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

Thursday, April 30, 1998

Russian Federation

Politics

Military Atomic Centers To Be Cut

· The Russian Atomic Energy Ministry is expected to shut down military atomic scientific centers in 1998. By 2003 to 2005, all defense sector military research will be concentrated in two scientific centers and one scientific-production center. The ministry did not release the names which centers will be closed, but Arzamas-16 and Chelyabinsk-70 will most likely be left open. The reduction is based on programs in connection to the development of the military nuclear complex for 1998 to 2005 and the conversion of atomic sector companies for 1998 to 2000, adopted by the ministry. One of the reasons for this restructuring is the lack of state funding for the defense order. In 1997, it received only 30 percent of the money allocated for it by the budget. The debt of federal government to atomic centers totals 306.1 million rubles ($50 million).

Rus-China Deputy FMs Prepare For Meetings

· Russian Deputy Foreign Minister Grigory KARASIN and his Chinese counterpart ZHANG Doguang met in Moscow on Friday for working consultations and discussion of a wide range of issues related to bilateral relations and international problems. The sides focused on preparations for the first informal meeting of Russian President Boris YELTSIN and Chinese leader JIANG Zemin, expected to be held in Russia in September. The two sides also discussed trade and economic cooperation and considered setting up bilateral sub-commissions for cooperation in different sectors of economy. KARASIN and ZHANG also expressed appreciation for the working groups set up in the framework of border issues and laid down the guidelines for continuing talks. The sides expressed satisfaction over the work done to open a communication "hot line" between Moscow and

Beijing. The consultations were held in the atmosphere of sincerity and mutual understanding. Both sides admitted the meeting was timely and useful.

Economy

Ruble 6,133/$1.00 (NY rate)

Ruble = 6,134/$1.00 (CB rate)

Ruble = 6,108|6,160/$1.00 (buy|sell rates)

Russian Banking Association Congress Opened

· Russian President Boris YELTSIN addressed the opening of the eighth congress of the Russian Banks Association in Moscow on Monday. The President noted that the contemporary banking system in Russia serves as a positive result of market reforms. However, he added that, "Regrettably, a number of banks proved unable to cope with the unfavorable situation, with consequences of the crisis of nonpayment and problems of internal management. It is now very important to reduce to the minimum the effects of these negative processes for the economy and society." He proposed that commercial banks should give larger financial backings to domestic producers.

The association's president Sergei YEGOROV said the combined capital of Russian commercial banks rose 26.5 percent in 1997 and totaled 112.3 billion new rubles ($19 billion) as of January 1998. The problem remains in the public's confidence in Russian banks and in the ruble. Inkombank head Vladimir VINOGRADOV estimated that Russian citizens

Today's News Highlights

Russia

GDP To Grow At 5 Percent 2001

NetSet-Maccomnet Sign Accord

European Republics

Kuchma Critic Removed

Estonia Reviews Early Election

South Caucasus & Central Asia

Georgia On CIS, Abkhazia

Kyrgyz Pres. Ends China Visit

New Kazakh Min. Seeks Power

Kazakh To Build New Railway

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held some $35 billion worth of foreign currency in cash as of 1 January. YEGOROV said it has become much easier for Russian businesses to borrow money, as annual interest rates for three-month commercial loans issued by banks have dropped from roughly 66 percent to 25 percent. However, real interest rates remain extremely high, since inflation in 1998 is expected to total less than 10 percent.

Central Bank Chairman Sergei DUBININ said 25 percent of Russian banks have "serious problems," but added that those banks have a combined total of only 5 percent of all assets in the banking system. DUBININ predicts that 350 to 400 Russian commercial banks will be closed over the next two years. As of January 1998, there were some 1,700 commercial banks in Russia.

Tax Commission To Raise Federal Revenue

· Russian Prime Minister Sergei KIRIYENKO said Russia's Presidential Tax Enforcement Agency, VChK, has approved a Comprehensive Plan to raise federal revenue drafted by the State Tax Service. He said that several presidential decrees to support the plan will follow, which will lift exemptions for closed administrative entities and restore a right of the tax police to arrest debtors' assets, KIRIYENKO specified. According to the Prime Minister, the major task is to give the State Tax Service and tax police a right to make a claim to liquid accounts payable of debtor businesses and sell them by auction to cover the firms' debt to budget. "This is a severe measure, and the government understands that it will be painful for many debtor enterprises...But nobody has said that measures to enforce budget revenue must be kind and tender," KIRIYENKO said.

Russian GDP To Grow By 5 Percent In 2001

· Deputy Finance Minister Vladimir PETROV announced that according to a medium-term budget Russia's gross domestic product (GDP) is projected to grow by 1.5 to 3 percent in 1999, by 4.4 to 5 percent in 2000 and by 5 percent in 2001. Inflation in the next three years will be 4.5 to 5.5 percent a year. PETROV said one of the key elements of the medium-term budget will be a long-term program of borrowing adjusted to take into account the need to reduce government debt servicing from 31.8 percent in 1998 to 28 percent by 2001. He said the debt should be reduced from 4.74 percent to 2.5 percent of GDP. PETROV stressed that large borrowing is bad for

economic growth because it increases the average credit rate, adding that the Finance Ministry plans to give up large borrowing by 2001.

Business

Government Threatens Deal With TOC

· Russian Prime Minister Sergei KIRIYENKO said the government may terminate its contract on the sale of shares in the Tyumen Oil Company (TOC), if the company fails to pay 600 billion old rubles ($98 million) owed to the Pension Fund. KIRIYENKO said that the meeting of the Presidential Tax Enforcement Agency (VChK) approved a schedule of debt payments for the TOC. He threatened that if the company failed to meet these payments the, "state will take all legal and juridical-substantiated measures to influence it." If the government does not have enough juridical grounds to terminate the contract, it will punish concrete officials in the Russian Federal Property Fund and the State Property Ministry for their, "failure to protect the interests of the state."

Denmark's NetSet Signs Agmt. With Macomnet

· The Danish Internet product firm NetSet has signed a sales agreement with Macomnet, a telecommunications provider based in Moscow. Terms of the deal allow Macomnet to resell NetSet's Masquerade local area network (LAN) Internet system into Russia. Macomnet's director of business development Vladimir KUZNETSOV said the company is experiencing an increase in demand for easy-to-use Internet products. NetSet's Masquerade is as an easy-to-use, all-in-one Internet product designed for small- to medium-sized businesses. Masquerade effectively connects a small business to the Internet in a matter of minutes, providing everything needed to fully take advantage of the Internet, including connectivity via ISDN (integrated services digital network) or leased lines, firewall for secure access, mail server, Web server for electronic publishing, and intranet services. The Masquerade LAN has significantly reduced the cost of entry associated with connecting a company to the Internet. Macomnet is a joint venture between Moscow Metropolitan of Russia and Andrew Corporation of the US. The firm operates a fiber optic network in Russia more than 1,500 kilometers in length and is known for providing high quality telecommunications to its customer base of banks, embassies, hotels, and other telecommunications carriers.

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European Republics

Kuchma Critic Stripped Of Parliamentary Seat

· Serhiy HOLOVATY, a former justice minister and critic of Ukrainian President Leonid KUCHMA's administration has been stripped of his parliamentary seat last Friday when a Kiev court annulled election results in his district, the Financial Times reported. Natalia VITRENKO, leader of the ultra radical Progressive Socialist Party and Yuri OROBETS a member of HOLOVATY's election bloc Forward Ukraine also had their seats pulled. Courts are still reviewing election results from 21 other districts, most involving opposition figures or communists. HOLOVATY believes the court was influenced by the KUCHMA administration, which view him as a political threat. HOLOVATY led a campaign against corruption in the government last year, which subsequently ran him out of office. Last month, 16,000 Ukrainian and foreign observers monitored the elections and declared that voting was free and fair.

Belarus And Opposition Hold Press Talks

· Belarus government officials and opposition activists met Wednesday to discuss press freedoms, sponsored by the Organization for Security and Cooperation in Europe (OSCE). The two sides failed to reach a common agreement. Deputy head of the OSCE mission in Minsk, which opened in February, Hanspeter KLEINER said the OSCE was working on a plan to transfer control of state television form the government to a more independent "state board." Opposition groups have accused the government of censoring the press and television. Head of the Belarus State Committee for the Press Mikhail PADHAYNY said that, "There is no censorship...out of the 44 newspapers in the republic, only five are state controlled," RFE\RL Newsline reported.

Estonian PM, Cabinet Consider Early Elections

· Estonian Prime Minister Mart SIIMANN on Wednesday called an emergency Cabinet meeting to discuss the possibility of an early election. Elections are scheduled for March 1999. As leader of a centrist coalition which has 37 seats in the 101 seat parliament, SIIMANN has become frustrated at failing to forge an alliance for a stable majority in the parliament. SIIMANN's Coalition Party does not want to take sole responsibility for tough decisions needed for Estonia to join the European Union (EU). Today,

SIIMANN met with opposition Reform, Fatherland, and Moderate Parties to discuss possible early elections. Junior coalition member, the Country People's Party, Rural Union, and Pensioners and Families League are opposed to early elections and want SIIMANN to continue as Prime Minister. Government press spokesman Danil VAARIK said, "He personally thinks that this might be the time to go to the people. This does not necessarily mean anything other than the government is meeting and discussing possible options." However, only Estonian President Lennart MERI has the power to call new elections and must nominate a Prime Minister. He could nominate SIIMANN again. The parliament also has the right to nominate a Prime Minister.

Estonian President MERI has concluded an official visit to Poland, after meeting with President Aleksander KWASNIEWSKI, parliament leaders and the prime minister. The two sides agreed to sign an agreement on free trade. Estonia expressed an interest in Polish military radar systems.

South Caucasus & Central Asia

Georgia Pleased With CIS, Abkhazia Mandate

· Georgian President Eduard SHEVARDNADZE on Wednesday expressed his satisfaction with the C Commonwealth of Independent States (CIS) summit and its approval of the Abkhazian Mandate. SHEVARDNADZE said admitted that the CIS is needed but he added that it must undergo radical restructuring and reorganization to meet its members needs. He said that, "all CIS countries are going through such a stage of development when it is very hard to achieve political and economic results without mutual support, understanding and cooperation." He further described that the CIS should not be a closed structure but should develop, "in the wake of the processes which are characteristic of Europe and the whole world." He believes that if the CIS follows this path, it will soon find its place in the world economy. "At this stage, we should not seek to create a bulky economic system. We should instead discuss the principles of free trade, bilateral and multilateral relations," the President said.

SHEVARDNADZE welcomed the new mandate on Abkhazia, approved by eight out of 11 CIS summit participants, saying it will help promote a peaceful

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settlement with the breakaway region. The mandate extends the troops' operations. Georgia had threatened to ask the force to leave if it did not take on an expanded mandate. SHEVARDNADZE said, "I know that my colleagues in Abkhazia will not accept everything with enthusiasm, but I think we got a document that will help us resolve some of the complex problems of reconciling the two peoples—Abkhaz and Georgians. There is no other way." He repeated that Georgia is prepared to grant Abkhazia broad autonomy within a federal state and could offer the region the speakership of a new upper house of parliament. As Intercon reported the CIS appointed Major-General Sergei KOROBKO to command the CIS peace keeping force in the zone of conflict between Georgia and Abkhazia. SHEVARDNADZE invited both KOROBKO and Russian Defense Minister Igor SERGEYEV to visit the region.

Kyrgyz President Concludes Visit To China

· Kyrgyz President Askar AKAYEV completed a five day visit to China today. During his visit, AKAYEV met with Chinese President JIANG Zemin, Chinese Prime Minister ZHU Rongji, speaker of the parliament LI Peng. The two Presidents signed a declaration of friendship on Monday. ZHU stated that bilateral trade has increased 1,000 percent since 1992. AKAYEV invited China to buy antimony and hydro-electric power from Kyrgyzstan and invest in other Kyrgyz hydro-electric projects. AKAYEV, JIANG, and LI focused their talks on the CIS Chinese border agreement, which includes Russia, Kazakhstan, and Tajikistan. The two nations agreed to develop economic ties, improve road, rail, and aviation links, increase cooperation in environmental protection, and work together to fight organized crime, terrorism, and drug and arms smuggling. Kyrgyzstan affirmed its recognition of Beijing's position on Taiwan, Tibet and Xingjiang. AKAYEV said his government, "stands wholly on the side of China and firmly opposes national separatism and religious extremism." China has promised to invest 100 million yuan (some $8 million) to build a factory producing cardboard in the

Kyrgyz city of Tokmok, near Bishkek and will provide a 1 million yuan grant to help develop the Kyrgyz health care system.

New Kazakh Energy Minister Seeks More Power

· President Nursultan NAZARBAYEV on April 21st dismissed Energy, Industry and Trade Minister Asygat ZHABAGIN and president of the state oil company Kazakhoil Baltabek KYANDYKOV replacing them with Mukhtar ABLYAZOV and Nurlan KAPPAROV respectively, after lagging reforms and slow economic growth. These two young new energy leaders are seeking more power. ABLYAZOV said he was negotiating for new powers which are needed to introduce new market reforms. KAPPAROV said he wanted the state oil company to take complete control of the government's stakes in lucrative joint ventures and oil fields. He explained that oil producing companies can work effectively if they are speaking the same language By transferring the property to Kazakhoil, companies will be dealing directly with them and not through the government, which KAPPAROV implied speaks another language.

Kazakhstan To Construct New Railway

· Kazakhstan in May will start construction of a new one-track railway 185 kilometers long between the two terminal stations of Aksu and Konechnaya within two years. The rail will directly link the Pavlodar and East-Kazakhstan regions of the country. The importance of the new one-track railway for the Kazakh economy is unlimited. According to the managing director of the republican state-owned company Kazakhstan Rail Ablai MYRZAKHMETOV, it will open the shortest way to transit shipments from the north, west and central regions of the country to the east, bypassing Russia. This rail will reduce not only the route of Kazakh trains by 100 kilometers on average, but also the delivery costs. The cost of its construction, which is expected to be recouped in a matter years, is estimated to be 6.5 billion tenge (about $78 million). The annual freight flow along the new section will be between eight and ten million tons in one direction.

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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