DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, September 14, 1998

alarm the West and the International Monetary Fund. Defense Minister Igor SERGEYEV, Interior Minister Sergei STEPASHIN and Minister for Emergency Situations Sergei SHOIGU have already been confirmed to their posts by a presidential decree. Andrei BUGROV, Russia's executive director in the World Bank, will most probably be responsible in the new Russian cabinet for cooperation with international financial organizations. The proposal had already been made to BUGROV and, by all indications, he will accept it. PRIMAKOV held his first cabinet meeting today at which he declared there be tighter discipline and stringent observance of law. Everybody should work under the Constitution, in accordance with laws no matter how high a post a person may hold, the premier said. He said, "there will be no lobbying, no advantages in business for organizations, parties or structures," to which they may have been close in the past. He is seeking professionals from all parties. PRIMAKOV said the priorities of his government will be to pay off wage and pension arrears, increase tax collection, and attract foreign investors to the "real economy" of Russia.

Attack On Ingush-North Ossetian Checkpoint

· Unidentified gunmen shot six policemen at a joint Ingush-North Ossetian police checkpoint on Saturday. The attackers used grenade-launchers and small arms in North Ossetia's Prigorodny district which was the center of an Ossetian-Ingush conflict a few years ago. Policemen returned fire which killed one of attackers and wounded another. Russian

Russian Federation

Politics

Yeltsin Hires and Fires

· Russian President Boris YELTSIN on Saturday sacked Sergei YASTRZHEMBSKY, the deputy head of the presidential administration and his chief spokesman. A Kremlin report said YASTRZHEMBSKY's dismissal was due to a "transfer to another job," dealing with economic issues. YASTRZHEMBSKY was appointed secretary of the presidential press service in August, 1996, and deputy head of the presidential administration in 1997. Intercon sources report that the firing of YASTRZHEMBSKY and Security Council Secretary Andrei KOKOSHIN was due to the fact that they recommended Moscow Mayor Yuri LUZHKOV over Yevgeny PRIMAKOV as the president's nominee for Prime Minister. YELTSIN appointed Yuri ZUBAKOV as head of the government administration.

YELTSIN signed a decree appointing Yevgeny PRIMAKOV Prime Minister of the Russian government after the State Duma confirmed his nomination on Friday. YELTSIN also decreed that Yuri MASLYUKOV, a former head of the Soviet economic planning agency Gosplan, appointed first Deputy Prime Minister of the Russian government. YELTSIN has yet to nominate economic and financial ministers to tackle Russia's financial turmoil, which has rocked markets worldwide. The president has not yet specified MASLYUKOV's areas of responsibility. Leftist opposition forces have demanded that he be given charge of the economy. The new cabinet is the first Russian coalition cabinet with Communist Party representation at its core since the Soviet Union collapsed in December 1991. The new government is believed likely to adopt economic measures reflecting Communist policy, such as the re-nationalization of a few key enterprises, that could further

Today's News Highlights

Russia

New Economic Policy?

Gov't, Indust. Stop Price Rises

Aeroflot Warns Of Strikes

European Republics

Ukraine Rejects Privatization

South Caucasus & Central Asia

Police Break-up Azeri Protesters

Uzebk President In Israel

Rus-Kyrgyz Science Research

Politics-Economics-Business

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September 14, 1998

Intercon's Daily

Interior Minister Sergei STEPASHIN expressed condolences to families of the killed policemen and ordered, "exhaustive measures for searching the criminals." In response Ossetians set fire to 58 trailer homes in the Ingush capital of Nazran. On Sunday, Russian Deputy Interior Minister Colonel-General Petr LATYSHEV met with Ingush President Ruslan AUSHEV and the Russian presidential representative to Ingushetia and North Ossetia Vladimir KALAMANOV. LATYSHEV later met with North Ossetian Prime Minister Teimuraz MAMSUROV to try to determine measures to stabilize the region.

Meanwhile, former Chechen field commander Salman RADUYEV has abandoned his threats to the Daghestani leadership, made in connection with the arrest of Daghestani deputy Magomed KHACHILAYEV. In the words of RADUYEV, he enables the Daghestani leadership to free KHACHILAYEV, "without pressure, voluntary." KHACHILAYEV is charged with organizing large-scale disturbances in Makhachkala on May 21st, which resulted in seizing of the Daghestani Government House.

Economy

Ruble = 11.43/$1.00 (NY rate)

Ruble = 11.4281/$1.00 (CB rate)

Ruble = 9.10|9.99/$1.00 (buy|sell rates)

New Economic Policy By Week's End

· Russia's new Prime Minister Yevgeny PRIMAKOV, after being confirmed by the Russian State Duma Friday said that economic reforms will continue. He said, "There will be no retreat from the economic reforms, I say that with absolute determination, and this stance, by the way, is shared by the Duma...But we must speak of mistakes, made in the course of the economic reforms. And we will do everything to correct them." He noted that priority will be given to the national industry. He promised to comment on all moves of the government to the press. Today, PRIMAKOV said that Russia's new economic program will be delivered to the President by week's end. PRIMAKOV hinted that there will be an emphasis on social welfare and industrial growth not market driven capitalism.

Viktor GERASHCHENKO outlined the priorities of the Russian Central Bank before being confirmed by

the Duma. He said the Central Bank tasks include, "the restoration of the liquidity of the banking system, the salvation of banks, which are capable of working in the current complicated conditions and satisfying the needs of clients and depositors, the solution of a problem of the debt payment to foreign investors, who had actively purchased Treasury bills, the provision of deposits' safety and the real exchange rate of the ruble." The collapse of the T-bill pyramid caused a crisis of banks' liquidity. The statement of the government and the Central Bank of August 17th averted investors from Russia. He said that the problem will not be solved without a series of difficult negotiations with foreign investors. GERASHCHENKO has urged the Duma to lift a ban on the Central Bank credits to finance the budget, a move which risks spurring high inflation. He has pledged to be cautious on printing money. GERASHCHENKO favors a close contact between the Central Bank and the government and the Duma control over the activity of the Central Bank. "The situation in the banking system is, really, very complicated, but it reflects the poorly-considered economic policy which did not aim at the development of the national production and, thus, a larger taxable basis for the sake of budget revenues," GERASHCHENKO said. The Duma on Friday voted 265 to two to dismiss the entire board of directors of the Central Bank. The Duma Budget and Finance Committee today agreed to six candidacies for members of the central bank board of directors. The candidacies had been submitted by GERASHCHENKO, and the committee recommended that the Duma adopt them.

G-7 To Discuss Russia's Problems

· A meeting of high-ranking representatives from the leading industrial countries of the world, the Group of Seven nations (G-7) plus Russia, opened at the Foreign Office in London today. They will discuss topic issues of the international economic situation and related key aspects of political and economic cooperation among the eight countries. The first phase of the meeting is proceeding in the G-8 format. The Russian side is represented by Deputy Foreign Minister Georgy MAMEDOV and Deputy Finance Minister Mikhail KASYANOV and they will discuss in detail the economic situation of Russia. Afterwards, the G-7 will estimate the financial crisis and elaborate a common approach and possible

When you need to know it as it happens

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moves of the G-7 countries on a basis of the report of the European Union Three, which visited Moscow on September 10. It is expected that G-7 nations will announce that it is too early to render additional financial assistance to Russia. G-7 nations plan to issue a special statement insisting that implementing economic reforms under the guidance of the International Monetary Fund (IMF) is a condition for further economic aid. The approval of Yevgeny PRIMAKOV as Prime Minister, with little economic experience, and Viktor GERASHCHENKO as Central Bank chairman, responsible for Black Tuesday, has not inspired confidence in nervous financial markets. PRIMAKOV has promised to pay off wage and pension arrears. GERASHCHENKO believes that printing money is unavoidable. If Russia prints new rubles, the IMF has the right to cancel its pledged $22.6 billion loan. The IMF has delayed a $4.3 billion payment, set for disbursement Tuesday, until Russia forms a new government and institutes economic reforms. The one-day meeting is being attended also by representatives from the IMF, the World Bank, the European Bank for Reconstruction and Development, and the European Union.

Government, Industry To Prevent Price Rises

· Enterprises of the Russian Ministry of Railways, Gazprom and United Electric Systems of Russia (UES) agreed on Saturday to impose a moratorium on the purchasing of goods [and services] at inflated prices, to assume a tough stand with regard to suppliers and to take adequate measures with regard to the enterprises, which increase prices without special reasons. Managers of UES, Gazprom and the Ministry of Railways signed a joint statement on curbing the inflation processes in the Russian economy. They agreed to, "spare no effort for preventing the growth of the price pressure on Russian consumers and to take measures for promoting the overall curbing of crisis phenomena in the country." Their plan coordinates a policy of limiting price rises of gas, electricity and railway transportation for domestic commodity producers and the population in an effort to fight inflation. The senior executives of the basic industries believe that the fulfillment of the joint program will, "help maintain the reliable functioning of enterprises of the fuel and energy complex, and will hamper the speculative pursuit of the dollar exchange rate, which is fraught with a catastrophic deterioration of the economic situation in the coun

try." According to the statement, the executives said, "by acting in concert we will be able to make a significant contribution to lower inflation and stabilization of the economic and financial situation in Russia." Prices rose in by 35.7 percent in the first week of September, following an increase of 15 percent in August.

Business

Rus-Sweden Pipeline To Be Developed

· Hans OKESSON, representative of Finnish consultative firm Neste, which is exploring the possibility of its construction at the request of the Russian North Transgaz Company, said on Swedish radio that, "A gas pipeline will be built from Russia to Sweden." According to developing plans, the gas pipeline will be built under the Baltic Sea to the Swedish town of Gavle. Then it will pass by Jonkoping towards Istad, a town on the southern tip of Sweden. From there the Russian gas will be pumped further to Western Europe. The gas pipeline is expected to be about 600 kilometers long. The necessary studies are expected to be completed by the end of the year, and if the implementation of these plans runs smoothly, the first deliveries of gas through the new pipeline will begin in 2005. Several other northern power companies are exploring the possibility of creating a single gas system with the participation of Norway, Denmark, Sweden, Finland, Russia, and the Baltic countries.

Vietnam Bank Halts Trade Payments

· Last week, the bank for foreign trade of Vietnam suspended the settlement of import-export payments to Russian banks at the request of Russian companies. Due to current difficulties in Russian financial institutions, several Russian firms have asked to freeze trade payments to Russian banks, according to a Vietnamese bank official. Meanwhile, no import-export payments for Russian businesses have fallen due, said the official, adding that the annual trade payments are just a few million dollars. Last year, the foreign trade between Russia and Vietnam totaled at about $300 million.

Aeroflot Warns Of Strikes

· On Thursday, Aeroflot's general director Valery OKULOV said, Russia's leading airlines, Aeroflot is under the "threat of strikes." He said, "Pro-Communist parties are actively talking union leaders to join

When you need to know it as it happens

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mass protest actions." OKULOV believes this may lead to strikes from both air traffic controllers and pilots, particularly those who suffer from wage delays or where collective agreements are violated. He also said that following the crisis workers of the aviation industry will have to be stripped of some social privileges. Basic social guaranties-free medical service for the company's employees and members of their families, discounts on payments for kindergartens, will be preserved.

ment ban, and about 500 police were deployed to stop it. Authorities had permitted the opposition rally, but in a different area of Baku, at a car race track in a northern neighborhood. The protesters were demanding the postponement of the presidential election scheduled for October 11th. Opposition leaders are boycotting the election, saying the government has too much control over the Central Election Commission. Interior Minister Ramil USUBOV told the nation on television that police will work to maintain order in the capital using all means available to them. However, Baku Mayor Rafael ALAKHVERDIYEV said authorities were not going to use the anti-riot hardware against the rallies.

Uzbek President To Visit Israel

· Uzbekistan President Islam KARIMOV is expected to arrive in Israel today on an official visit. A package of trade and economic documents are on the agenda to be signed during the three-day visit. "Uzbekistan and Israel have developed good partnership relations. After Israel recognized Uzbekistan's independence, "the two countries established beneficial cooperation in the economy, agriculture, health care, cultural and social life," Chairman of the Uzbek Parliament Committee on International Relations Erkin VAKHIDOV said. He noted that several Israeli projects have been implemented in Uzbekistan, specifically "new techniques to grow vegetables, the use of micro-irrigation technology, and the establishment of private-owned dairy farms." Both sides have signed an agreement on a air service between Tel Aviv and Tashkent,.

Rus-Kyrgyz Joint Geo-Research

· The Russian Science Ministry's press service announced on Friday that Russian and Kyrgyz scientists are planning joint studies in the sphere of geo-dynamics, geo-physics and earthquake forecasts. The studies will be done at an international scientific- technical center in Bishkek. The center will help to pool the national scientific-technical potentials and efficiently use the intellectual, material and financial resources in the interests of Russia and Kyrgyzstan.

European Republics

Ukraine Rejects Privatization Nominee

· The leftist dominated Ukrainian parliament on Thursday rejected President Leonid KUCHMA's candidate to head the State Property Fund as privatization chief, Alexander BONDAR. He was short 16 votes needed for a simply majority approval; BONDAR received only 210 votes. Ukrainian Television quoted one Communist deputy as saying, "We think that privatization and demonopolization are two levers that pushed Ukraine into abysmal ruin. Another deputy threatened that privatization will only continue if a communist is nominated to head the State Privatization Fund. The Ukrainian Supreme Council on Friday banned the privatization of distilleries by vetoing a decree signed by KUCHMA. Privatization is a key aspect of reforms required by the International Monetary Fund and the World Bank for financial aid packages.

South Caucasus & Central Asia

Azeri Police Break-up Election Protest

· Hundreds of riot policemen clashed with opposition protesters in Baku Saturday, arresting at least 50 people. The police confronted the demonstrators rallying outside the headquarters of the Popular Front, a major opposition party, and used batons to disperse them. Ten police and between 70 and 100 protesters were injured. News reports estimate about 600 people participated in the rally despite a govern

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

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