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

Thursday, August 27, 1998


Fund (IMF) Michel CAMDESSUS pledged IMF assistance to Russia today saying it was ready for cooperation and the discussion of any issues anytime. He made the statement at his meeting with Russian acting Prime Minister Viktor CHERNOMYRDIN in the Crimea. The IMF is likely to renegotiate the terms of its loan to the country in the wake of the ruble devaluation. According to CHERNOMYRDIN, "they had an open, sincere and very serious talk about the economic and financial situation in Russia." The parties thoroughly analyzed the causes which had deepened the crisis and discussed the implementation of earlier accords between Russian and the IMF on extended loans. CHERNOMYRDIN emphasized that they had not discussed new credits for Russia. However, he noted that, "the IMF has an understanding of our actions." Russia appears desperate to accelerate the release of the next installment of the IMF's $11.2 billion loan, due in September. Speaking about the formation of the Russian government, CHERNOMYRDIN said that, "this cabinet should be made up of professionals, irrespective of what movement or party they belong to." He has been distancing himself from a coalition government and instead seeking a government of concord.

CHERNOMYRDIN also held talks on Russian financial crisis with Ukrainian President Leonid KUCHMA and Belarus President Alexander LUKASHENKO Wednesday in Crimea. CHERNOMYRDIN briefed the Presidents on the financial crisis and

Russian Federation

Politics

While Russia Is In Crisis, Where Is Boris?

· The Russian banking system is facing collapse. Major Banks are pooling their resources in an effort to survive. Trading of the ruble against hard currencies have been halted and results voided. The ruble fell 10 percent in a single day of trading this week, the largest one day drop since October, 1994. Although the cabinet has been asked to continue work, despite its firing on Sunday, many ministers have stopped working. Deputies and the oligarchs are fighting to influence the new acting Prime Minister Viktor CHERNOMYRDIN. And where is the Russian President as his nation faces economic and political collapse? For a second day Boris YELTSIN has disappeared from the front lines, seeking refuge in his hunting lodge Rus outside of Moscow. After returning from a five week vacation, YELTSIN fired his cabinet, met with various faction leaders and the President of Vietnam, and then abandoned the Kremlin to deal the consequences of his actions. Presidential aide Ludmila KRYLOVA, disputing rumors that YELTSIN is in bad health and considering calls for his resignation, said he was preparing for a meeting Friday with Bulgarian President STOYANOV.

The General Council of Russia's Trade Unions, which comprises representatives from 41 industrial unions and 68 regional organizations, today approved an appeal to President Boris YELTSIN to step down on his own will. "His resignation is necessitated by the national crisis, continuing economic slump and decreasing standard of living," the Council said. They also called for staging a national protest action on October 7th.

Chernomyrdin Meets With IMF's Camdessus

· Managing Director of the International Monetary

Today's News Highlights

Russia

Rus-Swiss To Fight Crime

EBRD Offers $300M To Agro

Exxon Gives Students Grants

Elf Scraps Sibneft Investment

European Republics

Ukraine To Create Coal Co.

South Caucasus & Central Asia

Azeri-St. Pete Sign Agreement

Tajik Mayor Assassinated

Politics-Economics-Business

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Thursday

August 27, 1998

Intercon's Daily

measures taken by the government and the Central Bank to stabilize the situation. CHERNOMYRDIN said after a meeting with KUCHMA, "it wasn't about trying to reach decisions or agreements, but we simply had to discuss and exchange advice."

New Anti-Crisis Program Drafted

· The final text of the Statement on Russia's Economic Policy has been drafted by the trilateral commission, which consisting of representatives of the government, the Russian State Duma, and Federation Council. First Deputy Speaker of the Duma Vladimir RYZHKOV today said that, "this is a fundamentally new approach to the regulation of economic activity in Russia." He added that the three sides agreed that the economic approach should be altered and that there is a need to find new approaches to regulating the banking system. The property of those banks that fail to meet obligations to depositors may become state property, he said. RYZHKOV noted that, "If the debating on the draft statement passes successfully, it will be fully worked out by the end of day and referred to the President, acting Prime Minister and speakers of the Federation Council and the State Duma. We hope the document will become the basis for a new, uniform economic platform for the country." Russian acting Economics Minister Yakov URINSON said that nearly 70 percent of a new anti-crisis program has already been agreed to. Wednesday, Oleg MOROZOVM leader of the Russian Regions group and the Duma's coordinator in the commission said that this document is based on a political consensus of all parliamentary factions and groups and is permeated by the idea of mutual consultations among all branches of government on various issues. The commission continues to work on the guidelines of the socio-economic development of Russia. Acting Prime Minister Viktor CHERNOMYRDIN and the parliament are considering measures to halt the sliding of the ruble. Our Home Is Russia head Alexander SHOKHIN said, "the discussion includes specific administrative controls to the currency situation. There will be demand for control on the currency markets: administrative control, and perhaps even a temporary closure of the market, with a canceling of internal convertibility of the ruble." Economic analysts predict that if this happens, there will a reliance on the Russian black market and continued lack of confidence and trust in the government.

Leader of the communist faction in the State Duma Gennady ZYUGANOV and President Boris YELTSIN's press secretary Sergei YASTRZHEMBSKY met to discuss the draft economic policy prepared by the tripartite commission. ZYUGANOV said they did not discuss the possible resignation of YELTSIN. He added that conditions for approval of acting Prime Minister Viktor CHERNOMYRDIN, "may be discussed together with the guarantee of the country's unity, of the restoration of the vertical of executive power, of the subordination of executive authorities to legislative authorities, as well as the security guarantee for each citizen of the country. It is only in this context that guarantees may be discussed."

Rus-Swiss To Fight Organized Crime

· Representatives from the Russian Prosecutor-General's Office and the Swiss Federal Prosecutor's Office last week adopted a cooperation program for struggle against organized crime. One of the key aims of this program is the prevention of the inflow of Russian criminal money to Swiss banks. Russian and Swiss law enforcement bodies are committed to this program. Participants said they were satisfied with the results of the discussion and with established "informal contacts" between professionals. It is planned to hold the next meeting in Moscow or St.Petersburg in June, 1999. Head of the Russian delegation Mikhail KATUSHEV, who is also Russian Deputy Prosecutor-General, said that the two sides

discussed general questions and specific criminal cases. Although there is no treaty between Russia and Switzerland on mutual legal assistance, the prosecutors' offices agreed on measures which would speed up implementation of their mutual requests concerning criminal cases. Swiss banks have not calculated or release a figure as to how much illegal Russian mafia money they are holding.

Economy

Ruble = 7.86/$1.00 (NY rate)

Ruble = 7.86/$1.00 (CB rate)

CB Halts Trading And Annuls Results

· The Russian Central Bank today suspended trading of the plummeting Russian ruble, against all foreign currencies for the second day in a row. The Central Bank annulled the trading. The action was taken when dollar-buying orders were placed at 8.2

When you need to know it as it happens

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Intercon's Daily

to 9.5 rubles to the dollar upon the opening of the Moscow Interbank Currency Exchange. It is unknown when currency trading will resume. As trading in dollars was halted, panicked investors turned to the German mark, pushing the ruble down almost 70 percent against the currency in desperate flight out of the ruble. Trading ended with the ruble at 7.6 to the mark, which has been hit by German banks' exposure to Russia and has dropped against the dollar worldwide. When Russia devalued its currency on Aug. 17th, it set the lower limit of its currency band at 9.5 rubles to the dollar. In electronic trading, which was permitted to continue on Thursday, the ruble went unquoted in the morning session, with indicated quotations plunging below 11 to the dollar. On Wednesday, the central bank canceled trade in the ruble against the dollar when it fell to 8.26 to the dollar. The official rate is set at Monday's close of 7.86 rubles to the dollar, while the few money-changing booths that remain open are offering a rate of up to 13 rubles to the dollar. In the meantime, the central bank said its foreign currency reserves amounted to $13.4 billion as of last Friday, down from $15.1 billion a week earlier.

CB Pulls Bank Imperial's License

· The Russian Central Bank has withdrawn the banking license of Bank Imperial, one of Russia's biggest bank. The Central Bank accused Bank Imperial of failing to comply with federal banking laws and Central Bank requirements as well as falsifying its accounts and records. The action against Bank Imperial is the first by the Central Bank during the banking crisis. The banks had been urged by the government and Central Bank to seek partners to prevent a collapse of the banking system. Fearing that the banking system is collapsing, three of Russia's biggest banks Uneximbank, Menatep, and Most Bank said they will form a bank holding. Inkombank and National Reserve Bank have also announced plans to merge. Six Moscow banks, Bank Moskvy, Ogni Moskvy, Mosbusinessbank, MIB, Mosvodokanalbank, and Moseximbank, on Wednesday set up a pool of their funds with a guarantee from the Moscow City Government. Central Bank's Moscow branch supports the pool stating, "The creation of the pool lays the precondition for solving the non-payment crisis between Moscow banks and will provide for quick payments of industrial companies and the Russian government."

EBRD Offers $300 Million to SBS-Agro

· The European Bank for Reconstruction and Development (EBRD) offered $300 million to SBS-Agro savings bank on Wednesday. The terms of the deal have not been made public. "The funds will be channeled for credits to the agrarian and industrial sectors of the economy," the press release said. The funds allocated to SBS-Agro by the Bank of Russia last week were spent on the redemption of Interbank credits. The operations were effected on instruction and under rigid control of the Central Bank.

Business

Exxon Grants Students $100,000

· Exxon Ventures, a company operating in the CIS, today donated $100,000 to Sakhalin University and two schools of Yuzhno-Sakhalinsk. The company participates in the development of offshore oil and gas fields in Sakhalin. A spokesman at its subsidiary Exxon Neftegaz Ltd said that the money will go into acquisition of multimedia computers which will link the university and two schools to the Internet. The President of Exxon Ventures Terry COONS is visiting Yuzhno-Sakhalinsk to present the grant. The grant will be used to teach university and school students English. The operators of the gas and oil projects plan to employ Russian specialists, with a requirement of command of the English language. Local observers see the grant as a sign that the foreign companies are set to get a foothold in the Sakhalin region.

Elf Dumps Sibneft Investment Deal

· The French oil giant Elf Aquitaine Tuesday announced plans to scrap an investment of more than $500 million for a stake in Russia's Sibneft Oil Company because of Russia's economic crisis and the low world price of oil. According to an Elf statement, "Elf has become increasingly concerned about the continuing volatile investment climate worldwide, particularly in Russia...Elf has terminated the current negotiations." Elf had planned to pay $528 million for a 5 percent stake in the Yuksi concern, which would have grouped Russia's Yukos and Sibneft Oil Companies, but later changed its plans and opted for a 12 percent stake in Sibneft as part of a long-term investment in Russia. The company stressed that the decision to withdraw from negotiations did not stem from disagreement between the

When you need to know it as it happens

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Thursday

August 27, 1998

Intercon's Daily

YAKOVLEV and Prime Minister Artur RASIZADE, his first deputy Abbas ABBASOV, Baku mayor Rafael ALLAKHVERDIYEV, and other Azeri government officials in Baku, which focused on the expansion and deepening of bilateral ties in various areas, including in the fields of environmental protection, urban transport, utilities sector and anti-drug measures. In his meeting with President Geidar ALIYEV, YAKOVLEV invited Azerbaijan to use the potential of St. Petersburg's shipyards ,which are increasing their capacities and have orders until 2002. He encouraged boosting bilateral trade through various routes connecting between Baku and St. Petersburg. Another issue discussed was the transportation of Azerbaijan oil, extracted in the Caspian offshore fields, to St. Petersburg by the Volga-Baltic route and further to world markets. St. Petersburg already sells Azerbaijan machinery, electric motors and fish and buys wines and alcoholic beverages, instruments and medical equipment. ALIYEV believes that Russia should play a more effective role in the settlement of the Nagorno-Karabakh conflict. In his view, a settlement would be in the interests of not only Azerbaijan and Armenia, but Russia as well.

Tajik Mayor And Police Guard Assassinated

· Mayor of Tursunzade Nurullo KHAIRULLAYEV, head of the mayor's office Kasym ERGASHEV, a local police officer, and two guards died in an attack on the district town hall by an unidentified armed group this morning. Deputy Minister of Interior Major-General of Police Nikolai MADZHAR said another four people were wounded. Teams of investigators from the Interior and Security Ministries are working at the site of the incident. One attacker was killed and three wounded. Presidential press secretary Zafar SAIDOV described the incident as a clearly political act, explaining that Tajik President Emomali RAKHMONOV had recently visited the town to express his support for the local administration. Independent sources do not preclude that the assassination was committed by KHAIRULLAYEV's political opponents. Tursunzade has witnessed a series of clashes between rival groups and the government.

two sides. Elf and Sibneft agreed to explore other types of mutual cooperation on various project. Earlier this year, Royal/Dutch Shell and British Petroleum also cut back on investment plans in Russia because of economic uncertainty, pulling out of bidding for a stake in Russia's Rosneft.

European Republics

Ukraine Creates State Coal Company

· The Ukrainian Coal Industry Ministry said it will submit an anti-crisis program for the coal industry to the government and the parliament in September. Coal Industry Minister Sergei TULUB said on Wednesday that the state-controlled joint-stock company Ugol Ukrainy (Coal of Ukraine) will be created in the near future in order to streamline settlements for coal supplies, improve the quality of power-generating and coking coal, and support domestic producers by licensing coal imports. Since the beginning of 1998, Ukraine has produced 49.4 million tons of coal, which is 603,000 tons more than in the same period last year. Wage arrears to coal miners have reached 2.2 billion gryvnias ($1 billion). The state budget makes all payments to the coal industry on time, the minister said. The Economics Ministry said the budget sets aside 1.69 billion gryvnias ($800 million dollars) in subsidies for the coal industry in 1998, or 6.9 percent of all budget spending. Accounts payable in the coal industry have reached 7.3 billion gryvnias ($3.6 billion) and exceed accounts receivable by 4 billion gryvnias ($1.9 billion). Ukraine will import from Russia three million tons of coal in 1998 to meet its needs.

South Caucasus & Central Asia

Azeri-St. Petersburg Sign Agreement

· Azerbaijan and St. Petersburg on Saturday signed an agreement on trade, economic, scientific, technical and cultural cooperation and an agreement on cooperation between the administration of Baku and St. Petersburg. The signing was preceded by talks between St. Petersburg governor Vladimir

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

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