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

Monday, July 13, 1998

YELTSIN's international relations aide Sergei PRIKHODKO said the two leaders discussed, "in a broad context the state and prospects for bilateral relations," and agreed to work towards settlement of the Cypriot problem. He also noted that both leaders expressed, "the desire to intensify economic relations and expand the bilateral framework of agreements and legislation," to help the intensification.

Economy

Ruble = 6.212/$1.00 (NY rate)

Ruble = 6.212/$1.00 (CB rate)

Ruble = 6.182|6.242/$1.00 (buy|sell rates)

IMF Bailout Package Worth $11.2 Billion

· Rounding out two weeks of loan negotiations, Russian Prime Minister Sergei KIRIYENKO, financial negotiator and Unified Energy Systems head Anatoly CHUBAIS, Central Bank chairman Sergei DUBININ and Finance Minister Mikhail ZADORNOV met with International Monetary Fund (IMF)'s European Department representative John ODLING-SMEE. Both CHUBAIS and KIRIYENKO stated that the talks were successful. Russia and the IMF have reached an agreement on all major issues, but technical details are still being worked out on loan conditions required by the IMF. Managing Director of the IMF Michel CAMDESSUS today said he would recommend to the IMF executive board that it provide Russia with a $11.2 billion loan in 1998. Half of this amount, about $5.6 billion, is expected to be provided, "as soon as the agreed action of the Russian gov

Russian Federation

Politics

Yeltsin Meets Cypriot President

· Russian President Boris YELTSIN today told visiting Cypriot President Glafcos CLERIDES that Russia intends to supply an anti-aircraft missile system (S-300 missiles) to Cyprus, according to their agreement. The deal has faced stiff opposition from Turkey, which is threatening to take measures if the missiles are supplied. CLERIDES noted that in a letter to US Secretary of State Madeleine ALBRIGHT he stated that Cyprus is ready to cancel the order for the Russian-made missiles if the Turks accept his proposal to open talks on a reduction of forces and the demilitarization of the island. The Cypriot government ordered the S-300 missiles from Russia in January 1997 to boost its defense. The controversial missile deal has angered Turkey and the Turkish Cypriots, who said their security would be seriously threatened by the missiles that have a range of 150 kilometers. Turkey has vowed to take all necessary measures to prevent the deployment of the missiles on the island. CLERIDES' trip to Moscow follows only two days after a test firing of S-300 missiles in Russia, which was witnessed by Cypriot Defense Minister Yiannakis OMIROU and Commander of the Greek National Guard Lt. General Dimitris DEMOU. Greece and Turkey, both NATO allies, have long been at odds over this strategic eastern Mediterranean island. Cyprus has been divided into the Greek Cypriot-dominated south and the Turkish Cypriot-controlled north since Turkey landed and took over the northern third of the island in 1974 after a short-lived Greek Cypriot coup seeking union with Greece. CLERIDES' government is recognized internationally, while the breakaway Turkish Cyprotis state is recognized only by Turkey. No deployment date for the S-300 missiles has been set.

Today's News Highlights

Russia

Rus Factory-Iran Sign Agmt.

Gazprom, Svyazinvest Sell-offs

European Republics

Baltic States Form Econ. Space

South Caucasus & Central Asia

Peace Talks Continue

Another Party Boycotts Election

Azeri Receives 10 Million DM

Armenia's PC Market Grows

Kyrgyz Court Rules Third Term

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ernment have been taken, by legislation where necessary, and upon IMF executive board approval." The executive board will consider the Russian government's economic reform program on July 20th. The Communist-dominated Russian State Duma is scheduled to hold special sessions later this week to vote on key fiscal legislation. Deputies have resisted the austere measures, especially those that will raise taxes and cut spending. CAMDESSUS said that total financing from the IMF during the remainder of 1998 will reach $12.5 billion. The IMF loan will be used to shore up the Central Bank's reserves and meet Russia's short-term loan payments, which constitute about 30 percent of the federal budget. In May, foreign investors fled Russian financial markets amid a sharp drop in the prices of Russia's oil exports and a negative impact of the Asian financial crisis on the Russian economy. As a result, the stock market fell about 50 percent of its value since the beginning of the year. The stock market today jumped 9.16 percent on word of the loan agreement.

In addition, the World Bank (WB) has agreed to speed up talks on a $600 million to $800 million loan that were originally schedule to end in October. It is expected to chip in $4 billion over the next two years. The WB loan would be used to finance economic reforms. WB President James WOLFENSOHN said, "The World Banks stands ready with substantial financial support to Russia for the implementations of this program and for mitigating the severe social problems which the Russian people currently face." Japan will also make $1.5 billion available to Russia in balance of payments support co-financed by the WB. The Japanese government has arranged for the Export-Import Bank of Japan to extend $800 million in new loans to Russia. Russia's already has existing loan deals with all three institutions that will provide an additional $5.5 billion this year and next. That means that the combined financial aid from existing loans, plus today's package, totals $22.6 billion, CHUBAIS said. This figure far exceeds what Russia was seeking and is $2.6 billion more than what Western analysts speculated the need to be. CHUBAIS said, "We are convinced that these resources will allow us to significantly strengthen the anti-crisis efforts of the government and will help stabilize and strengthen the Russian economy." The IMF loan package is expected to help restore investors' confidence in the stock and bonds market.

Business

Rus. Factory Signs Pipe Agreement With Iran

· The Volga Pipe Manufacturing Factory (VTZ) Friday signed several contracts with the Iranian state oil company Kala Naft for the delivery of 18,000 tons of various piping worth $10 million. According to the VTZ press service, the signed document became the second major contract in the history of cooperation between the factory and the Iranian company, which started in May 1997. The first contract was for the delivery of 12,000 tons of pipes for Iranian oil pipelines. The first contract was followed by conclusion of several more test contracts for the delivery of 500 tons of casing pipes. VTZ plans to boost the volume of deliveries of its pipes to Iran through cooperation with private oil companies. Last June, the private oil company ATI Energy International awarded a test order to VTZ for 300 tons of oil piping. A VTZ representatives pointed out that the annual aggregate needs for pipes of private Iranian oil companies total 10,000 to 15,000 tons.

Ignoring US and Western concerns of technology transfers from Russia to Iran, Iranian Defense Minister Ali SHAMKHANI stressed that Iran's military cooperation with Russia, "is implemented under legitimate agreements and helps to strengthen our defenses." He added that he does not expect détente in relations between Iran and the US, "in the foreseeable future. There is a long and high wall of mistrust between us."

Aeroflot Opens New Office In Yerevan

· Aeroflot's joint-stock company General Director Valery OKULOV opened the air company's new office in Yerevan today. Acting executive director of the Armenian Airlines company at the opening ceremony Tigran ACHOYAN said, "This is a festive occasion not only for Aeroflot, but also for the Armenian Airlines, because we all come from Aeroflot." Aeroflot makes eight flights to Yerevan every week along the Moscow-Yerevan-Moscow route. Before the ceremony, OKULOV met with Armenian President Robert KOCHARYAN and held talks with the management of the republic's Civil Aviation Administration and the Armenian Airlines company. Last year, Aeroflot planes flew 80,000 passengers along the Moscow-Yerevan-Moscow route.

Gazprom, Svyazinvest Shares To Be Offered

· On Thursday, a Russian Senior Government

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official announced that the government would sell up to 5 percent of gas giant Gazprom this year. He also announced that government shares in the state-owned telecommunications company Svyazinvest would also be sold by year's end. Both sell-off announcements follow the extension of the Rosneft bidding period to October on a 75 percent plus one stake. Gazprom deputy chairman of the board of governors Sergei ZVEREV he did not rule out that Gazprom's key partner Royal/Dutch Shell could reconsider its recent decision not to bid for Rosneft since the tender's extension. But Gazprom alone will probably not be able to bid on Rosneft due to tight financed. Gazprom has developed cash-flow problems since the government has demanded that it pay billions of rubles in back taxes. Russian Deputy Prime Minister Viktor KHRISTENKO said, "One has to pay for everything. Gazprom, too, must make regular budget payments and take appropriate measures to debtors among its consumers." KHRISTENKO also said non-payments remain the problem faced by economy's manufacturing sector. He cited federal and local budget debts to recipients as the key problems. During difficult negotiations between the government and Gazprom earlier this month, the government agreed to fully pay for gas bills by state-owned companies and Gazprom agreed to make regular payments to the budget. Gazprom's net profit in 1997 increased 0.39 percent to one trillion old rubles compared with the previous year, whereas sales revenue dropped 2.6 percent to 136.7 billion rubles. Today, during negotiations with the Russian government and the International Monetary Fund (IMF), the division of Gazprom was not discussed. Head of the Moscow Office of the IMF Michael CARTER said that discussions focused on state regulations and taxation of the gas industry.

over the years the countries strengthened cooperation and pooled efforts to join the European Union and the North Atlantic Treaty Organization. Starting next year, if the parliaments ratify the resolution, road cargo carriers will be able to cross the territories of these republics with documents drawn up only on one of the borders. Such a treaty is necessary to the Baltic states for their joining of the international convention on transit acting in member-countries of the European Union. The prime ministers also approved a plan for the further actions of the Baltic Council, which includes the heads of government of Latvia, Lithuania and Estonia.

South Caucasus & Central Asia

Georgia-Abkhazia Peace Talks Continue

· Georgian Foreign Minister Irakly MENAGARISHVILI is expected to meet with Russian counterpart Yevgeny PRIMAKOV in Moscow to discuss a wide range of issues concerning the settlement of the Georgian-Abkhazian conflict. Georgia and Abkhazia are continuing their consultations on border issues despite lack of progress at their talks on Friday Head of Georgia's department of border protection Major-General Valery CHKHEIDZE said. He declined to comment on the details of the talks in connection with the fact that Georgian border guards will take over the protection of Georgia's sea border, including its Abkhazian section, on July 16th. However, the national television said that CHKHEIDZE, "is optimistic." CHKHEIDZE noted that during talks with Abkhazia on Friday, "we came to a conclusion that all problems should be solved by negotiations, by peaceful means."

Social Democrats To Boycott Azeri Election

· On Friday, the Social Democratic Party, with 2,000 members, announced that it plans to boycott the Azeri presidential elections scheduled for October 11th. Earlier, the same decision was made by four potential candidates for the position from the opposition forces, representing the following political parties: the Popular Front, Musavat, Democratic Party, Liberal Party, and ex-speaker of the parliament in exile Rasul GULIYEV. Local media report that the decision to boycott is linked tothe adopted law on elections of president of Azerbaijan, which the opposition believes will not ensure free expression of will by citizens of the country possessing the right

European Republics

Baltic States Sign Economic Space Resolution

· The prime ministers of Latvia, Lithuania and Estonia on Friday confirmed their resolution to create a single economic space. They met in Sigulda, near Riga, and specified a plan of action for 1998 and 1999, paying special attention to free movement of labor. During the meeting, the heads of government signed an agreement on a single transit procedure and on mutual recognition of secondary schools diplomas. The three prime ministers stressed that

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to vote. According to a press release from the Embassy of Azerbaijan, "To ensure that the adopted law, "on the elections of the President of the Republic of Azerbaijan" meets world standards of democracy, it was reviewed in close cooperation with international institutions, including the OSCE Office for Democratic Institutions and Human Rights. The media also notes that the election will not take place on a non-alternative basis, where the President Geidar ALIYEV would run for the presidency for the second term alone. ALIYEV has stated that he does not intend to run and has encouraged all of the country's political parties to nominate a candidate. According to preliminary statements, presidential candidates include, leader of the National Independence of Azerbaijan Etibar MAMEDOV, of Independent Azerbaijan Nizami SULEIMANOV, Party of Social Wellbeing Khangusein KYAZIMLI, Alliance in the Name of Azerbaijan Abutalyb SAMEDOV. On Thursday, ALIYEV signed a resolution inviting international observers to control elections and prevent violations of suffrage. Meanwhile, the parliament endorsed two amendments to the election law that were proposed by ALIYEV, which reduce the minimum required turnout from 50 percent plus one to 25 percent and allow voters to endorse the registration application of more than one candidate.

Azerbaijan Receives 10 Million DM

· Azerbaijan has received 10 million DM from Germany to support economic reform. According to an official of the Ministry for Economic Cooperation, the sum has been allocated within the framework of financial cooperation between Bonn and Baku. Germany will also provided seven million DM as part of scientific and technical assistance. The credits are designed to support privatization of agricultural enterprises, the development of small and middle businesses, and market economy.

Armenia's PC Market Grows

· According to a US Department of Commerce report, Armenia's estimated market size for personal computer monitors in Yerevan in 1997 was $1.01

million and is expected to grow by 40 percent to $1.7 million. Demand for personal computers (PCs) grew in 1995 when electricity supplies stabilized and the country's private sector began to grow. Armenia received a grant for new Armenian non-government organizations in 1995-1997, which resulted in computer literacy projects and computer purchases by these NGOs. Some Armenian local banks have introduced electronic transfer systems between banks, which boosted PC sales. New businesses typically buy at least one PC to process paperwork and accounting. Armenian companies import PC hardware from or via Russia, Ukraine, or Western Europe; no local production exists. The share of US brand names accounts for approximately 8 percent of the market. Samsung is the leader, with Gold Star monitors second, and Sony, Philips, Panasonic and IBM lagging far behind. The Journal of Commerce noted that general nondiscrimination against US exports is stipulated by the American-Armenian Trade agreement of 1992, which provides for most-favored-nation status between the countries.

Kyrgyz President Permitted To Seek Third Term

· Kyrgyzstan's Constitutional Court today ruled that President Askar AKAYEV may run for a third term in the 2000 elections. The court cited that the constitution, which bars a president from holding office more than twice in a row, was introduced in May 1993. AKAYEV was elected democratically in 1995, after being named leader by the Supreme Soviet of the Kyrgyz Republic in 1990. The Court noted that the constitution did not exist in 1990 because Kyrgyzstan was still part of the Soviet Union. AKAYEV, who is well respected by international financial institutions for his open approach to foreign investment and introducing market reforms, has declined to announce whether or not he would run for a third term. The Kyrgyz Constitutional Court ruling is of particular interest to Russia, where its Constitutional Court is set to rule in mid-October as to whether Russian President Boris YELTSIN is eligible for a third term in the 2000 Presidential elections. His circumstances are similar to AKAYEV's.

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

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