23. The President of Turkmenistan will also have meetings with Secretary of Energy Frederic PENA, Secretary of Commerce David ARON, CIA Director George TENET and other US administration officials. NIYAZOV will meet executives of the Sikorsky Company, which intends to replenish Turkmenistan's air fleet with helicopters, Shell, Mobil, and other oil companies, as well as companies which supply farm machinery to the cotton and grain fields of Turkmenistan. The priority of talks with NIYAZOV is part of a US strategy to get key Caspian Sea leaders to back a Washington endorsed proposal for a pipeline that would carry oil and gas from Turkmenistan across the Caspian to Baku. On Tuesday speaking to Johns Hopkins University's Central Asian Institute, the Turkmen leader said, "We are for multiple pipelines [in the Caspian region] and we are talking about various versions," including proposals to route the energy corridors through Afghanistan, Iran, Turkey and Azerbaijan. NIYAZOV hopes that multiple pipelines will grant Turkmen independence from Russia's control over its oil exports. Since March 1997, Russia's hold on Turkmen oil exports reduced the 1997 exports to less than one-eighth of the 1991 volume. On Monday at an event sponsored by the Eurasia Group and Council on Foreign Relations in New York, NIYAZOV criticized the US for pressuringTurkmen into premature democratic reforms. He said that his country has, "its own way of political, social, and economic development. When asked about former Foreign Minister Avdy KULIEV who was released from custody on Monday, NIYAZOV said no one had done anything to him. However, more dissidents have been released.

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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