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, May 4, 1998

Russian Federation

Politics

Rus. Socialist Party Holds Second Congress

· The second congress of the Russian Socialist Party ended in Moscow on Sunday by adopting a program and noting that 57 regional organizations of the party have been formed in regions within the past two years. According to a party press service report, the number of regional organizations signals an increase of the party membership. The congress concluded two years worth of work, considered ideological, theoretical and organizational issues, and discussed the political and socio-economic situation in Russia. Party chairman Ivan RYBKIN, who was re-elected as the party chairman, made a report at the congress. The party federal board and the controlling commission were elected as well. The congress delegates decided to form a broad socio-democratic coalition.

Search For Vlasov's Kidnappers Continues

· A meeting with participation of Chechen power bodies, church authorities and elders, to be held today in Grozny, is expected to focus on the kidnapping of Russian Presidential envoy in Chechnya Valentin VLASOV on May 1st. Chechen President Aslan MASKHADOV plans to discuss at the meeting social and political situation in the Chechnya following the kidnapping. The Volga car of the Russian President envoy VLASOV was attacked by five armed people in masks and camouflage uniform, according to the updated information from the Chechen police. The attackers came in two dark BMW cars and a white Lada car and opened chaotic fire into the air. Deputy Chechen Prosecutor General Magomed MAGOMADOV said VLASOV's bodyguard and driver had been formally placed under arrest on grounds of collaboration with the kidnappers. The driver and the bodyguard told investigators that the

attackers included several tall muscular guys who spoke Russian without an accent. People speaking Chechen were amongst the attackers as well. Empty sub-machine-gun cartridge cases found on the incident scene are being examined. VLASOV's abduction is the first of a senior Russian official. A possible betrayal of the envoy is not excluded. The NTV television crew was kidnapped on the same segment of the highway last year. The fate of VLASOV remains unknown. A four-day search operation by Chechen law enforcement bodies has so far failed to bring any results, as special units continue the round-the-clock search. On Sunday, a joint Russian-Chechen headquarters was established in Ingushetia to coordinate the search for Vlasov.

On Friday, Russian President Boris YELTSIN sent Deputy Prime Minister Ivan RYBKIN to assist both Russian and Chechen forces in their investigation. RYBKIN said the crime benefited those who seek to wreck Moscow-Grozny dialogue at any cost. He said that no ransom will be paid to abductors of VLASOV, even though no one has expressed such a demand. The political cost of the abduction and retribution for it are high, he said. RYBKIN regretted that VLASOV had departed from Grozny without bodyguards. He had been entitled to an escort of four security officers by a presidential decree. RYBKIN said VLASOV's abduction was intended to further undermine stalemated peace talks between Moscow and the Chechen capital of Grozny. Vice-premier of the Chechen government Kazbek MAKHASHEV agrees that this

Today's News Highlights

Russia

Investors Weary of Stock Market

Japan Prepares For Joint Invest

Railways To Run At 100mph

European Republics

Belarus-Rus Union Meets

Ukrainian Coal Miners Strike

South Caucasus & Central Asia

Armenian Speaker In Tblisi

New Georgian Military Priorities

Tajik Clash Kills 45

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crime is a political action, aimed at destabilizing the social and political situation in the region. MAGOMADOV said on Sunday, "The abduction of plenipotentiary representative of the Russian president in Chechnya Valentin VLASOV was committed by a skilled mobile terrorist group, and methods of criminals resemble the recent incident with the gunning down of a Russian military convoy in North Ossetia...Ordinary mobs do not act so professionally. Top-notch specialists applied their hand in kidnapping Valentine VLASOV." He stated that over 1,000 officers of power-wielding structures are involved in the search for VLASOV. MASKHADOV called on citizens to cooperate and render assistance to republican law enforcement bodies in organizing a search for and release of the Russian representative from captivity. Criminals, no matter what their nationality is, must be caught and severely punished, MASKHADOV said.

Economy

Investors Weary Of Russia's Market

· In the first four months of 1998, the RTS index, which tracks Russia's most liquid stocks, has fallen more than 21 percent in US dollar terms. The 1997 buy Russian spree has been deadened by cautious investors, who have used every bit of bad news to justify the selling of Russian assets. The Financial Times gave presented several reasons for this somber mood on the Russian stock market. First, renewed political uncertainty since the ousting of Viktor CHERNOMYRDIN and his Cabinet in March and the confirmation of Prime Minister Sergei KIRIYENKO, has caused investors to be weary of policy implementation. It is likely that investors will only return to the market after there is proof of improvement, not just promises. Investors have grown skeptical of the quality of assets they are buying. They question the financial transparency, corporate governance, and the border line between government and business. Finally, investors are concerned about the ability of Russian companies to make profits out of their vast assets. On top of these three reasons, the world oil price drop has cost the oil sector considerable losses. The oil sector accounts for half of the Russian stock market value. These losses and investor concerns, however, can only be alleviated if strict market reforms are implemented.

Japan Prepares For Rus-Japan Investment Co.

· During the April summit between Russian President Boris YELTSIN and Prime Minister Ryutaro HASHIMOTO in Kawana, the two leaders agreed to establish a joint Russian-Japanese investment company to draw Japanese investments in the Russian economy. Today three Japanese ministries will hold consultations with Russian counterparts in Moscow to begin preparations for the joint venture. It is planned that high-ranking officials of the Japanese ministries of Foreign Affairs, Finance as well as Foreign Trade and Industry will meet Russian vice-premier Boris NEMTSOV, who is co-chairman of the Russian-Japanese Intergovernment Commission on Trade and Economic Cooperation. Russia and Japan in preliminary drafts will contribute $50 million from each government and shares of the states will amount to less than 50 percent on a parity basis. The Japanese side is already examining the possibility of appropriating this sum by the Japanese Export-Import Bank, with the remaining sum to be received from banks and private companies.

Lenningrad Governor. Advises On Economy

· The governor of Russia's Leningrad region Vadim GUSTOV today has proposed to the new government a plan to rebuild the Russian economy. He believes that reforms should be first launched in his region since it, "concentrates all Russia's problems in miniature." GUSTOV said that Russia should concentrate on the restoration of its sea power. He said that construction of three ports on the Baltic Sea could give such a boost to industrial development, that the region and the country will not only overcome the crisis but also strengthen their economic positions. GUSTOV said he believed the new government should be distinguished by decisiveness, as there will be no changes in the difficult situation facing the country without it. He said the new Prime Minister Sergei KIRIYENKO should use his power to push for the construction of the largest port on the Baltic Sea in Primorsk. He said he was confident that oil companies would invest in the new ports because there they will get tariffs $3 to $5 per ton lower as compared to the operating ports in the Baltic States.

Business

Russian Meat Alliance Files Anti-Dumping Case

· An alliance of Russian meat producers, consumer

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organizations and the Moscow City government has launched an attack against foreign meat producers, mainly Poland, Belgium, France, and Denmark, for allegedly falsifying product codes to avoid duties and dumping goods on the market. Their antidumping complaints will be filed under a new Russian law, which provides the basis for Russian domestic producers to launch antidumping complaints against importers. The International Monetary Fund (IMF) is pressing the Kremlin not to implement the law calling it, "very harsh and restrictive." Foreign producers are illegally reducing import duties buy assigning the Russian customs code 0210, which applies to miscellaneous raw meat products, sausages, and other goods. According to the Russian meat coalition in 1994 9,000 metric tons of meat were imported under 0210 code, while in 1997, the figure increases to 232,000 tons. Vice President for production at the Cherkizovsky Meat Processing Works Ltd., Musheg MAMIKONYAN said, "The profitability of imported meats is 400 percent...Profitability fro domestic producers is between 10 and 30 percent," The Journal of Commerce reported. Imports account for 50 percent of Russian meat consumption. US raw meat producers are supporting the coalition's attack on imports, because they see the strengthening of the Russian meat plants as a precondition for increased orders fortheir products.

Russian Rail to Run At 100mph

· First Deputy Rail Minster Ivan BESEDIN announced that Russia's railways will soon increase average speeds of freight trains to 100 miles per hour. Train speeds will be increased on two routes from Nizhny Novgorod through Moscow, Brest, Belarus, Warsaw, and on to Berlin; and from Helsinki, Findland, through St. Petersburg and Moscow and on to Kiev, Ukraine, The Journal of Commerce reported. The speed increase is part of a package of incentives offered at Moscow's annual transportation and logistics exhibition in late April. The Railways Ministry will also introduce new refrigerated railcars and freight service between Moscow and Budapest, along with upgrading track and infrastructure. The Railway Ministry is consulting Uneximbank for modernization financing. Russia and Japan's Sumitomo Corp. and Kanamatsu Corp. are negotiating financing for information and communications links to raise speed, expedite cargo movement and improve container security.

European Republics

Belarus-Russian Parliamentary Assemble Meet

· The eighth session of the Belarus-Russian Parliamentary Assembly opened today in Gomel. Assembly Chairman and speaker of the Russian State Duma Gennady SELEZNYOV predicted that the assembly will be busy preparing for closer relations in the union and discussing a wide range of issues. The Russian Duma speaker noted, "the deputies are ready to discuss the problem of forming a professional parliament, provided for in the Charter of the Belarus-Russia Union." Another important issue on the agenda will be drafting of citizenship-related legislation. Deputies have started working in permanent commissions. Russian President Boris YELTSIN and Belarus President Alexander LUKASHENKO issued a joint statement to the Parliamentary Assembly on Sunday. A Fund for informatization of the social sphere of Belarus-Russia Union project organized by the Commission on social policy, science, culture and humanitarian issues was presented on Sunday. Deputies will discuss the fulfillment process of the 1998 budget, joint programs and projects, a long-term plan of formation of a legal system of the Union, a number of organizational questions, including that on the Chairman of the Parliamentary Assembly and his deputies. A package of questions on a single social policy, unified customs legislation are among the items to be considered by the deputies.

Ukrainian Miners Strike Against Wage Arrears

· Approximately 70,000 Ukrainian coal miners went on strike today at 30 pits to demand the payment of wage arrears and improved safety standards. Mine workers are owed about 2.24 billion gryvnias ($1.1 billion) which are delayed by up to 10 months. Leader of the Ukrainian independent Miners Trade Union Mykhaylo VOLYNETS said most of Ukraine's 215 coal mines are likely to join the strike. The miners have also criticized the government's policy of increasing imports of less expensive coal from Poland and Russia instead of investing in Ukrainian coal pits. VOLYNETS complained that, "at a time when Ukrainian miners do not have enough money to buy food for their families, our government is buying millions of tons of coal from Russia. Ukraine mined about 58.6 million tons of coal in 1997. Coal mining companies say old equipment and large debts from

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consumers are to blame for huge wage arrears.

South Caucasus & Central Asia

Armenian Parliament Speaker Visits Georgia

· Georgian President Eduard SHEVARDNADZE met with speaker of the Armenian parliament Khosrov ARUTYUNYAN on Saturday. SHEVARDNADZE is pleased with the start of bilateral contacts between Azerbaijan and Armenia. According to a Presidential statement, he said, "a direct dialogue between the confronting sides is an important and useful event which can result in impressive results." ARUTYUNYAN called for a dialog of Azerbaijan and Nagorno-Karabakh in order to settle the conflict. "A straight dialog between direct parties to the conflict: Nagorno-Karabakh and Azerbaijan is necessary to settle the Karabakh conflict. Any decision to the effect should be acceptable for residents of Nagorno-Karabakh and guarantee the future to the Karabakh people...It is not Armenia and Azerbaijan that are parties to the conflict. Armenia and Azerbaijan do not have a conflict, parties to the conflict are Nagorno-Karabakh and Azerbaijan and they should start a direct dialog to find mutually acceptable compromises and settle the conflict." He added that, "Armenia will do it best to gradually re-establish relations with Turkey. Of course, it requires political will and desire of Turkish government and people." SHEVARDNADZE and ARUTYUNYAN voiced support for the development and deepening of friendly and good-neighborly relations between Georgia and Armenia. The Armenian speaker also met with his Georgian counterpart Zurab ZHVANIA and delivered a speech at a parliament session.

Georgia's New Military Priorities

· Georgian President Eduard SHEVARDNADZE on Friday awarded newly appointed Defense Minister David TEVZADZE the rank of major-general, calling the military leader, "a brilliant specialist and a good warrior," Caucasus Press reported. Presenting TEVZADZE to ministry staff the same day, the President argued that Georgia's national army must

be, "mobile, compact, and capable," which is an about-face in Georgia's military training. Former Defense Minister Vardiko NADIBAIDZE orchestrated a Soviet trained army on Soviet force structured lines. This generation of military were trained to fight a war against NATO. New Defense Minister TEVZADZE has been trained in NATO and the US command school at Leavenworth. He no doubt realizes that Soviet force structures are inappropriate for the Georgian military. Instead, Georgia's military must prepared for low intensity style conflicts such as Abkhazia and not conventional wars as Soviettraining emphasized . He plans to train Georgia's new generation of military as a small, well trained, mobile force capable of combating terrorist and guerrilla style conflict. SHEVARDNADZE said that TEVZADZE's top priorities should be to improve living conditions for servicemen and to make military service, "as safe as possible."

Tajik Gov't And Opposition Withdraw Forces

· Tajik government troops and opposition fighter withdrew from Dushanbe on Sunday after a cease-fire was negotiated between President Emomali RAKHMONOV and deputy leader of the United Tajik Opposition Khodzhi Akbar TURADZHONZODA. TURADZHONZODA was appointed by the Tajik government chairman of the joint commission on implementing the government decision on stabilizing the military and political situation in Dushanbe and its suburbia and to overcome consequences of the recent armed confrontation. The plan for withdrawal included a Sunday afternoon deadline for all forces to withdraw to their barracks, and the establishment of a joint government-opposition observation point on the eastern outskirts of Dushanbe. Road check-points were established on the highway from Dushanbe to Kofarnikhon with the help of both government and opposition troops. The clash, which began last week and is one of the biggest since the 1997 peace accord, has killed 45 people and wounded 80. On Friday, government troops mounted a tank and artillery counter-attack, driving rebels out of the capital and into nearby hills.

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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