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, September 22, 1998

Russian Federation

Politics

Matviyenko Accepts Post As Social Minister

· Russian Prime Minister Yevgeny PRIMAKOV today picked Russia's ambassador to Greece to fill the social affairs position rejected by Vladimir RYZHKOV in his new Cabinet. Valentina MATVIYENKO, the first woman to be appointed deputy prime minister, will have to deal with millions of frustrated pensioners and families of unpaid coal miners. She is the former leader of the Leningrad Komsomol under former politburo member Grigory ROMANOFF, who reached her position through personal favors. Prior to 1989, she was deputy head of the executive committee of the Leningrad City Soviet of People's Deputies in charge of culture and education. After the collapse of the Soviet Union, she was appointed ambassador to Malta. Government spokesman Andrei KOROTKOV said the president has not yet signed the appointment decree. He noted that, "As for Boris FYODOROV, there has been no official order to relieve him of his duties as deputy prime minister and State Tax Service head." He assumed that FYODOROV would not retain the post of vice premier because his functions had been divided between the two newly-appointed deputy prime ministers, Alexander SHOKHIN and Yuri MASLYUKOV.

Russian President Boris YELTSIN today signed the decree on the structure on the federal executive authorities, which endorses the structure of the new Russian government. The decree relayed says the prime minister will have six deputies, including two first deputies. Five new ministries, five state committees and two federal services have been formed on a basis of a number of dissolved federal bodies. Chairman of the Central Bank Viktor GERASHCHENKO and President of the Russian Academy of Sciences Yuri OSIPOV will also take an

active part in the government's work. YELTSIN met with ex-secretary of the Security Council Andrei KOKOSHIN today. KOKOSHIN is responsible for a number of research projects in the Russian Academy of Sciences. YELTSIN thanked him for his service and hinted that he may assign individual tasks to KOKOSHIN in the future

Special Forces Not To Be Disband

· In a Central Intelligence Agency report submitted to the US congress, the agency admits that Russian strategic missile troops, despite reductions being made, are still very powerful. The report on the ballistic missiles' threat before the year 2010 further shows that the strategic weapons of both Russia and China are under a strict control and the possibility of any accidents is extremely slim, according to a Tokyo newspaper Asahi.

Meanwhile, the Federal Security Service (FSB) spokesman Alexander ZDANOVICH said that the intelligence agency has only half the funds it needs and has no money for modernizing weapons or maintaining all of its anti-terrorist units. He said the anti-terrorist section will be trimmed, but, "we will do our best to preserve the core of the combat units." ZDANOVICH noted that FSB personnel are paid less than their counterparts in the Interior Minister or the Prosecutor General's office. Director of the FSB Vladimir PUTIN said Friday that the elite special police unit, Alpha Group will not be disbanded. "The Alpha Group will continue to exist, there has not

Today's News Highlights

Russia

Three Groups Work On Econ.

CB Misused WB Loan

Rosneft Appeals Moscow Court

European Republics

Estonia Seeks Member. NATO

Belarus-Ukraine Summit In Oct.

South Caucasus & Central Asia

Georgian-Abkhaz Comm. Meets

Kazakh-Romanian Cooperation

Tajik Opp. Member Murdered

Politics-Economics-Business

Page

Tuesday

September 22, 1998

Intercon's Daily

been a decision to abolish it." PUTIN did note that the unit will undergo a reorganization for the sake of better efficiency.

Yavlinsky Hospitalized; Warns of Revolution

· Yabloko party leader Grigory YAVLINSKY was hospitalized Friday after heart failure. He has been transferred from the intensive care to the cardiology department in Moscow's hospital and is described as being in stable condition. He was the first to publicly propose Yevgeny PRIMAKOV as a compromise candidate for prime minister. YAVLINSKY has rejected an offer to join the PRIMAKOV cabinet in charge of social affairs, saying he would only join if there was a team of 10 to 15 Yabloko deputies, who could make a real difference in economic reforms. The Financial Times reported YAVLINSKY's warnings of a "very deep moral crisis. He said, "Revolutions in this country happen not when there are economic crisis but when, as in 1917 and 1991, people reject power and say no to the authorities." YAVLINSKY finished fourth in the 1996 presidential elections and said he would run again in 2000.

Who would you elect President, if elections were held today?

17 percent Alexander Lebed

17 percent Gennady Zyuganov

13 percent Yuri Luzhkov

12 percent Grigory Yavlinsky

* Opinion poll conducted Sept.19-20 by VTsIOM polling agency

Economy

Ruble = 16.38/$1.00 (NY rate)

Ruble = 16.3818 /$1.00 (CB rate)

Three Groups Devise Economic Program

· Three groups in the Russian government are developing a strategic framework to pull the country out of the current crisis. Head of the government information department Andrei KOROTKOV said the first group is headed by Prime Minister Yevgeny PRIMAKOV, second by Deputy Prime Minister Alexander SHOKHIN concentrating on tactical problems, including those connected with taxes, and the third headed by First Deputy Prime Minister Yuri MASLYUKOV, including prominent economists Leonid ABALKIN, Nikolai PETRAKOV, Vladimir LVOV,

and Sergey GLAZIEV focusing on strategic targets to be reached by the government during the remaining part of the current year and early in 1999 as well as plans to boost industrial production. For the latter, MASLYUKOV outlined three key stages: set up assembly shops and principal production lines using foreign technologies, while railways and the energy sector should be subsidized to facilitate a recovery of the food industry and research-intensive sectors; then resolve the problem of non-payments and optimize the money supply; finally support industries and agriculture. MASLYUKOV stressed as the government's priorities the industrial policy, replacing the imported goods, and supporting exporters.

CB Misused World Bank Loan

· The Russian State Duma's auditing committee released a report today on the Central Bank's use of World Bank loans. The report claims that Russia misspent part of the $1.4 billion loan, which was provided for restructuring and servicing Russia's foreign debt. This report follows a weekend report by Russia's chief state auditor that the Central Bank had stolen, misused and wasted several billion dollars provided by the International Monetary Fund.

SBS Agro Operations Resumes

· SBS-Agro group of banks on Monday resumed payments after the Central Bank lifted the ban of September 11th on SBS-Agro operations in full volume with legal and natural persons in rubles and foreign currency. Depositors now have an opportunity to transfer their savings to Sberbank or to make arrangements for their deposits on new terms. However, only a small number of depositors expressed the wish to transfer their savings to Sberbank, SBS-Agro reported. The bank is restructuring ruble deposits for a term of from one or three years and of foreign currency deposits for a term of from one to five years. The annual interest on foreign currency deposits is about six percent. Earlier this month, SBS-Agro had over 5.7 million depositors and serviced 1.5 million corporate clients. Deposits of Russians in the bank total eight billion rubles, 75 percent of the sum being kept on ruble accounts.

Business

Rosneft Appeals To Moscow Court

· The Russian oil company Rosneft on Friday appealed to the Moscow Court of Arbitration against

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

September 22, 1998

Intercon's Daily

the arrest and alienation of a 38 percent parcel of shares of the Purneftegas Company, a leading oil extracting venture. The alienation was done at a price lower than the market value and without the company's consent, acting President and head of the Rosneft Board Sergei CHIZHOV said. The parcel was sold for $10 million at a time the market cost was $500 million. The Rosneft leadership will ask the Russian State Duma for a law to prohibit the alienation of companies' property without a government resolution. CHIZHOV believes the alienation of Purneftegas shares, "makes senseless all the debates on the time and cost of selling the Rosneft shares, because the lack of control over Purneftegas will practically strip the company of liquidity."

Gazprom Outlines Project Priorities

· At a news conference, marking the 25th anniversary of the Russian natural gas supplies to Germany, Gazprom Chief Rem VYAKHIREV listed several priority projects to be fully funded. These include new transport corridors for larger supplies of the Russian natural gas to European markets and Turkey. VYAKHIREV said, "First of all, it is the Yamal-Europe project to enable a broader entry of the Russian gas to the European market." He also noted the "Blue flow "project transporting gas to Turkey. Gazprom remains committed to expanding its prospecting. Large gas fields have been found in southern Russia and their legal registration will be done within the next two years to enlarge the natural gas stock, VYAKHIREV said. Despite the overall drop of gas prices, Gazprom will keep a high level of foreign currency proceeds this year, General Director of the Gazexport Company Yuri KOMAROV said. The proceeds will keep at last year's level and amount to some $8 billion. The index was $8.5 billions in 1997.

Tuesday Tid-Bit

Lewinsky KGB Spy?

· The latest issue of the Chinese magazine Guandong Writer has published an article titled "Is LEWINSKY with the KGB?" The article claims that former US White House intern Monica LEWINSKY is a Russian spy.This incredible allegation produced a clever response from the Federal Security Service (FSB). FSB spokesman Yuri KOBALADZE last Wednesday said, "We do not comment on allegations about whether separate people belong to

Russia's Intelligence Service (SRV)...Such assertions are likely to be a manifestation of notorious Chinese shrewdness." LEWINSKY has been involved deeply in US prosecutor Kenneth STARR's investigation of US President CLINTON.

European Republics

Estonian Still Seeking NATO Membership

· Estonian Foreign Minister Toomas Hendrik ILVES said on Friday that his country wants to stick to "a reasonable approach" to the issue of NATO enlargement, but nevertheless will keep seeking NATO membership. Speaking at a press conference in Washington, ILVES said that during his talks with Deputy Secretary of State Strobe TALBOTT, he had received pledges that, "the process of NATO enlargement continues." ILVES added that he would like to hear "more exact statements" at a summit in Washington next summer, announcing the second round of membership candidates.

SEB Lifts Hansapank Stake

· The Financial Times reported that SEB, formerly known as Skandinaviska Enskilda Banken, said it has increased its stake in Hansapank of Estonia from 10 percent to 18 percent. The move follows the acquisition by ForeningsSparbanken, SEB's Swedish rival of a 30 percent holding in Hansapank, Estonia's largest bank. SEB, one of Sweden's largest lenders, refused to comment on whether it would increase its stake by subscribing to a forthcoming Ekr4.1 billion ($303 million) rights issue in Hansapank, which has been underwritten by ForeningsSparbanken. Both banks have acquired holdings in Hansapank to increase their product distribution in the Baltic region.

Belarus-Ukrainian Summit In October

· Belarus President Alexander LUKASHENKO and Ukrainian President Leonid KUCHMA have agreed to hold a meeting in Minsk this October. The two leaders agreed that the Belarus and Ukrainian prime ministers would meet prior to the summit to discuss concrete aspects of bilateral cooperation. The financial crisis in Russia and its consequences on Belarus and Ukraine, as well as measures to be taken to protect their domestic markets, was discussed by the two presidents in a telephone conversation today.

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

September 22, 1998

Intercon's Daily

South Caucasus & Central Asia

Georgia-Abkhaz Econ. Comm Meets In Tblisi

· Abkhaz Prime Minister Sergei BAGAPSH said the economic commission of the Georgian-Abkhaz Coordinating Council, which was set up within the framework of the Geneva negotiating process, will open a regular session today to discuss a package of economic issues. These issues include natural gas transportation, resumption of railway traffic, repair work at the Inguri hydroelectric power station and restoration of power transmission lines between the Abkhaz capital Sukhumi and the Russian sea port of Sochi. The delegation includes the directors of the state-run Abkhaz Railway Company, Abkhazsvyaz Communications Company, Chernomorenergo Energy Company and Abkhazstroi Construction Company. The previous meeting of the Georgian-Abkhaz economic commission at the prime minister level was held in Sukhumi on February 24, 1998. At that meeting they agreed to restore the Sukhumi- Sochi gas pipeline, repair power transmission lines, lift restrictions of the Sukhumi airport, build a motorway bridge across the Psou river marking the Russian-Abkhaz border. However, none of the agreements has been implemented to date. This session of the Coordinating Council will be attended, aside from representatives of the two conflicting parties, by representatives of the United Nations Organization and of member countries of the Friends of the UN Secretary-General for Georgia. These include Russia, the United States, Britain, France and Germany.

Kazakh-Romanian Cooperation

· Kazakh President Nursultan NAZARBAYEV met with Romanian President Emil CONSTANTINESCU, Prime Minsiter Radu VASILE and other officials in Bucharest to discuss the development of commercial exchanges between their countries. Talks concentrated on the TRACECA transport corridor and the possibility of transporting Caspian oil to Europe via the Romanian Black Sea port of Constanta. Both leaders emphasized their committment to building

the modern Silk Road, linking the Central Asian and Caucasus nations to Western Europe. CONSTANTINESCU and NAZARBAYEV also signed an accord on avoiding double taxation, a consular agreement and agreement on cultural collaboration on consultation between the two countries' Foreign Ministries. "There is the political will for cooperation as well as the required legal framework which are to be further developed," CONSTANTINESCU said. NAZARBAYEV stressed that Kazakhstan has not been affected by the Russian crisis and is no longer a part of the Soviet Union.

Tajik Opposition Member Assasinated

· Chairman of the subcommission for legal issues under the Commission for National Reconciliation Otakhon LATIFI was killed in Dushanbe this morning. He was shot twice in the chest and once in the head outside his apartment. Over the past two months LATIFI was twice attacked and beaten by unknown assailants. LATIFI represented the United Tajik Opposition in the commission and was an integral part of the peace process. Tajik First Deputy Prime Minister, one of the leaders of the United Tajik Opposition Hojiakbar TURAJONZODA and the Tajik government denounced the assassination. TURAJONZODA said, "This barbarous assassination is a blow in the back to the peace process in Tajikistan and is committed by representatives of the forces which are not interested in the stable situation in the republic." The Opposition blamed the killing on an unspecified "third force" trying to undermine the peace deal. There has been no claim of responsibility for the killing by any rival warlords, who do not recognize the peace deal. TURAJONZODA expressed confidence that the law enforcement bodies of Tajikistan would take the most serious measures to detain the assassins and the organizers of the crime and would bring them to justice. Tajik Deputy Interior Minister General Nikolai MADZHAR, investigating the crime, does not rule out a possibility of an act of terrorism, aimed at destabilising the situation in the republic and undermining the peace process.

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

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $895.00 per year. A discount is

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1998, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page