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, September 24, 1998

Russian Federation

Politics

Russia-US Sign Nuclear Safety Contracts

· Russian Acting Minister for Atomic Energy Yevgeny ADAMOV and US Secretary of Energy Bill RICHARDSON in Vienna on Tuesday signed two contracts intended to raise the level of nuclear safety. One of the documents provides assistance to 10 Russian nuclear towns, including Arzamas, Chelyabinsk, Krasnoyarsk to convert the large research centers to commercial non-military ventures. Up to $30 million is to be provided through the 1999 budget year, The New York Times reported. RICHARDSON said, "I cannot emphasize enough how important it is to us all that economic hardship not drive Russian nuclear weapons scientists into employment in places like Iran and North Korea." The second contract is linked with the implementation of the 1993 Rus-American agreement on the delivery to the US of the uranium obtained from scrapped nuclear weapons and turned from a highly-enriched to a depleted state. The US plans to use the low-enriched Uranium as reactor fuel. Today, The Washington Times reported that a National Reconnaissance Office satellite detected underground nuclear test preparations at the Novaya Zemlya Island Test site. These tests could be related to the Russian Atomic Energy Ministry's announcement that it would conduct subcritical nuclear weapons tests in the next several months. Subcritical tests do not always involve a nuclear blast. A nuclear test would break Moscow's self imposed testing moratorium which began in 1990 and its commitment to the Test Ban Treaty. US Representative Bill YOUNG, a Florida Republican and chairman of the House of Appropriations national security subcommittee said he would oppose using US funds to pay Russia for weapons dismantling, if the tests are being used to modernize or develop new nuclear arms.

Meanwhile, Secretary of the Russian Security Council Nikolai BORDYUZHA today met with the leadership of the Central Committee of trade unions of workers of nuclear power engineering, the nuclear industry, and the Ministry of Nuclear Energy. They discussed issues of paying off arrears to workers of the nuclear branch, and the critical socio-economic situation developed at enterprises and facilities of the nuclear industry as a result of the arrears

Ivanov Speaks To UN General Assembly

· Tuesday, Russian Foreign Minister Igor IVANOV addressed the 53rd session of the UN General Assembly claiming that, "Russia will not swing off the road of reforms." He said that the Kremlin is making, "vigorous efforts to stabilize the economic and financial situation in the country." He stressed that Russia's foreign policy would be equally consistent and constructive. "It firmly pursues the goal of building up a multi-polar world and promoting cooperation with the other states in order to settle international problems by political means, developing broad and mutually advantageous cooperation in all the spheres." IVANOV said that Russia is committed to achieving a political settlement and lasting peace in Abkhazia, South Ossetia, Nagorno Karabakh, Tajikistan, and the Dniester region. Russia, he said, is dedicated to the idea of further reducing the stockpiles of nuclear weapons and, therefore, attaches exceptional importance to Rus-American cooperation in the effort to cut the arsenals of strategic offensive ar

Today's News Highlights

Russia

GDP To Be Down 6 Percent

World Oil Executives To Meet

Iridium Operates In Russia

European Republics

Ukraine Economy Worsens

South Caucasus & Central Asia

Adamia On UNOMIG Attackers

US Appoint Central Asian Ambas

Kazakh-Italy Deep Relations

Politics-Economics-Business

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Thursday

September 24, 1998

Intercon's Daily

maments. He noted that Prime Minister Yevgeny PRIMAKOV said that he would encourage the Russian State Duma to ratify the START-II Treaty. Concerning the problem of reforming the activities of the UN, IVANOV warned against the dangerous tendency of "adjusting" the UN to somebody's needs. In his opinion, this refers primarily to the violation of the prerogative of the UN Security Council to use forcible methods of coercion. Such an instrument of international coercion as UN sanctions should also be used with utmost discretion, he added.

IVANOV is meeting US President Bill CLINTON and National Security Adviser Samuel BERGER in Washington, according to a White House spokesman. IVANOV has already met with Secretary of State Madeleine ALBRIGHT to discuss Russia's economic crisis, fighting in Kosovo, troubles in Iraq and Iran's missile proliferation program.

St. Petersburg Protests Price Rises

· On Monday, approximately 1,000 demonstrators marched down St. Petersburg Nevsky Prospect protesting price rises and the government's failure to tackle the deep economic crisis. An electrical worker, Igor ALEXANDROVICH said, "I am not a Communist. I would like to be a democrat but the reforms carried out by [President Boris] YELTSIN force me into this position." Stanislav LOIKO, a worker at city's biggest metal plant said, "We are working flat out right now but don't get our wages. I can't even buy bread from my mother." Millions of Russians, including doctors, teachers, and army officers, wait months for their salaries. Trade Unions are planning a nationwide protest on October 7th against wage and pension arrears. Teachers in Russia's Altai region, in southern Siberia, are being paid in vodka after the regional authorities said they had no funds to pay wages. The teachers, who have not received their salaries since February, had earlier been offered payment in toilet paper and coffins, but politely declined, suggesting members of the local government receive their own wages this way.

Economy

Ruble = 15.84/$1.00 (NY rate)

Ruble = 15.6099 /$1.00 (CB rate)

Ruble = 15.15|16.9/$1.00 (buy|sell rates)

Cabinet Works On Economic Plan

· Russian Prime Minister Yevgeny PRIMAKOV

met with his cabinet today to formulate Russia's economic strategy. PRIMAKOV outlined in part elements of his economic plan, without giving the full picture of its aims. He said the government would intervene more in the economy and devise a tightly knit social safety net. But made it clear that there would be no return to Soviet-style state socialism. PRIMAKOV pledged to restart the banking system and restore confidence in it. He said Russians should not end their relations with their bank and that the government will ensure that their deposits are safe. He said that Russia is going to prevent the outflow of capital from the country. "Control will be toughened over exporters and importers," PRIMAKOV said, adding, "we will do everything to close all loopholes" through which illegal operations are conducted. The government plans to increase the ratio of obligatory sale of hard currency revenues by exporters and cut time limits to repatriate export revenues. The Central Bank and Finance Ministry are working on plans to improve the structure of budget spending and make them more transparent. PRIMAKOV noted that the budget's revenues do not equal the country's requirements, adding "its expenditure should be under public control." PRIMAKOV has threatened to get tough with tax evaders. "We understand how important fiscal discipline is and the government will conduct a tough policy against individual, corporate, and regional tax dodgers." He added that the government plans to lower the tax burden on both Russian and foreign producers and create conditions and guarantees for investors in the real economy. The Russian government intends to impose state monopoly on production and sales of liquors stronger than 28 proof in October. The Prime Minister said, "The matter in question is not nationalization of the industry but imposition of efficient state control."

Regarding measures to relieve social pressure on Russians, PRIMAKOV announced that in September the military will receive two months salary arrears and starting in October monthly wages for state employees and the military will be paid without delay. Starting January 1, 1999, the government will pay compensation for losses from soaring inflation and the devaluation of the ruble. However, PRIMAKOV did not say how he plans to fund the compensation payments. Inflation has skyrocketed 67 percent since last month and could go as high as 300 percent

When you need to know it as it happens

Politics-Economics-Business

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by year's end, if the exchange rate reaches 20 rubles to the dollar.

GDP Predicted To Be Down 6 Percent

· According to materials prepared by the Central Bank for today's meeting of the Russian government Russia's gross domestic product (GDP) in 1998 will run at 2,980,000 million to 3,130,000 million rubles, which will be 5 to 6 percent less than that in the previous year. Industrial output are expected to decline by 4.5 to 5.6 percent. GDP in January-August 1998 amounted to 1,600,000 million rubles, or 2.1 percent less as compared with the corresponding period of last year, while industrial production diminished by 2.5 percent. Consumer prices in Russia grew by 45.4 percent in the period from September 1 to 21st. Inflation rate in August was 15 percent, which was the highest monthly indicator since the beginning of 1995, according to the Russian State Committee for Statistics. The Central Bank today revealed that Russia's gold and currency reserves have dwindled by $300 million. From September 11 to 18th, the reserves fell to $12 billion from $12.3 billion, registering a 2.4 percent decrease. The September 18th index is an almost 33 percent slump compared to the beginning of 1998, when reserves stood at $17.8 billion.

Oil Executives To Meet In Europe

· Executives of the world's leading energy companies, among them Russian gas giant Gazprom, are going to hold a meeting next week in Europe to discuss matters connected with the fall of prices of energy carriers and the growing economic instability in the world. It will be the first time in the recent years that consultations at such a level will be held the Financial Times reported. Among the companies that are to take part in the meeting, in addition to Gazprom, are Royal/Dutch Shell, British Petroleum, Chevron, France's Elf Aquitaine, Total, Italy's ENI, Saudi Aramco, and Norway's Statoil. Former Prime Minister Viktor CHERNOMYRDIN is likely to represent Gazprom. A broad range of questions of mutual interest, including environmentalist problems and introduction of new technologies, will be discussed as well as risks factors companies face in regions such as the Caspian Sea, Central Asia, and the Middle East.

Business

Iridium Comm. System Operates In Russia

· The first global telecommunications system Iridium started operating Wednesday in Russia and other countries worldwide. A total of 2,000 subscribers are linked to the system so far. The system will begin working in full starting November 1st, according to the Iridium-EurAsia Company. The deployment of the Iridium system, which started in May 1997, was completed early in September. Delays in the system's start date was the result of satellite malfunctions. The system consists of 66 satellites: 11 spacecraft on each of six polar orbital planes. The system will offer full range of telecommunication services: telephone communications, transmission of coded data, fax reports and paging. The project involves over ten companies from several countries, united in the Iridium consortium. Russia is represented by the Khrunichev Space Center which carried out three liftoffs of its Proton boosters, putting into orbit 21 Iridium satellites. The Khrunichev Center invested $82 million in the project. This is 4.6 percent from the total cost of the system, amounting to $3.4 billion. Each Iridium subscriber gets a personal phone number, operating all over the world, and a cellular telephone. The cost of the system's services is expected to be 25 percent higher than for ordinary wireless international communications. President of Iridium-EurAsia Company Spartak KURILOV said that the company has already received 600 conditional orders from Uzbekistan, 2,000 from Kazakhstan, 500 from Georgia, and 2,000 from Russian customers.

European Republics

Ukraine's Economic Crisis Worsens

· Ukraine President Leonid KUCHMA on Wednesday said, "never in the last seven years of independence had we faced such a threat of financial catastrophe." He said that the situation is bound to be worse in terms of inflation and prices than expected. After more than 70 anti-crisis measures approved by the government and international financial institution loans to help restore the economy, Ukraine's financial outlook is bleak. The government is desperately trying to avert economic collapse in the wake of the financial crisis in Russia. The International Monetary Fund and the World Bank loans have allowed Ukraine to keep its national

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Politics-Economics-Business

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currency within the currency band set by the national bank of 2.5 to 3.5 gryvnias to the dollar. The struggle with the falling gyrvnia reflects the government's failure to implement reforms needed to increase budget revenues and boost economic growth. Deputy Prime Minister Sergei TYHPKO said that tax and other revenues to the state budget have fallen sharply this month. KUCHMA said he is prepared to take tough unpopular measures to fight the crisis.

South Caucasus & Central Asia

Adamia Denounces Attack On UNOMIG

· According to a press release from the Committee on Defense and Security for the Georgian Parliament, its Chairman Revaz ADAMIA, "strongly condemns and deplores the recent unprovoked attack," on four members of the United Nations Observer Mission in Georgia (UNOMIG) in the Abkhazian capitol of Sukhumi, Georgia Monday. He said, "This cowardly ambush of unarmed United Nations observers only serves to underline the necessity for the UN in authorizing armed protection escorts for members of the UNOMIG mission in Georgia." ADAMIA believes that further attempts to restrict access by UN personnel to observe the conflict area in Abkhazia, "can only aggravate an already difficult situation." He reiterated Georgia's commitment for a peaceful solution to the crisis and again requests immediate UN action to authorize a neutral protection force for the UNOMIG to travel freely throughout Georgia in order to fulfill their UN mandate. ADAMIA is visiting Washington this week, holding meetings with the CLINTON Administration and Congressional leaders on a number of related areas of concern.

US Appoints Ambassadors To Kazakh, Tajik

· US former ambassador to Lebanon Richard JONES was approved by the US Senate's Committee on Foreign Affairs on Wednesday to serve as the US ambassador to Kazakhstan. JONES pledged to stand up for the American interests in Kazakhstan,

including the development of oil and gas fields, democracy and a free market. The US has strong interest in the development and transportation of Kazakhstan oil and gas. It has helped to eliminate mass destruction weaponry in the only nuclear power in the Central Asia and the safe and reliable storage of nuclear materials and used fuel.

Robert Patrick John FINN was approved by the US Senate's Committee on Foreign Affairs on Wednesday to server as US ambassador to Tajikistan. The new ambassador assured the Senators he would work for peaceful settlement in Tajikistan. FINN is experienced in national reconciliation after being a deputy head of the American mission in Croatia.

Kazakhstan-Italy Deepen Relations

· Italian Prime Minister Romano PRODI met visiting Kazakh President Nursultan NAZARBAYEV in Rome Wednesday to discuss bilateral relations and the situation in Afghanistan. During the meeting, NAZARBAYEV said Italy has played an important role in improving and developing relations between Kazakhstan and the rest of Europe. Trade between the two nations totaled $500 million over the past three years. PRODI said the ties have developed further after the two countries signed an agreement on oil cooperation in Kazakhstan last year. He pledged to increase Italy's investments to Kazakhstan's economy and expressed the hope that Russia will soon overcome the crisis. The Kazakh President expressed concern over Russian financial crisis. He explained that Kazakhstan is not affected by the crisis because it, "listens to advice of foreign specialists, without idealizing them. We always compare conditions and possibilities, available to Kazakhstan. Therefore, Kazakhstan has no crisis." NAZARBAYEV stressed the importance of Italy as Kazakhstan's strategic partner in Europe. He expressed hope of better cooperation with the European Union. NAZARBAYEV also held talks with Italian President Oscar SCALFARO, Senate President Nicola MANCINO and the president of the Chamber of Deputies, Luciano VIOLANTE.

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

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