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 29, 1998

Russian Federation

Politics

CIS Appoints Yeltsin, Berezovsky, Korobko

· Russian President Boris YELTSIN has been appointed Chairman of the Commonwealth of Independent States (CIS) Council of the Heads of State until the year 2000. Uzbekistan President Islam KARIMOV moved that YELTSIN remain as the Council Chairman. KARIMOV referred to such a decision as, "the only right one," considering the strategic development interests of the CIS which is on the threshold of reforms. KARIMOV has faith that YELTSIN can quash all doubts of the deterioration of CIS relations.

Russian business tycoon and controversial political power Boris BEREZOVSKY was unanimously appointed to the post of executive secretary of the CIS. His candidacy was proposed Wednesday by Ukrainian President Leonid KUCHMA. YELTSIN expressed concern that a negative reaction in the public and media would be spread today saying, "I believe that many will explode tomorrow. You reporters will also explode. But you will swallow this appointment, since it is for the sake of business." BEREZOVSKY replaces Ivan KOROTCHENYA who had been CIS Secretary since May 1993. Many leaders noted that it was time for the CIS to renovate itself. Leaders said that they chose BEREZOVSKY for his business experience and his, "considerable diplomatic and organizational abilities." BEREZOVSKY said, "it is high time for resolute steps to build a real Commonwealth of Independent States. Time will show what form it will take." The headquarters for the CIS bodies will remain in Minsk. BEREZOVSKY was sacked from the Russian Security Council in November, where he was deputy secretary.

Major-General Sergei KOROBKO was appointed CIS peace keeping force commander in the zone of conflict between Georgia and its independence-seeking region of Abkhazia. Right after the appointment, Georgian President Eduard SHEVARDNADZE invited KOROBKO to visit Georgia.

CIS Future Entangled With Lack Of Progress

· A meeting of the Council of the Heads of State of the Commonwealth of Independent States (CIS) opened in the Kremlin today. Russian President Boris YELTSIN said in his opening remarks that, "The peoples of CIS countries expect us not only to make statements on how the CIS should develop but, first and foremost, take actions, concrete practical steps in this respect." Following a successful presentation of his 10 point program on integration to the Custom Union of Four, Kazakhstan President Nursultan NAZARBAYEV expressed extreme dissatisfaction with the summit. He said concrete talks on reforms in the CIS has "landed nowhere." Many speculate that the Kazakh President's bitter attitude may keep him from attending future summit meetings or at least from proposing similar measures. Russian officials said that NAZARBAYEV outlined his proposals for CIS reforms and management structures. He was hoping for a decision to be made on his proposal today, however, other participants said that these problems should be resolved at an interstate forum in July. YELTSIN emphasized at the Council of Heads of State plenary meeting that an inter-state forum on a reform of the CIS needed very serious preparations and

Today's News Highlights

Russia

Cabinet Reveals Russian Duality

April Inflation Predicted

UES ADR's Put On Hold

European Republics

US Releases Aid To Ukraine

Confidence Vote On Lat. Gov't

South Caucasus & Central Asia

Azeri-Armeninan Presids. Meet

Armenian Legalizes Arms

Kazakh To Sell Soviet Weapons

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that would be one of the main tasks of newly appointed CIS Secretary Boris BEREZOVSKY and his staff of 2,000.

Cabinet Reveals Duality of Russian Policies

· Russian President Boris YELTSIN and Prime Minister Sergei KIRIYENKO met on Wednesday to review candidates for the new cabinet. YELTSIN approved in general the new line-up of the government presented by KIRIYENKO, although some changes are still needed. Conforming to the federal law on the government, the new Cabinet will have no First Deputy Prime Ministers, but three Deputy Prime Ministers. Former First Deputy Prime Minister Boris NEMTSOV and Deputy Finance Minister Viktor KHRISTENKO were appointed Deputy Prime Ministers. The final Deputy Prime Minister and other appointments are expected to be announced on Thursday. NEMTSOV said he will actively work to push reforms and that his powers as deputy Prime Minister, "will be even broader." KHRISTENKO, only in the government for less than a year, had been in charge of relations between regional and federal budgets, since being brought to Moscow from Chelyabinsk by former first deputy Prime Minister Anatoly CHUBAIS. These two young financial reformers NEMTSOV and KHRISTENKO will be the two senior most officials in the Cabinet, representing the next generation of politicians. YELTSIN appointed Alexander TIKHONOV as the new Education Minister.

YELTSIN, as expected, reappointed Foreign Minister Yevgeny PRIMAKOV, Defence Minister Igor SERGEYEV, Finance Minister Mikhail ZADORNOV, Interior Minister Sergei STEPASHIN, one of the architects of the Chechen debacle, Emergencies Minister Sergei SHOIGU, and Transportation Minister Nikolai AKSENENKO to the Cabinet.

Comment: The new cabinet composition illustrates the contradictory nature of the Russian government. With one foot in the past and another foot stepping forward into the future, analysts wonder how a coherent policy can be fashioned between such vastly different world-views. Are these internal forces destined to split Russia's and sap it of its true promise? KIRIYENKO's Cabinet is developing into a mixture of a new generational leaders seeking reform and the old guard which are most comfortable with the trappings of the past the yearnings for a return to the "Great Russia" of history. KIRIYENKO

has not described his economic agenda in detail, but has repeatedly said that the new government will continue to purse the previous government's course of economic reform. But can his policies and personality work with the hawkish nature of Russia's Foreign Minister. While PRIMAKOV psychologically soothes the wounded pride of a large segment of the population, his arrogant and shrill statements and actions are terrifying its neighbors. This tension between a reforming domestic policy and a foreign policy of an quasi imperial nature continues to trouble western and CIS analysts. The question remains whether Russia can further develop democratic institutions to interact with international organizations under these contradicting policies. Can it develop the basis of trust and confidence among its neighbors which are essential for economic prosperity and success throughout the area. The rough tactics of intimidation and bullying are destined to be counterproductive and injurious to Russia's foreign economic interests. This approach was epitomized by PRIMAKOV's speech at the Moscow State Institute of International relations on Tuesday regarding the dispute with Latvia over the rights of ethnic Russian residents, which carried a Soviet tone and revealed a reversal of progress made since 1991. Recalling a Soviet era image of Russia, PRIMAKOV stated that the events in Latvia, "have finally aroused the bear...We shall not yield ground in these matters." He added that Moscow will respond in an appropriately vigorous manner.

Kiriyenko Appointed Chairman of BRU

· Belarus President Alexander LUKASHENKO met Russian Prime Minister Sergei KIRIYENKO on Wednesday and handed over to him a decision by the Presidents of Russia and Belarus to appoint him the Chairman of the Executive Committee of the Belarus-Russia Union (BRU). The two Presidents'` reached the decision during a meeting in the Kremlin on Tuesday. LUKASHENKO stated that, in his view, all problems between Russia and Belarus must be tackled, "promptly and resultatively in the interests of our two States." KIRIYENKO expressed confidence that the BRU will continue to develop, emphasizing that accords should be strictly implemented. During the ensuing talks, in which Belarus Prime Minister Sergei LING also took part, the two sides discussed matters aimed at furthering integrational processes within the framework of the BRU and at developing

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bilateral economic relations, including those in the fuel and power sector.

Economy

Ruble = 6,108/$1.00 (NY rate)

Ruble = 6,133/$1.00 (CB rate)

Ruble = 6,109|6,157/$1.00 (buy|sell rates)

April Inflation Predicted

· Chairman of the Central Bank of Russia Sergei DUBININ at the 8th congress of the Association of Russian Banks said that inflation rates in April are expected to remain at the level of 0.4 to 0.5 percent. According to DUBININ, if this tendency remains unchanged until the end of the year it may be possible to meet the government target of lowering inflation to 8 to 10 percent in 1998.

Business

UES ADR Program On Hold

· The Bank of New York has put the American Depository Receipts (ADR) program for Russia's national electric company United Energy Systems (UES) on hold until further notice. Vice President Tom STANFORD said that the program has been canceled, but that clarification on a new ruling with respect to foreign ownership limits of UES was needed. Last week, the Federation Council overrode Russian President Boris YELTSIN's veto of a law limiting foreign ownership in UES, which owns the national grid as well as major stakes in regional generators and utilities, to 25 percent of capital. STANFORD said significantly less than 25 percent of shares were held as ADR's, but that the bank was complying with a request from UES itself to suspend the program. The Federation Council law required the government to keep a 51 percent stake in UES, which controls 75 percent of Russia's electricity. Foreigner investors currently own 28 percent of shares in UES.

Meanwhile, Unified Energy Systems' Board Tuesday approved a list of candidates for the Board of Directors of the company, which was made up by the collegium of state representatives in the company. The new Board of the company is to be elected at an annual general meeting in June, member of the Unified Energy Systems of Russia Board of Directors, deputy head of the Gazprom management

Pyotr RODIONOV explained. The approved list includes the names of Anatoly CHUBAIS and Yevgeny YASIN. Boris BREVNOV, formerly the head of company management, is not on the list. The need to elect a new Board of Directors is the result of a Russian laws requiring the election of the Board at a general meeting of the company.

European Republics

US To Release $100 Million to Ukraine

· US Secretary of State Madeleine ALBRIGHT has formally notified Congress that the CLINTON administration will release nearly $100 million in aid to Ukraine. Congress had legislated a freeze on $100 million of US aid to Ukraine, which receives a total of $225 million from Washington, after 12 American companies complained their efforts to conduct business had become mired in red tape and corruption. The freeze could not be lifted unless the Secretary of State certified Ukraine was making progress toward settling the complaints. ALBRIGHT expressed her satisfaction that Ukraine has begun addressing complaints from American investors. "Despite the certification, the secretary of state still remains extremely concerned about the overall business climate in Ukraine," State Department spokesman James RUBIN said. Albright, who released the announcement during a flight from Tokyo to Beijing, said only six of the 12 cases had been resolved. Until the remaining complaints are settled, including one by Proctor and Gamble, RUBIN said 10 to 15 percent of the aid will remain frozen.

Latvian Government Teeters On Existence

· The Latvian parliament is set to debate two documents on the executive power of the country on Thursday which could put an end to the government. One documents contains a proposal to take a no-confidence vote on Prime Minister Guntars KRASTS and the other, on his government. On Wednesday KRASTS formed a new cabinet based on the new ruling six party coalition. Andrei KRASTINSH of the National Reform Party has been appointed Interior Minister and Laimonis STRUJEVICH of the Farmers' Union as Economic Minister. Both replace members of the leftist Democratic Party Saimnieks, which quit the coalition earlier this month. Finance Minister Robert ZILE and Foreign Minister Valdis BIRKAVS retained their positions. KRASTS said, "I have never really doubted it and I am still certain that we will pass

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the vote of confidence." President Guntis ULMANIS is also confident that the cabinet and its head will remain at the helm of the country. Leader of the opposition Party of People's Accord Janis JURKANS agreed that KRASTS would retain his post.

South Caucasus & Central Asia

Georgia Cuts Comm. Lines To Border Troops

· The Georgian Communications Ministry has cut direct communications lines to the "Georgia" troops of the Caucasian Border Guard District from Russia, which are defending the Georgian state border jointly with Georgian border guards. The Georgian Communications Ministry declared that communications lines to the border guard unit had been cut off because of overdue debts for services provided by Georgian communications workers. However, under the terms of the agreement signed between Russia and Georgia, the Georgian side is to cover 40 percent of all expenses on the upkeep of these troops. The debt of the "Georgia" formation may be offset by funds owed to them by Georgian authorities, which accumulated during the period when actually no money had been paid out of the 40 percent support ought to have been given by the state, the press service said. Despite the fact that communications lines have been cut off the "Georgia" troops continue to perform its duties as envisaged in the agreement.

Armenian-Azeri Presidents Meet

· Armenian President Robert KOCHARYAN and Azerbaijan President Geidar ALIYEV met in Moscow on Tuesday to discuss the problem of Nagorno-Karabakh conflict. The two leaders released a joint statement saying, "The Azerbaijan Republic and the Republic of Armenia confirm their adherence to the political peace settlement of the Karabakh armed conflict through negotiations within the framework of the OSCE Minsk Group and express their readiness to abide by the cease-fire regime introduced in May 1994." According to the statement, Azerbaijan and Armenia are committed to achieving real progress in

the settlement. KOCHARYAN said there is a great potential and possibilities, and all obstacles on the way of the settlement should be removed. This was the first meeting of these two heads of state since the election of KOCHARYAN as President. The date of a new meeting was not set, but both sides agreed to hold future meetings as needed.

Armenian Parliament Legalizes Weapons

· Armenian lawmakers on Monday approved in the first reading a bill permitting citizens to acquire non-automatic weapons provided that they have a license from the local police, RFE/RL's Newsline reported. The draft law also permits the production and private trade of such arms, but imposes restrictions on the purchase of ammunition.

Kazakh Tries To Sell Soviet Weapons

· Kazakh Defense Minister General Mukhtar ALTYNBAYEV on Monday said that his country is considering selling military hardware inherited after the collapse of the Soviet Union to bolster the state budget. Kazakhstan opened a three day exhibit of its military-industrial complex on Monday, which includes military plants and a huge arsenal of outdated weapons. Products made at these plants ranged from meat mincers to telecommunication systems. ALTYNBAYEV admitted that since the weaponry is outdated, "it looks like third-world countries will buy [it]." Reuters quoted an unnamed Kazakh army colonel as saying MiG-21, MiG-23, and MiG-25 fighters would retail for $150,000 to $180,000 and Mi-8 helicopters for $70,000. Those attending the exhibit do not believe such sales are realistic since the weapons are basically obsolete. Today, the Defense Ministry announced that India is interested in buying 40 MiG fighters for training purposes. Deputy Defense Minister Amangeldy KOZHIBAYEV said, "If the buyer wants, it will not be difficult to mount all the necessary arms," on the jets, which are regularly sold without arms. Kazakhstan did not reveal any further details regarding the sale. News of the sale further bolsters the US concern over the growing stakes in India and Pakistan's arms race.

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