DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, May 8, 1998

be submitted by e-mailed in advance to boris@msnbc.com. The interview will be YELTSIN's first on the Internet. MSNBC has previously hosted internet chats with Israeli Prime Minister Benjamin NETANYAHU, former Israeli Prime Minister Shimon PERES and former President of the Soviet Union Mikhail GORBACHEV

Economy

Tokobank Temporarily Under CB Admin.

· First Deputy Chairman of the Russian Central Bank Andrei KOZLOV said that the Central Bank has placed Tokobank temporarily under its administration for two months beginning today. Tokobank is a medium sized bank in which the European Bank for Reconstruction and Development has a stake. KOZLOV said the decision was made because liquidity and management problems threatened Tokobank's clients. KOZLOV further explained that Tokobank had made some misjudgements, including making credits available without adequate guarantees to customer who were not always able to repay the loans. KOZLOV added that he saw no danger of an interbank crisis in Russia. "We don't expect big problems...I would advise them [existing clients] to stay with this bank and not rush off anywhere." KOZLOV explained that the temporary administration plans to, "restore the normal activity of Tokobank as a credit organization and to work with shareholders on fulfilling their obligations, supporting the bank and strengthening its management."

Russian Federation

Politics

New Cabinet Complete; Dismissals Follow

· Russian President Boris YELTSIN today completed naming new ministers to the cabinet after talks with Prime Minister Sergei KIRIYENKO. Oleg RUTKOVSKY was appointed Health Minister. Yevgeny ADAMOV was re-appointed as Minister of Atomic Energy. Georgy GABUNIA was names as acting head of the newly formed Trade and Industry Ministry. YELTSIN also appointed Yevgeny SAPIRO as Minister of Regional and Ethnic Policy, Nikolai KHVATKOV as head of the government apparatus, and Vitaly BUDKO as chief of the federal service overseeing natural monopolies in transport. Presidential spokesman Sergei YASTRZHEMBSKY revealed that YELTSIN also signed decrees sacking several officials, including Head of the State Customs Committee Anatoly KRUGLOV, Chief of the Federal Broadcasting Commission Valentin LAZUTKIN, and Head of the Russian Special Construction Agency Nikolai KOSHMAN. While YELTSIN and KIRIYENKO said the cabinet would completed today, the fate of deputy prime minister in charge of relations with former Soviet Republics Ivan RYBKIN is still unclear. His ministry was merged with the Foreign Ministry. YASTRZHEMBSKY had earlier stated that RYBKIN, "will remain in the [Russian] government."

Russian President To Chat On Internet

· Russian President Boris YELTSIN has agreed to an exclusive Internet chat with MSNBC on May 12th at 5:30am EST. The Internet chat will be live from the Kremlin. YELTSIN's responses will be translated into English by his personal translator. The Kremlin's own Web site will carry the chat live for its Russian audience. It will can also be found at http://www.msnbc.com/chat/default.asp. Questions can

Today's News Highlights

Russia

New Russians Buy TV Dinners

European Republics

S&P Rates Latvian Currency

Baltic Assembly Meets

South Caucasus & Central Asia

New Georgian Army Staff Chief

Georgia To Build Merkuri Planes

Azeri Diplomat Speaks at CSIS

Tajik-Kyrgyz Sign 14 Accords

Sino-Kazakh Enhance Relations

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Ruble = 6,136/$1.00 (NY rate)

No Russian Ruble Rate today

Due to 1945 Vicotry Day Observed

Dec Jan Feb Mar Apr May

Taiwanese Deputy Chief Banker To Visit Russia

· The deputy governor of Taiwan's Central Bank SHEA Jia-Dong will make an unprecedented visit to Russia next week to discuss bilateral financial cooperation and trade. It is unlikely however that SHEA will sign a formal agreement on Taiwan-Russia financial cooperation while in Moscow. Moscow recognizes Beijing and does not have official ties with Taiwan. Since 1991, trade ties between the Nationalist-ruled island and Russia have developed rapidly with Taiwan exporting goods worth $173 million to Russia and importing Russian goods worth $1.24 billion. His visit, by invitation of the Russian Central Bank, will follow the annual meeting of the European Bank for Reconstruction and Development (EBRD) to be held in the Ukrainian capital of Kiev Saturday through Tuesday. Taiwan is not a member of EBRD, but will attend the meeting as an observer. SHEA's party will sign an agreement with the EBRD for a fund to assist small and medium-sized businesses in eastern Europe. Taiwan's International Cooperation and Development Fund and the bank will each lend $12.5 million.

Business

Frozen Food Sales

· Director of US Agricultural Trade Office in Moscow Bob WALKER reported that sales of frozen food

products to Russia increased 79 percent from January to November in 1997 when compared to the same period in 1996. While sales of ice cream fell by 28 percent along with sales of frozen vegetables, fruit, cakes, and pizza, frozen prepared meals are booming. Their sales rose an incredible 225 percent in 1997, to reach almost $18 million, The Journal Of Commerce reported. Quality Products Inc., the first US distributor in the Russian market since 1991, sells more than one thousand food items from manufacturers Tysons, Barber, ConAgra, and Rich SeaPak. Quality Products' financial director Steve BELL said, "We are the market leader in Moscow. Out growth is 25 percent per annum in just about every category." This demand for the American TV dinner comes from middle-aged, high income Russians. Sales Manager Natalia URYUMTSEVA of Seven Continents, the best-known chain of high priced supermarkets in Moscow confirms that the buyers of its frozen food products are, "mostly the very rich people." Another common link between the buyers of American frozen foods besides their new money and common shopping stores is that they own a microwave. For those who don't own one, getting a microwave is the highest priority after buying a new car. WALKER says this boon is big enough for Russia to displace Japan as the second largest export market for US frozen dinners.

European Republics

S&P Rates Lat. Foreign and Local Currency

· Standard & Poor's Thursday affirmed its triple B foreign currency and single A minus local currency long term issuer credit ratings for Latvia. Standard & Poor's also affirmed its A-3 foreign currency and A-2 local currency short-term issuer credit ratings. The ratings reflect market based economic reforms promoting growth, improving the public sector efficiency, support for prudent fiscal and monetary management, and the country's low fiscal debt, which is 13 percent of the gross domestic product. Standard & Poor's challenged Latvia to improve its privatization program of large enterprises and resolve its dispute with Russia which could affect the oil trade. The higher local currency rating reflects the government's success in fiscal management, as shown in its 1997 surplus, and in monetary management, where by the fixed exchange rate policy has

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facilitated a decline in inflation to an estimated percent on 1998. Growth in the Treasury bill market provides additional support for the higher local currency rating and underpins ongoing development of still narrow capital markets.

Baltic Assembly Meets in Venspils

· A regular session of the Baltic Assembly, which opened in Venspils today, is focusing on ways to promote interaction among Latvia, Lithuania, and Estonia. Venspils is a Latvian port the Baltic Sea, through which the largest East-West transit corridor passes. Twenty deputies from each republic, will discuss cooperation in energy, ways to strengthen their eastern borders, and the border-crossing procedures for the region. Chairman of the Assembly's Presidium Ernest JURKANS said that a joint Latvian-Lithuanian border post was already set up and a Latvian-Estonian one is still in the making. Participants will also discuss problems linked with privatization and power supplies. In JURKANS' opinion, the absence of a mechanism to implement the Assembly's ideas is the "weakest point" facing the Baltic States. Baltic State leaders will hold a meeting Saturday, at which they are expected to conclude an agreement on such a mechanism. JURKANS admitted that Latvia, Lithuania, and Estonia were so far have been unable to implement any joint ventures.

South Caucasus & Central Asia

New Chief of Armed Forces Appointed

· Georgian President Eduard SHEVARDNADZE Thursday signed a decree appointing Major General Dzhoni PIRTSKHALAISHVILI as chief of staff of the armed forces. PIRTSKHALAISHVILI was Georgia's first Defense Minister after independence in the cabinet of Georgia's ousted President Zviad GAMSAKHURDIA. He also served as special advisor to Revaz ADAMIA's Security and Defense Committee of the parliament.

Georgia To Produce Merkuri Planes

· Georgian Presidential representative in Imereti Teimuraz SHASHIASHVILI announced on Thursday that an aircraft repair factory in the city of Kutaisi will manufacture Merkuri four-seater planes, designed by the Russian Aviaton firm. SHASHIASHVILI met with board chairman of the Aviaton firm and former cosmonaut Igor VOLK and prominent designer and

one of Aviaton managers Avtandil KHACHAPURIDZE. VOLK noted that the Aviaton firm has been producing for several years four-seater, twin-engine planes which can be used for training, rescue operations, for control over air and railways routes, for observation and control over forests, etc. He noted that a model of the Merkuri plane is at the airport of the Russian flight research center and is being prepared for testing. When Aviaton specialists pass the Merkuri, it will be brought to Kutaisi and the local aircraft repair factory will start preparing to launch their production. The first Merkuri aircraft is expected to be produced at the Kutaisi factory by the end of 1999. According to data, published by the Georgian press, the estimated cost of the Merkuri plane will total $300,000.

Azeri Diplomat Speaks At CSIS

· On Thursday, deputy chief of Mission of the Azerbaijan Embassy Elmar MAMEDYAROV spoke to various business leaders and diplomats at the Center for Strategic and International Studies in Washington, DC on behalf of Azerbaijan's Deputy Minister of Foreign Affairs Araz AZIMOV, the text of which was provided to Intercon. MAMEDYAROV outlined the foreign policy priorities of Azerbaijan and its role in the international community. He said that the Azerbaijan seeks to restore its territorial integrity and sovereignty. Its goals include the elimination of threats and risks to security and the maintenance of Azerbaijan's political independence.

MAMEDYAROV explained that Azerbaijan is an integral part of Europe, subscribing to the values of secular society, democratic principles, respect for human rights, the rule-of-law, and a free market economy. He stated that NATO is a strong basic element to European security, Azerbaijan does not view NATO expansion as a threat. He said, "along with the right of free choice of political-military blocks every State has a fundamental right for individual protection of its security, and respectively, for non-alignment to blocks and unions. This right is of extreme importance for Azerbaijan in the light of Russia's attempts to form military-political block within CIS." Azerbaijan, opposing Russia's anti-NATO stance, participates in NATO's "Partnership for Peace" program. MAMEDYAROV seeks to deepen its relations with NATO and the European Union (EU), WEU and CB. The Foreign Ministry aims to

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settle the conflict with Armenia over the Nagorno-Karabakh region of Azerbaijan through negotiations within the framework of the OSCE Minsk Group on the basis of the principles of the OSCE Lisbon Summit. Azerbaijan hopes to promote regional stability and security by preventing illegal arms and other transfers, supporting the demilitarization of the Caspian Sea basin, adhering to existing global non-proliferation regimes, and establishing nuclear-free zones in the South Caucasus.

MAMEDYAROV emphasized that the policy seeks to develop of various sectors of Azerbaijan's economy with consideration to its geostrategic location at the crossroads between the East and West. Azerbaijan hopes the trans-Eurasian corridor will lead foreigners and businesses to invest in its economy.

Tajik-Kyrgyz Leaders Sign 14 Agreements

· Tajikistan President Emomali RAKHMONOV and Kyrgyz President Askar AKAYEV discussed the strengthening of economic cooperation and the military-political situation in Tajikistan, during RAKHMONOV's first official visit to Kyrgyzstan. The Tajik President believes the development of the entire range of relations with Kyrgyzstan is geostrategically important to his nation. The delegation outlined priorities in economic cooperation, including joint projects in the mining industry and in the development of automobile transport between the two republics. Fourteen agreements were signed in the financial, legal, and transport areas. Trade with Tajikistan totaled no more than three percent of Kyrgyzstan's trade turnover with countries of the Commonwealth of Independent States (CIS) in 1997. RAKHMONOV stressed to AKAYEV that the, "peace process in Tajikistan has become irreversible."

Sino-Kazakhstan Enhance Relations

· Kazakhstan's Prime Minister Nurlan BALGIMBAYEV is concluding his first official visit to China at the invitation of Chinese Premier ZHU Rongji. BALGIMBAYEV is meeting with Chinese

President JIANG Zemin in Beijing today. BALGIMBAYEV and JIANG are expected to sign a series of bilateral agreements, including ones on the joint development of water resources located in the border region, and mutual deliveries of goods. The sides are expected to touch upon issues related to the preparation for a meeting of leaders of China, Kazakhstan, Kyrgyzstan, Russia, and Tajikistan, scheduled for early July. The five leaders are expected to discuss boosting economic cooperation and security. ZHU met with BALGIMBAYEV on Thursday. The two Prime Ministers discussed trade and economic cooperation, including oil the oil accord signed in Almaty last fall. The deal, estimated at $9.5 billion, stipulates that China will participate in the development of two big oil fields in Kazakhstan. BALGIMBAYEV said that China is Kazakhstan's biggest trading partner in Asia and Kazakhstan ranks second only to Russia in the Commonwealth of Independent States (CIS) that have trade ties with China. China will remain as the most potential trading partner to Kazakhstan in the future, and the economic and trade cooperation between the two countries will be further expanded, he said. Bilateral trade, which was $336 million in 1994, rose to $527 million in 1997. It is expected to reach $1 billion by the year 2000. China has set up 375 businesses in Kazakhstan, with a total investment of $320 million. China has planned to set up an automobile joint venture and build hotels and trading centers in Kazakhstan, he said. BALGIMBAYEV is also expected to meet with parliament speaker LI Peng.

Upcoming Events

Vietnam Foreign Minister Visits Russia

May 12-13th, 1998

G-8 Summit in Birmingham, England

May 15 to May 17th, 1998

Turkish Army Chief Visits Russia

May 18 to May 22nd, 1998

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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