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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, September 9, 1998

YELTSIN waits, the more social unrest grows and the more serious the economic situation becomes.

Governor of Krasnoyarsk Alexander LEBED, who arrived in Moscow late on Tuesday evening, said that he does not intend to seek the nomination for prime minister. Instead he hinted that he is interested in the presidency, saying he is ready to take charge of Russia and that YELTSIN should resign. He said, "I expect an early [presidential] election...It would be the ideal outcome for all, including the president." LEBED acknowledged that he would run for president if asked. He warned that further economic collapse will spur on the general strike planned for October 7th. LEBED said he would not take part in any coup, adding that it would be a, "dead end and a disaster."

The Russian State Duma has twice, on August 31st and September 7th, rejected CHERNOMYRDIN for prime minister. Under the Constitution, the Russian president must introduce his choice of prime minister within a week after his candidate was voted down. Communist leader Gennady ZYUGANOV said that if YELTSIN re-nominates CHERNOMYRDIN the Duma will begin impeachment proceedings. Once the impeachment process is in motion, the president cannot dissolve the parliament. The Duma needs a two-thirds majority to begin impeachment proceedings. YELTSIN must submit a new candidate within a week after the Duma rejects his candidate. Intercon sources report that CHERNOMYRDIN will be re-nominated and confirmed by the Duma in a closed vote.

Russian Federation


Yeltsin's Delay Leaves Power Vacuum

· Russian President Boris YELTSIN has delayed re-nominating Viktor CHERNOMYRDIN as his candidate for Prime Minister. His delay of more than two days appears to be a signal that he is considering other candidates and abandoning his controversial first choice of CHERNOMYRDIN. YELTSIN today held meetings with CHERNOMYRDIN, acting Foreign Minister Yevgeny PRIMAKOV, and separately with Moscow Mayor Yuri LUZHKOV on the state of the nation. It has been reported that former Trade and Industry Minister Yuri MASLYUKOV, supported by both communists and centrist leaders, may be the chosen compromise candidate. He has been recalled from vacation to attend an urgent meeting with YELTSIN and CHERNOMYRDIN. Federation Council head Yegor STROYEV is another proposed compromise candidate and is highly popular among the Council's governors. A compromise candidate appears to be the fastest way to end the deadlock between the Duma and the president that has paralyzed the political system. Secretary of the Security Council Andrei KOKOSHIN has also been named as a potential candidate.

On Tuesday, PRIMAKOV, seen as one of the possible candidates for the post, signaled his refusal. LUZHKOV equally downplayed his chances of becoming premier. STROYEV urged YELTSIN to think long and hard before re-entering the political fray, but insisted that he had no interest in being Prime Minister. Deputy director of the Center for Political Technologies, a Moscow think tank, Boris MAKARENKO said, "This is one of the biggest decisions of his [YELTSIN's] career, and tactically he is probably right not to make it immediately," The Wall Street Journal reported. However, the longer

Today's News Highlights


LUKoil To Increase Exports

Aeroflot Opens New Route

European Republics

Belarus News Presses Stop

Ukraine Seeks $900M WB Loan

South Caucasus & Central Asia

Russians Withdrawal From Poti

12 Nations Sign Silk Road Agmt.

Armenian-Greek-Iranian Mtg.

US-Kazakh Plutonium Project




September 9, 1998

Intercon's Daily


New Economic Plan Adopted

· Senior officials of President Boris YELTSIN's administration and secretary of the Security Council Andrei KOKOSHIN have worked out a package of priority measures, aimed at stabilizing the socio- economic situation in Russia. On Tuesday, at a meeting at the Gorki-9 residence outside Moscow, the package was submitted for YELTSIN's approval. Acting Prime Minister Viktor CHERNOMYRDIN and YELTSIN reviewed the emergency economic program, prepared by his administration and the Security Council. Details of the new economic program have not been made public. Specialists believe the measures may include guarantees to depositors, indexation of housing certificates as well as minimum wages and pensions, restoration of enterprises' working capitals, food provisions to armed forces, law enforcement bodies and corrective labor establishments within the Russian Justice Ministry. The measures also envisage steps to normalize the activity of Russia's banking system. Acting head of the government Igor SHABDURASULOV said that Russia may toughen state control over current operations by banks. He added that some banks, "are behaving incorrectly towards their clients," and that, "it was quite real that proposals would come to drastically reduce foreign currency licenses held by commercial banks."

Ruble = 20.83/$1.00 (NY rate)

Ruble = 20.825/$1.00 (CB rate)

Mistrust Of Authorities And Currency

· Chairman of the Russian Central Bank Sergei DUBININ, who submitted his resignation to President Boris YELTSIN Monday, said that there will never be a stop of the payment system in Russia because it works. DUBININ explained that Russia has 1,6000 banks and said that those banks whose licenses have not been revoked are functioning. Regarding the ruble DUBININ said, "There has not been such a collapse on the consumer ability, and judging by the set of commodities, which can be bought now if comparing the consumer ability parity in Russia and America, the dollar costs about 7.5 rubles. However, that is an artificial way of calculation. The real price is formed on the market. It costs

as much as they give. Everything depends on the quantity of money in circulation. If much money is minted and put into circulation, the exchange rate will not be moved closer to the parity of the consumer ability." DUBININ noted that the population has extended their mistrust of authorities to the national currency. He emphasized that Russia has to prove, "that inflation can be brought down," if the Central Bank decides to print rubles. Russia's State Committee for Statistics said the nation's inflation rate stood at 15 percent in August. DUBININ said Russia must take concrete measures to alter its hard currency regulations.


Lukoil To Increase Exports

· Russia's biggest oil producer LUKoil plans to increase crude and products exports in the second half of this year due to the fall of the ruble. LUKoil's vice president Leonid FEDUN dais, "The decision to boost exports was taken on Saturday at a board meeting dedicated to revising the company's budget due to the financial crisis and the devalutation of the ruble." He said LUKoil exported 21.27 million tons of crude (about 490,000 barrels per day) in the first half of the year, a 45 percent increase from the same period in 1997, Reuters reported. LUKoil exported 1.41 million tons (about 56,000 barrels per day) of oil products in the first half of 1998 and 31.70 million tons (1.27 million barrels per day) in the same period. FEDUN did not reveal the planned export figures for the second half of this year.

Rus-China Visa Free Tourism May Stop

· The Russian government is considering putting an end to visa-free tourism on the Rus-Chinese border. Government officials said that this practice, on which small-scale wholesale trade is based, has turned into an "irritating factor" in the bilateral relations. Such "business tours," which were allowed in keeping with the 1992 Agreement on Visa-Free Tourism, have been discovered as a means to pump hard currency out of Russia. They serve to flood the country with low-quality goods and commodities bearing false trademarks of famous companies. Official consular offices are suffering from the powerful competition of tourist firms, which have turned into alternative consular institutions. Chinese commercial firms also believe that the system of visa-free tourism is unnecessary, because unorganized ped

When you need to know it as it happens




September 9, 1998

Intercon's Daily

dlers interfere with large-scale business contacts.

Aeroflot New Westward Service

· Russian international and national air carrier Aeroflot on Monday launched international services from Samara, Volga region, to Europe and America via Moscow's Sheremetyevo-2 airport. There will now be daily flights of Tu-154 on the Moscow-Samara-Berlin route. The fare of the Samara-Moscow-Berlin route is set at $285 to $750 depending on the class and season discounts. According to the Aeroflot the press service, the Samara flight will be exempt from customs and passport control at the Sheremetyevo airport, and passengers' luggage automatically go from Aeroflot's local to international flights. Sheremetyevo's connections are all cities of Europe and America. Since the ruble collapse, Russian air carriers have adhered to the Central Bank-set ruble rate on their international services and have not changed their fares on domestic lines. However, fares of Western air companies are continuing to go up with the ruble's tumble against the dollar. Most of foreign air carriers are selling tickets at the ruble's rate of 19 to 21 rubles to the dollar, up seven to nine rubles from prices of five days ago. Russian air companies including Aeroflot use the ruble's rate of 6.26 to the dollar in charging domestic services.

until Ukraine pays in full for earlier gas deliveries. Ukraine's debt has reached over $640 million as of August 1st. The Ukrainian government's guarantees to Gazprom to clear up the debt by October 1st are all but void, as the gas debt is not decreasing but has reached 8 billion gryvnias against 5.7 billion as of January 1, BAKAYA said.

Member of the Higher Economic Council under the Ukrainian president Igor YUKHNOVSKY urged Ukrainians to change their economic dependence on Russian by reducing their purchases of Russian gas. He said Ukraine should reduce by 2 billion gryvnias (about $800 million) allocations for purchasing Russian gas. He encouraged the government to focus attention on the construction of the Baku-Supsa-Odessa-Brody oil pipeline. It is also expedient to freeze imports of cars from Russia and to freeze exports under contracts concluded in Russian rubles, he said.

Ukraine Counting On WB $900 Million Loan

· Following the approval from the International Monetary Fund's (IMF) board of directors for a $2.2 billion loan under the extended facility program, Ukraine hopes to receive a credit from the World Bank. Director of the World Bank mission in Ukraine Paul SIGELBAUM and Ukrainian Prime Minister Valery PUSTOVOITENKO are meeting this week in Kiev to discuss the $900 million loan. The funds are expected to finance four projects in Ukraine's farming and coal sectors. SIGELBAUM noted that the economic situation in the Ukraine is better than Russia's because Ukraine has fewer debt and is less dependent on world oil prices to bring in revenues to the fiscal budget.

South Caucasus & Central Asia

Georgia Guards Demand Russians To Leave

· Georgian border guards on Sunday entered the Russian border guard post in the Georgian Port of Poti and demanded that the Russians vacate the premises. According to an agreement signed earlier this year, the Russian troops were to have turned over the border post to Georgian guards as of September 1st, RFE\RL Newsline reported. From that point on, Georgian border guards were to assume full responsibility for patrolling Georgia's sea borders. Russian troops are to be transferred

European Republics

Russian Paper Prices Halts Belarus Presses

· A Belarussian newspaper has been forced to stop printing the news because of increased prices for Russian paper. The Belarussian newspaper publishers buy newsprint for Belarussian newspapers in Russia where the prices have soared since the beginning of the ruble devaluation. Belarus Deputy Prime Minister Vladimir ZAMETALIN explained that subscribers won't get their daily papers and said, "It is a forced and temporary measure." He added, "in this complex economic situation, the Russian suppliers of newsprint do not guarantee that they will continue to honor the earlier signed contract obligations."

Gazprom Reduces Exports To Ukraine

· Russia's gas monopoly Gazprom has curtailed gas exports to Ukraine as of September 4th. Naftogaz of Ukraine president Igor BAKAYA said a notice from Gazprom warned Naftogaz of Ukraine, the national joint stock company, that the export cutback will last

When you need to know it as it happens




September 9, 1998

Intercon's Daily

from Poti to the Adjar capital, Batumi. There is no legal agreement with Moscow permitting Russian troops to be stationed in Poti. Russian troops have engaged in 100 percent inspections of goods transported across the Black Sea headed for Baku, ignoring Georgia's sovereignty. These inspections have unnecessarily delayed materials used for oil exploration and building of the pipeline. Vice Admiral MURPHY, Commander of the US sixth fleet, is visiting Georgia.

Silk Road Nations Sign Multilateral Agreement

· Twelve nations of Central Asia, the Caucasus and the Black Sea region Tuesday signed a multilateral agreement to recreate the ancient Silk Road trade corridor. The participants agreed to regulate transport tariffs and customs procedures across the region and establish a headquarters in Baku. The aim of the new route is two fold: to develop trade and communication in the region and to provide newly independent states alternative access to western markets from traditional routes through Russia, the Financial Times reported. Many nations hope that greater economic integration will foster stability and peace in the region. The project, which has drawn in over $200 million of investments, will develop road, rail, air, and sea links from China and Mongolia to Europe. Speakers at the conference declared that all participants stand to benefit from the project, emphasizing economic cooperation and trade. Ukrainian President Leonid KUCHMA said the project will, "put an end to the threat of the Balkanization of the Caucasus and Central Asia." Armenia, Azerbaijan, Georgia, Bulgaria, Romania, Ukraine, Moldova, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, and Turkey signed the agreement. Russia and Iran both sent deputy level representatives to the conference, but did not sign agreements.

Armenian-Iranian-Greek Economic Mtg.

· Armenian Foreign Minister Vartan OSKANYAN arrived Tehran Monday to attend a tripartite meeting with Iranian and Greek counterparts on closer eco

nomic cooperation. OSKANYAN said that the three countries would follow up agreements reached among them in Athens last year. He said the Tehran meeting would focus on economic cooperation, especially in energy sector. He called Yerevan-Tehran-Athens relations satisfactory, and said Armenia welcomes other countries such as Georgia to join such talks to strengthen cooperation. Iran's Deputy Foreign Minister Mahmoud VAEZI said the Tehran meeting serves to boost bonds linking the three countries and is not against any other country. He said the three countries would start cooperation in energy sector, in countering natural disasters, and in communications and transportation. Political issues will also be discussed at the meeting, VAEZI said, adding that the three countries foreign ministers are scheduled to sign a final document today.

US To Assist Kazakh Plutonium Transport

· The US plans to assist Kazakh officials in a complex operation to transport a major shipment of radioactive material within its borders. According to the Philadelphia Inquirer, a US official said that over 3 tons of highly enriched plutonium are to be moved from the city of Aktau to Semipalatinsk, which is the former Soviet nuclear test ground with an infrastructure for plutonium storage. Preparing the plutonium for transportation may begin as early as November 1st. Washington has assisted similar transportation operations in the former Soviet republics. One of the projects was carried out in November of 1994, when an American military transport plane carried about 600 kilograms of highly enriched uranium from Kazakhstan to Oak Ridge, Tennessee. In April 1998, the US with Britain's assistance transported about five kilograms of uranium from Georgia. Experts say moving plutonium from Kazakhstan this time differs in scale and cost to other similar operations. The project, estimated at tens of millions of dollars, is expected to take several years. Transportation is to be by rail, but the route has not been decided. The US became involved because of concern over the closeness of Aktau to the Iranian Sea.

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

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When you need to know it as it happens