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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, September 30, 1998

Russian Federation


Yeltsin Appoints Seven Ministers

· Russian President Boris YELTSIN has signed decrees appointing seven ministers in the new government. Vladimir FILIPPOV was appointed Minister for General and Vocational Education, Vladimir STARODUBOV as Health Care Minister, Sergei KALASHNIKOV as Minister for Labor and Social Development, and Vladimir YEGOROV as Culture Minister. KALASHNIKOV is the only member of the Cabinet from Vladimir ZHIRINOVSKY's ultra-nationalistic Liberal Democratic party. The President re-appointed Viktor SEMYONOV as Agriculture and Food Minister, Valery KIRPICHNIKOV as Minister for Regional Policies, and Yevgeny ADAMOV as Minister for Atomic Energy. He also formally accepted the resignation of Alexander SHOKHIN, who stepped down as deputy prime minister responsible for finance on Friday. His post has not been filled. The Russian State Duma today approved First Deputy Chairwoman of the Central Bank Tatyana PARAMONOVA as a member of the Bank's Board of Directors. PARAMONOVA, who previously headed the Central Bank in 1995, indicated concerns surrounding the emission policy of printing rubles. She said there appears to be no other choice. "It will be very difficult to limit the negative impact of money supply growth, but it has to be a basis of our monetary policy." According to the Central bank, inflation has increased 67 percent since August and could reach several hundred percent by the end of the year if conditions worsen. Former tax chief and deputy prime minister Boris FYODOROV warns that printing money to cover the fourth quarter budget deficit will fuel inflation. He said the government would have to issue 50 billion to 60 billion rubles ($3.1 billion to $3.7 billion) equivalent to one-third of the monetary base

to cover its immediate needs and pay off wage and pension arrears, the Financial Times reported.

Russian Deputy Rep. Kidnapped In Chechnya

· Russian deputy representative to the government mission in Chechnya, Akmal SAIDOV was kidnapped after attending a public rally Tuesday in Grozny. Head of the Russian Mission Georgy KURIN said the kidnapping was motivated by ransom. There has been no contact from his kidnappers. President Boris YELTSIN's envoy to Chechnya Valentin VLASOV was kidnapped in May and still remains missing. Hundreds of Russians and foreigners have been abducted by gangs seeking ransom. Chechen President Aslan MASKHADOV's government and security forces have been unable to stop kidnappings and bring those responsible to justice. MASKHADOV pledged to stop abductions by carrying out public executions of kidnappers.

The Chechen President has been increasingly criticized by opponents Salman RADUYEV and Shamil BASAYEV. RADUYEV has called for MASKHADOV to step down and be prosecuted for "aggravated crimes against the people of Chechnya." BASAYEV said that MASKHADOV is, "unable to rule the country." Russia's former security chief who negotiated the end of the Chechen War in 1996, Alexander LEBED said attacks on the Chechen government could provoke a civil war. "MASKHADOV is a reasonable man, and without him Chechnya would turn mad."

Nunn-Lugar Funding Approved

· The US Senate, in a vote of 94

Today's News Highlights


US Cos. Blame Russia

Automobile Production Drops

European Republics

Estonian Foreign Min. Resigns

Ukraine-Belarus Cooperation

South Caucasus & Central Asia

Marchers Demand Fair Elections

Black Seas Center Opens

US-Kazakh Underground Tests

CIS Industrial Output Figures




September 30, 1998

Intercon's Daily

to 2 on Tuesday, approved the 1999 Defense Appropriations Conference Report which includes funding for the Nunn-Lugar and Nunn-Lugar-Domenici Programs. The Bill, which passed in the House of Representatives in a vote 369 to 43, has been sent to US President Bill CLINTON for his approval. Most of the $440.4 million funding for the Nunn-Lugar Program goes to US companies that are contracted to destroy weapons of mass destruction in the former Soviet Union. For 1999, this includes: $124.5 million to eliminate Russian strategic offensive arms; $88.4 million to destroy Russian chemical weapons; $61 million for planning, design, and construction of a missile material storage facility in Mayak, Russia; and $47.5 million for elimination of Ukrainian strategic nuclear arms. Senator Richard LUGAR of Indiana said, "Over 4,800 nuclear warheads have been deactivated and three countries have been removed from the list of nuclear powers. I pray that the window of opportunity in the world remains open long enough for us to work with Russians who really want to destroy many more. I am grateful that the Congress has supported full funding this year."


Ruble = 16.06/$1.00 (NY rate)

Ruble = 16.0645/$1.00 (CB rate)

Economic Plan To Be Announced October 8th

· The Government Information Department Chief Andrei KOROTOKOV on Tuesday said that the Russian government is expected to publish its anti-crisis plan on October 8th, one day after the all-Russian protests are scheduled to take place. He said the government would meet on October 1st to approve the membership of its presidium, discuss the anti-crisis plan and the fourth-quarter budget. At that time, First Deputy Prime Minister Alexander MASLYUKOV in charge of the economy will present a report on the government's priority action. Co-reporters will be Central Bank Chairman Viktor GERASHCHENKO, Finance Minister Mikhail ZADORNOV and Economics Minister Andrei SHAPOVALYANTS. SHAPOVALYANTS in London on Monday attended a meeting of personal representatives of the G-8 leaders and said that the government plans to overcome the crisis with market methods, instead of administrative command. "Today's meeting of the personal representatives resulted in the formulation of approaches to the

solution of the Russian debt problem, including the T-bills, the announcement of the need to start negotiations and a plan of the negotiations' main phases," he said. According to SHAPOVALYANTS, Russia does not plan to seek more credits. On October 3rd, ZADORNOV and GERASHCHENKO will to attend a meeting of G-7 finance ministers and heads of the central banks in Washington, DC.

Uneximbank Retaliates Against Lehman Bros.

· Moscow's Court of Arbitration has issued an order seizing the depository accounts belonging to US investment bank Lehman Brothers International at Russia's Uneximbank. This is the first time that a Moscow court has ordered such a retaliatory action. According to an Uneximbank press release, the bank filed a suit against Lehman Brothers Monday, accusing the US bank with failing to fulfill its obligations to Uneximbank. Their suit responds to a decision last week by a London court to freeze over $15 million in assets held by Uneximbank, Inkombank, and SBS-Agro in the United Kingdom at the request of Lehman Brothers' British equivalent. A Lehman Brothers spokesman in London claimed that the bank has not received any order from Moscow courts. The court order prevents Lehman Brothers from conducting any operation with securities on the accounts. An Uneximbank spokesman today denied retaliatory actions saying, "This isn't a counter-attack." If this tit-for-tat continues, in the end the real loser will be Russia as foreigners refuse to invest in a pirating environment.


US Cos. Blames Low Profits On Russia

· RJR Nabisco and Coca-Cola Beverage companies are blaming Russia's economic crisis for a decline in sales and profits. RJR said its Reynold International tobacco subsidiary briefly suspended manufacturing and importing in Russia because of poor economic conditions and a shortage of trade credits. RJR has more exposure to the Russian market than any other international cigarette manufacturer. According to a Salomon Smith Barney analyst, the market represents about 11.7 percent of RJR's International Tobacco profits and 8.7 percent of its volumes last year. RJR predicts that third quarter profits will fall below analysts' expectations.

Coca-Cola's shares in its bottlers in eastern and

When you need to know it as it happens




September 30, 1998

Intercon's Daily

central Europe fell 13 percent after the Russian crisis crossed its borders into Ukraine and Belarus. These two markets account for 8 percent of Coke's sales, while sales in its other 11 markets appear unaffected. Coke predicts that overall results for 1998 will be affected by the Russian crisis. Chairman Neville ISDELL said the devaluation in Ukraine and Belarus will have a $20 million impact on the company and more if there is a further decline in exchange rates, the Financial Times reported.

Automobile Production Declines

· The Russian State Statistical Committee on Monday released figures showing that Russia's automobile output in January-August 1998 was 691,000 units, a decline of 9.4 percent compared with the same period in 1997. The output of passenger cars over eight months of 1998 dropped by 10.7 percent, trucks by 4.7 percent, motorcycles 49.5 percent. The output of buses was 4.4 percent higher than for the same period last year. The output of passenger cars in August was 56.4 thousand units, 36.4 percent less than in August 1997, the output of trucks was 11.6 thousand units, a decline of one percent on August 1997 figures. The output of passenger cars rose in January-August 1998 in Tataria by 2.5 percent and in the Nizhny Novgorod region by 0.4 percent and reduced in the Ulyanovsk and Samara regions by 35.3 percent and 14.2 percent, respectively. The output of passenger cars in Moscow for eight months of 1998 made up 231.9 percent as compared with the similar period last year but no passenger cars were manufactured in Moscow in August. Trucks output for eight months of 1998 rose in Udmurtia, by 95.1 percent, in Moscow 30.4 percent and in the Ulyanovsk region 27 percent. Their output simultaneously declined in Tatarstan by 90.4 percent and in the Chelyabinsk and in Nizhny Novgorod regions, by 37.4 and 4 percent.

ILVES noted that the cabinet found it difficult to take foreign policy decisions. Leaders of the coalition rural parties have demanded several times that ILVES resign because of his affiliation with People's Party. ILVES entered the government as an independent in November of 1996; earlier this year he became chairman of the opposition People's Party.

Baltic States Consider Joint Military Purchases

· A Lithuanian Defense Ministry-based expert on integration with NATO James GRIBOWSKI said Latvia, Lithuania and Estonia are considering joint purchases of the military hardware. In US weekly Defense News, he said that a working group plans to hold its second meeting in October for finalizing the scope of a joint accord. The deal could be ready for signing before the end of this year, Defense News said. Vilnius, Riga and Tallin showed rapport over the formation and equipment of an integral Baltic naval grouping, Baltron. Another indication that the deal will be signed is their purchase of communications hardware. Lithuania over the past three years had drawn up three contracts worth $10 million for deliveries and maintenance of mobile communications systems for its ground forces by the American company Harris. Latvia is completing negotiations with Harris on similar orders. Estonia earlier bought field communications from Israel. Estonia's peacekeeping force showed an ability of operative contacts with Lithuania and Latvia at the last summer's exercises which were held under the auspices of NATO. GRIBOWSKI said the three Baltic republics to discussing the standardization of staff-level communications.

Ukraine -Belarus Economic Cooperation

· Ukrainian Prime Minister Valery PUSTOVOITENKO and his Belarus counterpart Sergei LING reached an agreement in Kiev Monday on mutual settlements. The two prime ministers discussed ways to fend off the negative impact of the Russian financial crisis and agreed to continue their mutual settlements on a barter basis. Barter trade reportedly accounts for 35 percent of the Ukraine-Belarus trade, which totaled $1.4 billion in 1997 and is expected to drop to $1.1 billion this year because of the Russian crisis. To promote bilateral economic cooperation, both sides have decided to work out as soon as possible a ten-year economic cooperation program. They plan to submit it to the presidents of the two countries for endorsement by the end of the

European Republics

Estonian Foreign Minister Resigns

· Estonian Foreign Minister Toomas Hendrick ILVES submitted his resignation the Estonian President MERI today, RFE\RL Newsline reported. ILVES said there would be a negative affect on the country's foreign policy, if he were to remain Foreign Minister. He believes that foreign policy is no longer a priority for many political forces within the government.

When you need to know it as it happens




September 30, 1998

Intercon's Daily

year. The implementation of the program is expected to increase bilateral trade volume by $500 million to $700 million. The two sides also reached a preliminary agreement on forming a banking consortium among Ukraine, Belarus, and Russia for an early solution to their payment problems. PUSTOVOITENKO said, "We must not defend ourselves one from another as we did in the last few years. Within the framework of the Commonwealth this lead to the situation when Ukraine, Belarus, Russia and other CIS countries completely lost their sales markets and destroyed cooperation ties among enterprises." Therefore, he stressed, efforts of the governments of Ukraine and Belarus must be directed at the expansion of economic ties and strengthening of the economic potential of the two states, their enterprises and entrepreneurs.

South Caucasus & Central Asia

Azeri Opposition Marches Against Elections

· The Azerbaijan opposition marched again in Baku on Sunday to demand the free, democratic and equal elections of the Azeri President. The protest route was chosen by the opposition and corrected by the city authorities. The opposition planned to end the rally in the park named after President Geidar ALIYEV and read out the resolution, but the authorities offered another location for the march's climax. The participants demanded the stop of the undemocratic elections, the resignation of the authorities and the freedom of Nagorno-Karabakh. Leaders of the opposition parties and protesters were accompanied by policemen in helmets, carrying shields and clubs, who did not interfere with the march. The opposition demanded a meeting of its leaders with ALIYEV, parliament speaker Murtuz ALESKEROV and Chairman of the Constitutional Court Khanlar GADZHIYEV to discuss the elections with the participation of all real candidates for presidency.

Int'l Center For Black Seas Studies Opens

· The International Center for Black Sea Studies (ICBS) opened in Athens Tuesday with the participation of representatives of the 11 member Black Sea

Economic Cooperation (BSEC). Greece's Deputy Foreign Minister Yiannos KRANIDIOTIS said that the ICBS will contribute to promoting the wider goal of the BSEC for greater democracy, peace and development in the Black Sea region. The center, an independent body, will aim at finding practical ways of realizing cooperation between member states in the technological, academic and economic sectors. The BSEC members are Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine.

US-Kazakh Plan Underground Explosions

· The US and Kazakhstan plan to carried out two underground explosions in Kazakhstan and in the United States. The explosions are to help improve seismic control of nuclear tests and will not damage the environment. Kazakhstan's Science Minister, Academy of Sciences president Vladimir SHKOLNIK said the need for blasts was prompted by the lingering problems confronting nuclear disarmament and the nuclear test ban. Many countries had difficulty identifying the tests and the forthcoming experimental explosions are to abolish the problem, SHKOLNIK said. He said Kazakhstan's site of the explosion would be its Semipalatinsk nuclear test ground. No exact dates have been set so far for the explosions. The dates will be made public after the world's seismic control network has processed the data on the Semipalatinsk explosion of September 17th which was monitored by 60 national seismic centers.

CIS Industrial Output Results

· According to the CIS Inter-State Committee for Statistics, industrial output grew in six and dropped in four CIS countries in the first eight months of 1998. Belarus and Kyrgyzstan had the biggest growth with 12 percent and 11.5 percent respectively. Industrial output increased by 8.9 percent in Tajikistan, 5.7 percent in Uzbekistan, 0.9 percent in Azerbaijan, and 0.3 percent in Ukraine. The biggest industrial slump of 2.6 percent was registered in Russia. Industrial output plummeted by 2 percent in Moldova, 0.9 percent in Kazakhstan and 0.1 percent in Georgia.

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When you need to know it as it happens