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, June30, 1998

bid to drum up support for his country. UDUGOV said, "A package of documents has been prepared confirming the legal status of Chechnya as an independent country," and is expected to be presented to UN General-Secretary Kofi ANNAN. Chechnya maintains that it is an independent country following its 199-96 war with Russia. However, no country recognizes it as such. UDUGOV said the documents to be submitted to the UN includes Chechnya's constitution and the peace treaty it signed with Moscow. He says the UN should seriously consider the application because Chechnya could help restore stability to the troubled Caucasus region.

Chechen Delegation Confers With Duma

· A ten-member Chechen parliamentary delegation, led by Foreign Political Relations committee chairman Isa IDIGOV, arrived in Moscow Monday to meet the Russian State Duma today. The visit to Moscow has been prearranged between the Chechen parliament and the Duma. The delegation plans to discuss with the Duma the Moscow-Grozny peace accord signed on May 12, 1997 and intergovernmental agreements, which Grozny claims, are not being fulfilled by Moscow. The meeting will be attended by Russian Duma deputies Vladimir ZORIN, Leonid IVANCHENKO, Vladimir ZHIRINOVSKY, Gennady ZYUGANOV, Alexander SHOKHIN and Grigory YAVLINSKY. IDIGOV said the Chechen delegation members, "are not going to discuss at the Russian State Duma the internal affairs of the Chechen Republic of Ichkeria related to the introduction of a state

Russian Federation

Politics

Yeltsin Removes Obstacles For Businesses

· Russian President Boris YELTSIN signed a decree Monday to remove administrative red tape for new enterprises. He stated that the development of enterprises is important for economic growth. The decree said state bodies' licensing businesses, as well as separating licensing and controlling functions between state authorities, will be scaled down in number. The order said licenses decreed by the President or government should not be shortened by federal bodies working with the licensing of businesses. Draft proposals should be worked out within a month by the government on eliminating administrative barriers, and the government will send to the Russian State Duma a bill on lowering deductions imposed on small businesses for the Russian Pension Fund. The decree also ordered leasing of state property by federal and regional governments, on a competitive basis, to small businesses and entrepreneurs whose own output makes up 75 percent of the goods and services they sell. These businesses will be allowed to defer payment for state and municipal property bought through privatization programs.

Chechnya Seeks UN Membership

· Chechen Foreign Minister Movladi UDUGOV Monday said that Chechnya has decided to apply for membership to the United Nations (UN). Chechnya is holding talks with ten countries about establishing diplomatic relations, but he did not identify them. UDUGOV mentioned that letters have been sent to Germany and Turkey, which had diplomatic relations in 1918 with the Gorskaya Republic, then covering roughly the same territory as present-day Chechnya. It is suspected that Chechen President Aslan MASKHADOV's series of trips abroad, including Turkey, the US, and Britain, may have been in a

Today's News Highlights

Russia

LUKoil-Chevron Caspian Project

Boeing To Buy Super. Rockets

European Republics

Maapank Bankruptcy Begins

Pres. OKs Communist Candidate

South Caucasus & Central Asia

Goerigan Border Guard Plan

Amoco Plans Turkmen Pipeline

Japan Grants $160M To Kazakh

IMF Grants $86M To Kyrgyzstan

Politics-Economics-Business

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Tuesday

June 30, 1998

Intercon's Daily

of emergency in the republic." He said the Chechens would not meet "State Duma deputies from the Chechen republic," who "unlawfully occupy deputy seats." The delegation will also meet with Moscow's Chechen community.

Economy

Ruble = 6.198/$1.00 (NY rate)

Ruble = 6.200/$1.00 (CB rate)

Ruble = 6.170|6.230/$1.00 (buy|sell rates)

Russia Asks WB For Quick $500M Loan

· Russia, while still negotiating with the International Monetary Fund (IMF) for additional assistance, has asked the World Bank to speed up payment of a $500 million to $600 million loan to shore up the budget, pay back wage arrears, and boost market confidence. The loan, which would be Russia's third World Bank structural adjustment package in over a year, was not scheduled for consideration until October. A World Bank team is already holding loan talks with Russian authorities, but it is unclear how long negotiations will last and what specific conditions will be attached to the loan. However, a World Bank official said the Bank wants to see, "a commitment and actual implementation" of reform measures before a final decision is taken. "The World Bank wants to see actions on measures that were already announced, including the collection of arrears of taxes." Anatoly CHUBAIS, the Kremlin's chief negotiators with the IMF, WB, and other international lenders is seeking a new loan for Russia totaling $15 billion.

Fyodorov Considers 20 Percent Income Tax

· The head of the Russian Tax Service Boris FYODOROV, believes that the Russian government should not turn into a large tax service, but stresses it must solve budget and tax problems. If the nation fails to restructure its taxes, the situation in the country may turn "very dangerous." In an interview with Business Week in New York, FYODOROV outlined his own tax reform plan to, "introduce a single rate of the income tax amounting to 20 percent," and "introduce a sales tax which will be imposed on tax payers right during the purchase." He believes this will make it possible to increase tax collection two-three times. FYODOROV said, "We should simplify the tax system to make it more transparent and convenient. At the same time, we

may cut twice the profit tax from corporations." He reported on the status of the State Tax Service's task to collect from large enterprises. "We began to attempt to arrest accounts and property of tax dodgers. This causes much fuss and hatred. But this will help Anatoly CHUBAIS in his negotiations with the International Monetary Fund (IMF)." FYODOROV noted that, "In the United States, for example, the level of law obedience among those whose incomes exceed $500,000 is higher than among those who earn less than $50,000. I hope such will be the case in Russia, at any rate when it comes to the oligarchies." On Monday, the Russian Trading System fell 6.1 percent to its lowest level since September 1996.

Business

Lukoil-Chevron Review Caspian Project

· President of LUKoil Vagit ALEKPEROV and Director of Chevron Corp. and President of Chevron Overseas Petroleum Inc. Richard MATZKE completed a tour of the Caspian Pipeline Consortium (CPC) pipeline route. Chevron on Monday expressed confidence that the CPC will obtain all necessary permits and right-of-way for the pipeline in the next few months. MATZKE said, "CPC is a model of international cooperation and an indication of the confidence the international community has in Russia and in oil transportation from the Caspian region." According to a company press release, the $2 billion pipeline project is one of the largest new infrastructure projects in the former Soviet Union and will be funded completely by the private sector. The pipeline will link Kazakhstan to Russia's Black Sea port of Novorossiisk. MATZKE praised the CPC team, led by General Director Viktor FEDOTOV, in its ability to keep the project on schedule for completion in 2000. The CPC has issued the tender package for the line's pipe materials and expects to issue tender packages for various other materials and construction contracts soon.

Boeing To Buy 100 Rus. Supersonic Rockets

· Boeing intends to buy 100 Russian supersonic target rockets developed on the basis of the anti-ship rocket X-31A, code named Cripton by NATO. An agreement on the deal was reached after talks between representatives of the state research and production center Zvezda-Strela [Star-Arrow] and American specialists in Korolyov, just outside Moscow. Boeing decided to buy Russian rockets in

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connection with its aim to develop a new supersonic target with a sea-skimming trajectory simulating Russian supersonic anti-ship rockets Moskit 3M-80. This rocket for the first time will be operable in the Chinese navy by year's end. Boeing earlier acquired two batches of the Russian-made X-31A rockets. The rockets were transformed into remote controlled supersonic targets MA-31 and tested. The Russian Defense Ministry is seeking to block the deal to sell X-31A rockets. The ministry prohibited the sale to the US of 100 decommissioned supersonic rockets Moskit 3M-80 worth a total of more than $100 million. The Moskit developers hoped to use part of the earnings to upgrade the rocket by perfecting its software and increasing its range and effectiveness.

Tuesday Tid-Bits

Niyazov Is Out Of This World?

· The flourishing personality cult of Turkmen President Saparmurat NIYAZOV has reached a celestial level. Scientists in Turkmenistan have asked the President to give his name to a large meteorite, according to Neitralny Turkmenistan daily. A large conic meteorite weighing about 300 kilograms (670 lbs.) landed in northern Turkmenistan on June 20th. The newspaper reported that, "noting the fact that the meteorite fell on Turkmen land on the eve of the sixth anniversary of Saparmurat NIYAZOV's election as president, scientists have asked the head of the state to name the celestial body Turkmenbashi." Turkmenbashi [head of the Turkmen] is the official title of NIYAZOV. Towns, villages, military units, factories, and a sea gulf have been named after Turkmenbashi, whose portraits or statues can be seen on nearly every street corner of the Central Asian nation. After naming a meteorite, what's next?

Bank's Eesti PANK said, "We see that there is no money in Maapank to pay all the depositors, and we think that this is the best and clearest way to solve all the problems," the Financial Times reported.

Ukraine Tries To Elect New Speaker

· During Monday's meeting with the leaders of eight parliament factions, Ukrainian President Leonid KUCHMA expressed concern over the aggravating deadlock in parliament prompted by the lawmakers' failure to elect a speaker and deputies since May 12th. The President said this failure threatens the solution of urgent economic and political problems, which has an adverse effect on the peoples' lives. The Ukrainian President warned against further attempts to use the parliament forum for anti-constitutional calls, for aggressive attacks at the bodies of government and political opponents. He stressed that this practice discredits the very institution of power, undermines democratic principles and the parliament's prestige. KUCHMA urged the representatives of parliamentary factions to immediately formulate a joint position to elect the parliament leaders, to do their best for consolidating the deputies' corps and for switching from empty words to lawmaking activity. On Monday, lawmakers nominated two candidates for parliament speaker: Communist faction leader Pyotr SIMONENKO and Leonid CHERNOVETSKY, a member of the President's People's Democratic Party. KUCHMA okayed SIMONENKO as a prospective parliament speaker. However, lawmakers are still working to amend the constitution to increase the number of deputy speakers in accordance with the number of parliament factions. If parliament is unable to elect a speaker, the President could rule by decree and Ukraine may default on its foreign loans. Over the next three months, Ukraine owes foreigners more than $1 billion in external and internal debts, which is half its remaining foreign currency reserves. KUCHMA has been hoping to force passage of a new 1998 budget, without which the International Monetary Fund (IMF) will not release a $2 billion three-year loan. But without a speaker, the parliament cannot pass laws, including the budget.

South Caucasus & Central Asia

Georgian Border Guard Replacement Schedule

· Georgian First Deputy Foreign Minister of Mikhail UKLEBA said, in Tblisi today, that the process of the

European Republics

Maapank Bankruptcy Procedures Begin

· On June 9th, Estonia's sixth largest bank Maapank voluntarily began liquidation, after it failed to meet Central Bank requirements. In a shocking discovery, the new management admitted that government deposits kept the bank afloat for six months. The Central Bank has started bankruptcy proceedings against Maapank. The Central Bank's decision frustrates government efforts to liquidate Maapank deposits with a supplementary budget, financed by a Ekr540 million ($38 million) bond issue. Central

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replacement of Russian border guards on the Georgian coast by Georgian border guards will begin on July 16th. The chairman of the state department for the protection of the state border of Georgia, Major-General Valery CHKHEIDZE, said that the transfer by Russian border guards of the commitments for the protection of the sea water area of Georgia and the stretches of the Georgian-Turkish border does not mean the cessation of cooperation between the border departments of Russia and Georgia. CHKHEIDZE noted that Georgia assumed additional commitments. The replacement schedule states that during the period of July to September Georgia will take control of its coast line; between September and December the agreement state that Georgia will control half of the Georgian-Turkish border; and by May 1999, Georgia will control all of the Adjarian-Turkish border. As to the protection of the sea border near the Abkhazian coast which Georgian border guards plan to protect, CHKHEIDZE said, "the credo of the Georgian border guards is not to be involved in likely insinuations and not to yield to provocation."

Amoco And US Groups Plan Turkmen Pipeline

· A group of US companies, including Amoco Corp., plan to build a 750 mile pipeline system to transport natural gas from Turkmenistan to markets in Turkey and Europe. The pipeline will begin in Turkmenbashi, cross the Caspian basin to Baku, continue to Georgia, and meet up with Turkey's gas transportation grid in Erzurum. The project, with an estimated cost of $2.4 billion, aims to initially move about 350 billion cubic feet of natural gas per year. The pipeline can be expanded to carry much as 1.225 trillion cubic feet of gas per year. The US group also includes a joint venture between affiliates of General Electric Co. and Bechtel Group, The Wall Street Journal reported.

Japan Donates for reconstruction Kazakhstan

· Japan has decided to grant Kazakhstan a loan worth 22.1 billion Yen ($160 million) to help the country renovate and modernize the international airport in Astana, the country's new capital. Kazakh

Foreign Minister Dasymzhomart TOKAYEV and Japanese Ambassador to Kazakhstan Xidaikata MITSUHASHI Monday signed the exchange of notes on the loan, which will be paid back in 30 years with a 10-year grace period at a 2.2 percent interest rate. Japanese diplomats pointed out that the airport in Astana was built over 30 years ago and that it has an aging equipment which does not meet the standards of the International Organization of Civil Aviation and therefore, it must be reconstructed as soon as possible. It was underlined that Tokyo intends to render active assistance to Kazakhstan in implementation of economic reforms in the future. This is the third time that Japan allocated a privileged credit to Kazakhstan. In 1995, Japan provided loans to Kazakhstan to help the country rebuild the Druzhba railway port.

IMF To Lend Kyrgyzstan $86 Million

· The International Monetary Fund (IMF) Monday announced that it will lend Kazakhstan $86 million to support the government's economic program till 2000. The Fund statement said the first annual loan, equivalent to $29 million, will be paid in two semi-annual installments, with the first being released immediately. The loan is made available from the IMF Enhanced Structural Adjustment facility, which helps countries undertaking economic reforms to bolster their balance of payments position and improve their growth prospects. The ten-year loans carry an interest rate of 0.5 percent per year and a grace period of five and one half years. The IMF noted that Kyrgyzstan is at a "critical juncture," in its struggle to sustain economic growth. The Fund pointed out that Kyrgyzstan need to improve its external debt management, implement an overdue reform of the pension system, improve its legal and regulatory framework, and stop the further decline in key social indicators.

The Daily Report on Russia and FSU will not be published on Friday July 3rd and Monday July 6th in observance of Independence Day.

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

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