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

Monday, August 31, 1998

Russian Federation

Politics

Russian State Duma Rejects Chernomyrdin

· Despite the dire state of Russia's economy, the Russian State Duma rejected Viktor CHERNOMYRDIN to the post of Prime Minister. CHERNOMYRDIN address the Duma, telling them that "Russia today is, in essence, on the verge of economic and political breakdown." He vowed to protect individual savings, pay wages and pensions, and prevent further ruble devaluation. These promises without a clear economic strategy and cabinet were not enough to convince deputies. They overwhelmingly rejected CHERNOMYRDIN in a open vote of 94 to 252. CHERNOMYRDIN needed 226 votes out of the 450 seats in the Duma.

CHERNOMYRDIN, nominated by President Boris YELTSIN to head the government last Monday, had been busy lobbying various factions and negotiating economic policies in return for the Duma's approval; these attempts failed. On Sunday, the Communist opposition refused to sign the deal with the government shortly after agreeing to it. Under the terms of the deal, the parliament would promise not to seek YELTSIN's impeachment and he would in turn promise not to dismiss the Duma. The accord would also redistribute much of the President's power to the Duma. The President would retain the right to hire and fire the ministers of the power ministries, Foreign, Interior, Defense, and Secret Service. Constitutional amendments would have been required. Communist leader Gennady ZYUGANOV said his party rejected the deal because there were no firm guarantees YELTSIN would abide by the provisions.

He said that CHERNOMYRDIN cannot solve Russia's problems because he is responsible for developing them. "Mr. CHERNOMYRDIN is an accomplice with

YELTSIN in the destruction of the past years," The New York Times reported ZYUGANOV as saying. Communists said they were not afraid of government threats to dissolve the parliament, if they fail to approve CHERNOMYRDIN on three tries, because they are confident that they can win new elections. The leader of liberal Yabloko Party Grigory YAVLINSKY said that he was disappointed by the inability of Russian politicians and financial barons to exercise a modicum of statesmanship. "I have to say that I am ashamed about everything I hear around me." He said he would vote against the acting Prime Minister. "He [CHERNOMYRDIN] bears full responsibility for the financial-economic situation in the country and the creation of a semi-oligarch, semi-criminal economic system...we will not enter into such a team of saviors," the Financial Times reported. Head of the Agrarian Party Nikolai KHARITONOV said his party would vote against CHERNOMYRDIN. Chairman of the ultranationalist Liberal Democratic Party Vladimir ZHIRINOVSKY also said he would oppose the acting Prime Minister.

After the vote, hard-liners called for YELTSIN's resignation. YELTSIN did not immediately re-nominate CHERNOMYRDIN, but it is speculated he will do so sometime this week. CHERNOMYRDIN said he would continue forming a cabinet, which he will present to YELTSIN Tuesday. Law makers are working on a list of new candidates for prime minister, which may include Federation Council speaker Igor STROYEV. The rejection of

Today's News Highlights

Russia

US Bank Exposure To Russia

Laser Conference In St. Pete.

European Republics

EBRD Reassesses State Sector

Russia Closes Latvian Radar

South Caucasus & Central Asia

Chkheidze In Ukraine

CE Meets With Georgian Leader

New Chevron Station In Kazakh

New Evidence In Tajik Murder

Politics-Economics-Business

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Monday

August 31, 1998

Intercon's Daily

CHERNOMYRDIN leaves Russia without a government during a time when implementing key economic reform policies is crucial.

Fyodorov In Charge Of Economic Reforms

· Russian acting Prime Minister Viktor CHERNOMYRDIN appointed Head of the Tax Service and acting deputy prime minister Boris FYODOROV in charge of solving Russia's economic problems and negotiating with the International Monetary Fund (IMF). Last week, CHERNOMYRDIN tried to woo both the IMF and the Communist lead Russian State Duma. With one pressing for strict economic reforms and the other dreaming for Soviet-style economic measures of price fixing and currency controls, CHERNOMYRDIN's latest move appointing FYODOROV tips the scales toward capitalism, suggesting that he is interested in pursing market reforms in the short-term and not ceding ground to the Communist Party. FYODOROV's reputation as a hard core tax collector and radical reformer may be enough to show the West that Russia is working on a strategy to pull themselves out of the crisis. To tackle the nation's economic and banking crisis, FYODOROV has a team of economic advisors made up of Central Bank head Sergei DUBININ, acting Finance Minister Mikhail ZADORNOV, chairman of Vnesheconombank Vladimir KOSTIN, and head of Russia's State Property Fund Igor SHUVALOV.

Economy

Ruble = 10.00/$1.00 (NY rate)

Ruble = 9.331/$1.00 (CB rate)

US Bank Exposure And Losses In Russia

· Russia's economic problems are causing turmoil across the world, despite the nation's small impact to the global financial community. While Russian and European banks have been hit the hardest, US banks' exposure to the crisis has been estimated at about $8.8 billion in short-term debt maturing in less than one year, The Financial Times reported. BankAmerica Corp. has reported trading losses this quarter reaching $220 million. J.P. Morgan said its exposure to Russia as of August 27th was $160 million and its trading revenues after a write down of Russian assets were $300 million in the quarter to date. J.P. Morgan did not release details of its losses. BankBoston Corp. said its net loss for the

quarter is approximately $30 million of which $10 million is related to the Russian financial crisis. Republic New York, the parent company of Bank of New York, said that its third quarter earnings would be largely wiped out by losses on Russian investments. Citicorp has an exposure of $420 million. Chase Manhattan about $500 million and an estimated losses of $425 million for the third quarter. The next great fear for US banks is the affects of the turmoil in Latin America, to which US banks had an exposure of $76 billion at the end of the first quarter.

CB To Take Active Measures

· Russian Central Bank chief Sergei DUBININ today said the bank will take "most energetic" measures to protect deposits of private banks and individuals in bank accounts. DUBININ said on Thursday that the government would ask commercial banks to sign cooperation agreements with the state-owned savings bank Sberbank and enter a pool in which banks guarantee private deposits. "It is through this mechanism that we can now legally, without new legislation, spread our guarantee to all those deposits in the banks with which the savings bank strikes such an agreement," he said. DUBININ emphasized that the Central Bank had done all possible to avoid devaluation. He admitted that, "now after all that has happened, we can only say yes, we have failed to resolve all the problems we wanted to resolve with money from the International Monetary Fund." Russia's estimated gold reserves are at $13.5 billion.

Russia's acting Prime Minister Viktor CHERNOMYRDIN also sought to assured the Russian people that the government will guarantee their savings held in bank accounts in a televised interview Saturday. He said, "I would like to assure all depositors of commercial banks that you will get your money." He also said the battered national currency, the ruble, would remain convertible to other currencies, in an effort to stop panic buying of dollars. Russia's Central Bank suspended currency trading for three days, leaving the country without a working exchange rate and feeding rumors that the ruble would no longer be convertible. He said, "We have joined the world economy, and there will be no return to the past." This statement alleviated Western fears that the economy was returning to a Soviet-style of fixed prices and currency controls.

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Monday

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Business

NAT Marks Third Anniversary

· The National Association of TV Broadcasters (NAT), the first professional nonprofit association of national and regional broadcasters, marked its third anniversary today. The NAT brings together more than 150 television and radio broadcasting networks, including such major ones as the ORT, VGTRK, NTV, TV-6, the STS and the TNT television networks and is a kind of "collective voice" of Russian broadcasters in the bodies of power, Itar-Tass reported. The group was formed to uphold corporate interests, render mutual assistance in tackling practical problems, and exchange professional information. A radio broadcasting section was set up at the NAT earlier this summer. NAT president Eduard SAGALAYEV noted that the Association initiated such traditional forums as an annual International exhibition of broadcasting equipment, at which regional broadcasters get an opportunity for direct contacts with major world and Russian producers.

Laser Exhibition Opens In St. Petersburg

· The Laser Exhibition of 1998, the 12th international symposium on gas and chemical lasers opened on Sunday in St. Petersburg. Approximately 200 physicists from 17 countries are attending the conference on high-energy lasers. They will discuss modern laser-building techniques. The scientists will also discuss scientific achievements, which used to be classified. This is the first time Russia has hosted an event of such a high scientific level.

Russian Booster Launches Comm. Satellite

· A Russian Proton-K booster rocket with a European communications satellite Astra 2A aboard blasted off into space from the Baikonur cosmodrome on Sunday. The Astra 2A satellite is the eighth satellite of the Astra series, belonging to the European SES Company, the first private company on the European market of operators of satellite television and radio broadcasting. The ground station of the Astra control system is in Luxembourg. The American Hughes Company is the developer and manufacturer of the Astra 1A satellite. A contract for the satellite's launching was signed by the SES Company with the ILS joint venture which includes the Khrunichev Space Center, the Energia Space Corporation and the American Lockheed Martin Company. The SES Company is planning another launch.

European Republics

Norwegian Royalty Visits The Baltic States

· The Norwegian royal couple, Harold V and Queen Sonja, on Monday arrived in Estonia, the first stopover on their five-day visit to Estonia, Latvia, and Lithuania. This will be the Norwegian royal couple's first official tour in the contemporary history of relations between Norway and the three Baltic States. Norway attaches much importance to these visits. The Norwegians strive for the development of contacts both on a multilateral basis: under the 5 plus 3 formula (five Nordic countries and the three Baltic States) and at the level of bilateral relations. The royal couple is being accompanied by a large delegation of Norwegian businessmen who will arrange seminars and business meetings in the Baltic States. Their aim is to promote a further development of trade-and-economic relations in the region.

EBRD Reassess Ukraine's State Sector

· The European Bank for Reconstruction and Development (EBRD) plans to reassess its projects of cooperation with Ukraine in its state sector of the economy. EBRD director for Ukraine, Moldova, Georgia and Armenia Yuri POLUNEYEV said on Friday that the EBRD is going to give more attention to the private sector in which it sees a prospect of cooperation. He said it is preferable for the EBRD to deal with "enterprises in whose affairs the state does not interfere." POLUNEYEV noted there are 28 projects, worth $800 million, which are pursued by Kiev and the EBRD. The EBRD's investment in Ukraine in 1997 was second largest after Russia. The EBRD is "actively poised for cooperation with Kiev, especially in the financing of small and middle-sized business, assistance to privatization of large enterprises, development of the private sector," POLUNEYEV said.

Russian Radar System Shut Down In Latvia

· A Russian radar installation, which observes Latvia's air space to prevent a possible a missile attack, is to be shut down today as agreed to in a Russian-Latvian bilateral agreement of 1994. The radar installation in the settlement of Skrunda is the last remaining Russian military object in this Baltic state. Representatives from the Latvian Foreign Ministry and the Organization for Security and Cooperation in Europe are to attend the closing ceremony.

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Monday

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Intercon's Daily

The dismantling of the installation will last until February 22, 2000. Russia paid $5 million per year to rent the site at which 400 Russian have been working since 1994.

South Caucasus & Central Asia

Georgia Border Head In Ukraine

· Head of the Georgian Border Department Major-General Valery CHKHEIDZE arrived today in Ukraine for a five-day working visit. The sides will discuss the bilateral border cooperation and the training of personnel for the Georgian border troops. Intercon sources report CHKHEIDZE and Ukrainian officials will also discuss the transfer of a retiring Ukrainian officer in connection with becoming the new head of the Georgian Navy. Last week, Ukraine gave Georgia a large vessel with a crew of over 40.

Council Of Europe Meets Top Georgian Officials

· A Council of Europe delegation arrived in Tblisi on a two-day working visit on Saturday. Foreign Minister Irakly MENAGARISHVILI said the two sides discussed the situation in Georgia, prospects for the settlement of the Georgian-Abkhaz conflict, and the pace of political and economic reforms in the country. He said at the opening reception that, "the views of the CE delegation and the conclusions to be made during their trip to Georgia will be of great value for adopting a decision on Georgia's accession to the Council of Europe." Georgia, Armenia, and Azerbaijan, have been granted the status of a "special guest" in the Council of Europe for a year. The delegation, which includes CE secretary-general Daniel TARSCHYS and chairman of the CE Foreign Ministers Committee Yanos KRANIDIOTIS met with MENAGARISHVILI, President Eduard SHEVARDNADZE and parliament speaker Zurab ZHVANIA.

Chevron Opens Third Service Station

· On Friday, San Francisco-based Chevron commemorated the opening of its third service station in Atyrau, Kazakhstan with government and Chevron officials. The new station is similar to modern Chevron stations built in the US and pro

vides fueling space for eight vehicles, offering unleaded gasoline, diesel fuel and motor oil. The facility, expected to employ 12 to 18 local citizens, also offers customers a convenient food mart. The service station meets the highest world standards for environmental, ecological, fire and technical safety using double-wall underground storage tanks, leak detection equipment and vapor recovery systems. President of Chevron Overseas Petroleum Inc. and a director of Chevron Corp. Dick MATZKE said, "We are proud to be a long-term partner in the continued growth and development in Kazakhstan, and we look forward to continuing our active partnership to build on our recent successes." Chevron entered the retail gasoline market in Kazakhstan in 1996 with a station in the former capital of Almaty. The second station opened in the new capital of Astana in June. In 1993, Chevron joined with the government of Kazakhstan in a $20 billion, 40 year venture to produce oil and gas from the giant Tengiz field, expected to produce 700,000 barrels per day by 2010.

More Evidence Found On Tajik Assassins

· Tajikistan law enforcement bodies have found a piece of evidence linking supporters of mutinous Colonel Makhmud KHUDOIBERDYEV to the assassination of Tursunzade Mayor Nurullo KHAIRULLAYEV and five of his aides on August 27th. The colonel is on the Wanted List for plotting a state coup last August. According to a high-ranking government official, testimony from witnesses and classified information reveals that the gang included close aides of KHUDOIBERDYEV, who escaped in the direction of a neighboring district after the attack on the Tursunzade's town hall. Uzbek border guards and police claim to have detained two armed people when they were crossing the Uzbek-Tajik border on the day of the assassination. However, this information has not been confirmed by officials from the border Uzunsky district of Uzbekistan. Uzbek in charge of affairs to Tajikistan Bakhtier URDASHEV emphasized that Uzbekistan has never given shelter to terrorists from Tajikistan and always sharply denounced terrorist actions in Tajikistan.

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