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

Tuesday, June 23, 1998


including the draft Tax and Budget Codes, a draft law regulating social welfare by the state, draft amendments to the law on the payment of income tax by natural persons. Draft laws on tax on imputed income of small businesses, on sale tax, as well as amendments to the Criminal Code on stricter responsibility for tax evasion will also be among these laws. YELTSIN said that if the plans are not passed before the Duma's summer recess begins, he vowed to take, "other measures," but did not elaborate. However, only parts of the anti-crisis plan could be imposed by presidential decree. The passing of these laws will be a major test of confidence in the Prime Minister. Russian Economics Minister Yakov URINSON, attending the European Economic forum in Austria, commented that the purpose of the program to enhance investment is centered around ruble stability. If the ruble is stable, prices will be stable. New jobs will be created with the enhancement of investment.

Chechen Official, Commander Die In Shoot-out

· The Chechen Interior Ministry has confirmed that on Sunday head of Chechnya's Security Service Lechi KHULTYGOV and Vakha DZHAFAROV, chief of staff to field commander Salaman RADUEV have been shot dead in Grozny, "while executing their duties." RADUEV earlier on Sunday accused Chechen President Aslan MASKHADOV of involvement in the death of former Chechen leader Dzhokar DUDAEV. RADUEV supporters took to the streets in central Grozny demanding air-time on the

Russian Federation

Politics

Kiriyenko Releases Anti-Crisis Program

· Russian President Boris YELTSIN addressed the joint government and parliamentary meeting which reviewed Prime Minister Sergei KIRIYENKO's anti-crisis program developed to pull Russia out of economic turmoil. YELTSIN said the proposed anti-crisis program, "is not only a program to restore elementary financial order," but the one which must ensure, "a qualitative change in Russia's economic situation." KIRIYENKO explained that the new program, based on the government's three-year financial plan, is designed, "to protect Russia against the world financial crisis." He admitted that Russia's own mistakes had contributed to the current crisis in the country, specifically naming the government's failure to resort to drastic measures for improving the budget in 1995. The government aims to raise extra budget revenues in the amount of $20 billion a year. The program calls for expanding the powers of tax bodies regarding those who have not paid taxes in full, the raising of the rate of the tax on land and of the fee for non-using land resources. KIRIYENKO emphasized that the government's anti-crisis program will not strain the poorest sections of the population and it will include protective measures. He added that the treasury is short of at least 100 billion rubles every year in tax collection, "and not from poor people at all." However he warned that, "There will be lawsuits for tax dodging, there will be bankruptcies and property will change hands, there will be arrests of accounts and mansions abroad," adding that the cabinet, "will be acting tough but within law. The state must be tough, but it must go by law." KIRIYENKO said, "A country cannot exist if it does not collect taxes."

The government is going to submit to the State Duma Wednesday morning draft laws to be urgently passed,

Today's News Highlights

Russia

Forbes Billionaire List: Potanin

Tuesday Tid-Bits

Yeltsin Played By A Double

Soviet Embalmers And Castro

European Republics

Diplomatic Row Heightens

South Caucasus & Central Asia

Zhvania Proposes New Reforms

Shev. Pivotal In Peace Talks

AIOC President To Step Down

Politics-Economics-Business

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Tuesday

June 23, 1998

Intercon's Daily

government-controlled television channel to explain their claim. The area was sealed off and KHULTYGOV attempted negotiations with the protesters. In the course of talks, shooting broke out killing KHULTYGOV, DZHAFAROV, and both of their bodyguards. MASKHADOV is expected to address the nation today, while RADUEV continues calls for MASKHADOV's resignation, threatening terrorist acts to revenge DUDAEV.

Economy

Ruble = 6.187/$1.00 (NY rate)

Ruble = 6.1905/$1.00 (CB rate)

Ruble = 6.160|6.221/$1.00 (buy|sell rates)

Federal Revenue And Spending Measures

· At the expanded cabinet meeting, the government stated that it is necessary for Russia's Federal budget revenue to exceed expenditure by at least 2 percent of gross domestic product. The government believes that if this is achieved, it would make it possible to reduce national debt by $1.5 billion to $2 billion, cut down the debt service expenses, prompt foreign investors to improve their rating of the Russian economy, and attract investors to pump funds into Russia. It would also create the opportunity for a reduction in interest rates, an increase in investments in production, and a rise in the population's standard of living.

The government program sets a goal of slashing spending by up to 42 million rubles annually. The proposed measures include staff reductions in the budget-subsidized sphere, specifically cuts in the number of regional and local officials. Furthermore, the program provides for shifting authority for of health care, culture, physical culture and sports (a total of 740 facilities), as well as the educational establishments to regional government.

Business

Potanin Ranked On Forbes Billionaire List

· Vladimir POTANIN, President of Interros financial and industrial group and founder of Uneximbank, has been ranked on Forbes magazine's list of the world's richest people, excluding dictators and royalty. He shares the 186th position with eight other $1.6 billionaires with professions ranging from finance to tobacco to telecommunications. POTANIN is cited as having earned his billions in banking, oil,

metals, and telecommunications. Interros oversees the group's three main branches: financial holdings which includes Uneximbank and affiliate investment bank MFKRenaissance; industrial holdings, including Sidanko, Norilsk Nickel and media holdings of several daily newspapers. POTANIN and other key Russian financiers agreed to back the cabinet's economic crisis program, promising to make efforts to explain the government's position in financial circles. He was the only Russian on the list of the world's 200 wealthiest people. Commonwealth of Independent States (CIS) Executive Secretary Boris BEREZOVSKY ($1.1 billion), Gazprom head Rem VYAKHIREV ($1.4 billion), Rosprom-Yukos head Mikhail KHODORKOVSKY ($1.3 billion) and LUKoil head Vagit ALEKPREOV ($1.2 billion) were separately named by Forbes on a list of those who did not make the top 200.

Rus. Aluminum Consider Ukrainian Plant

· Russia's major aluminum smelters, including Krasnoyarsk, Bratsk, Novokuznetsk and Volgograd, are considering creating a consortium to bid for a stake in Ukraine's Mykolayiv alumina plant. The plants hope to announce the consortium this week. The consortium intends to acquire 31 percent of Mykolayivsky Hlinozemny Zavod (MHZ), which has a production capacity of a million tones of alumina per year and is located in Mykolayiv. The Ukrainian State Property Fund announced in April two tenders to sell 17 percent and 13 percent of the plant's share's. The dates and conditions of the tenders have not been made public. The Ukrainian government will keep a 25 percent stake in the plant for the next three years. Plant employees are entitled to 30.97 percent of the shares and management to a 5.0 percent stake. Approximately 3.5 percent have been sold for privatization certificates. MHZ alumina accounts for 20 percent of the Russian market.

Tuesday Tid-Bits

Yeltsin Being Played By A Double?

· Russian Communist Deputy Alexander SALY has instructed the nation's top investigator to determine whether Russian President Boris YELTSIN has been replaced by a double. He cites several reasons for his suspicions, including his appearance and actions. He notes that YELTSIN used to hide his left hand, which is missing two fingers, but now displays it freely, as if to validate who he is. SALY also points out that YELTSIN has fired many of his old

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Tuesday

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Intercon's Daily

staffers and installed new ones. He also believes that YELTSIN's daughter has become the President's official "image" maker to advise the "new" YELTSIN how to walk and talk like the original. "The difference between the pre-election YELTSIN and the post-election YELTSIN simply jumps out at you," SALY said justifying his investigation request.

Russian Embalmers Inspired By Castro

· Soviet era embalmers, out of work in Russia and starved for cash and clients, are longing for the old days of embalming communist dignitaries for posterity. Experts from the Lenin Mausoleum laboratory have been inspired by new hopes of a possible Cuban Mausoleum to Fidel CASTRO. Top embalmer Yuri DENISOV-NIKOLSKY said, "We are ready to meet a possible request by Cubans that Castro's body be preserved if they contact us." Cuban officials were considering displaying CASTRO on Havana's Revolution Square after his death. However, it is possible that CASTRO may outlive the aged embalmers.

he could annex the compound to his presidential estate. While the Belarus President is strongly criticized in the West for his violations of human rights, censorship, and stifling of dissidents reminiscent of the Soviet era, in Belarus he still enjoys support. Paul GOBLE of RFL/RE News said that 45 to 40 percent of the population, who remember the Soviet Union with affection support LUKASHENKO.

South Caucasus & Central Asia

Zhvania Proposes Government Reforms

· Chairman of the Georgian parliament Zurab ZHVANIA has proposed constitutional changes to restructure the government. He proposes a government run by a prime minister, appointed by the controlling party, and a cabinet of ministers, appointed by the prime minister. Georgia is run by a strong, bureaucratic executive branch and the legislature passes law. ZHVANIA's campaign to reform the government developed from growing frustrations with the lack of reform within the government. He believes that government bureaucracy is not implementing laws passed by the parliament and not moving at the speed deputies are accustomed. The parliament, full of young, energetic, hardworking elected deputies, is on the cutting edge of reform. Deputies feel that in order to continue rapid reforms these constitutional measures must be approved. Comment: ZHVANIA's move is a bold step toward the future and a call to break from the slow pace of past governments. This approach also has its risks. With new elections coming up, the Georgian nation will determine if the reform policies of the Civic Union will continue. The Civic Union enjoyed a high plurality in the last election and it is believed that their majority position in the government will continue. It should be noted that the Revival party of ABASHIDZE has walked out of the parliament in protest. Many believe this is another indication of outside influence attempting to stall the Civic Union reforms and create problems for the SHEVARDNADZE leadership.

Shevardnadze Pivotal In Peace Talks

· Although preparatory peace talks in Sukhumi on Friday between Georgian Presidential envoy Vazha LORDKIPANIDZE and Abkhazia counterpart Anri DZHERGENIA have achieved relatively positive results, it appears that peace in the region depends on Georgian President Eduard SHEVARDNADZE's

European Republics

Belarus Diplomat Row Heightens

· The US and European Union (EU) on Monday withdrew their ambassadors from Belarus, increasing political isolation for one of Europe's most authoritarian states. The ambassadors, who will be followed by a Japanese envoy today, departed to protest the Belarus eviction of diplomats from their homes in the elite Drozdy complex. On Friday, ambassadors were shut out of their homes, and electricity and plumping services cut off. The US and EU believe that Belarus has violated the Vienna Treaty, under which ambassadors' residences are considered sovereign territory and host governments have no right to enter without permission or insist that diplomats leave. US State Department spokesman James RUBIN earlier this month noted that, "the host government is obligated under the convention to take all appropriate steps to protect the residents and to make sure that it is supplied with adequate services." Monday, he said the that recall is indefinite. The US has warned Belarus not to send its ambassador back to Washington. RUBIN said, "it would be a real bad idea for him to return to the US." Many have speculated that Belarus President Alexander LUKASHENKO evicted the diplomats so that

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Intercon's Daily

stance and reaction to the drafted documents. These documents include a comprehensive peace treaty between Tblisi and Sukhumi and a protocol on the return of refugees to Abkhazia's Gali district. But there are still many issues which need to be worked out. If these are approved by the Georgian President, refugees will return home and Tblisi will lift sanction on Abkhazia. DZHERGENIA said, "If a corresponding agreement is signed, the Abkhazian side shall start the organized return of refugees to the Gali region, and the Russian side shall ensure a lift of economic sanctions on Abkhazia." He added that, "If there are no claims on the part of Georgia, there is a real chance to sign the document by the Presidents of Georgia and Abkhazia." LORDKIPANIDZE said, "Abkhazia is an integral part of Georgia and restoration of its economy is necessary." The region's economic revival should go hand in hand with return of refugees, he noted.

Executive Secretary of the Commonwealth of Independent States (CIS) Boris BEREZOVSKY, Russian First Deputy Foreign Minister Boris PASTUKHOV, as well as LORDKIPANIDZE, met with SHEVARDNADZE on Friday evening to coordinate the documents passed in Sukhumi. PASTUKHOV spoke with, "cautious optimism. I am confident a decision should be made, it is almost formed. There is a need for one more spurt of the political will of leaders of the parties to the conflict in order to achieve a long-awaited result." BEREZOVSKY has no doubt that, "there are tremendous resources and reserves for a peaceful settlement of the Abkhazian conflict." SHEVARDNADZE and Abkhazian leader Vladislav ARDZINBA will meet in the near future and sign documents on a settlement of the Georgian-Abkhazian conflict. The main objective of the current negotiations, PASTUKHOV said, is to help eliminate the aftermath of the latest aggravation of the situation in the conflict region and solve the issues of repatriating refugees. BEREZOVSKY stated on Thursday that the CIS Executive Board and the Russian Foreign Ministry have formed a single

consolidating center for making decisions on the settlement of the Georgian-Abkhaz problem. He noted that although neither Tblisi nor Sukhumi were pleased with the efforts of the peacemakers. After six Russian peacekeepers were injured in a mine blast in Abkhazia, the Russian Defense Ministry on Friday granted the peacekeepers the right to use weapons if their safety is threatened. The Defense Ministry statement said that since Georgia and Abkhazia, "are not taking the necessary measures for ensuring normal functioning of the peacekeeping force in the region," they were, "forced to order the commander of the peacekeeping force to put his troops at outposts on high alert and that they use weapons should any real threat to personnel arise." Georgia has accused Russian peacekeepers of not taking appropriate actions against attacks on civilians in the buffer zone between Georgia and Abkhazia. Intercon sources report that the SHEVARDNADZE administration has viewed the recent peace talks as a failure to meet their needs. They are redrafting the boundaries of the Gali district for resettlement of the refugees. The documents do not include a security guarantee for the safe return of refugees. It is for this reason that the agreement is unacceptable. Georgian officials will prepare counter proposals because the SHEVARDNADZE administration is determined to reach a settlement.

AIOC President Steps Down July 1st

· The President of Azerbaijan International Operating Co. (AIOC) David PRITCHARD will step down July 1st for health reasons, The Journal of Commerce reported. The Caspian Sea oil consortium is developing a $7.4 billion off-shore project. PRITCHARD is expected to rejoin British Petroleum (BP) in London. John LEGGATE, who is responsible for BP Exploration's gas business in the North Sea, will replace PRITCHARD. The alliance of BP and Norway's Statoil holds the largest share in the AIOC consortium. The normal term for an AIOC president is four years. PRITCHARD only spent six months in the position. In February, PRITCHARD suffered a mild stroke.


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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