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

Tuesday, October 20, 1998

Russian Federation

Politics

Cabinet Considers 60 Anti-Crisis Measures

· The Russian Cabinet today will consider 60 anti-crisis measures developed by the government committee led by first Deputy Prime Minister Yuri MASLYUKOV. Details of specific measures were not released to the public, but are expected to be published in Russian newspapers in two to three days after Cabinet members have made acceptable changes to it. The new government formed by Prime Minister Yevgeny PRIMAKOV has failed several times to develop an economic plan. Last week, PRIMAKOV listed three key conditions for reviving the Russian economy: consolidating the country's banking system, breaking the cycle of non-payments among companies and the government, and reforming the tax system to stimulate business. Today, PRIMAKOV addressed the ninth congress of the Russian Union of Industrialists and Entrepreneurs setting out priorities to get Russia out of the crisis. He stressed paying wages to workers in the budget and finance sector as well as servicemen, reducing import duties on food supplies and other essential items, and "reanimation of the banking system."

Presid. Contenders Step Forward; Drop Out

· Leader of Russia's Liberal Yabloko Party Grigory YAVLINSKY returned to work at the Russian State Duma, after suffering a heart attack in September. He re-affirmed an earlier decision to run for the presidency in 2000. YAVLINSKY said, "If I see that I am unable to work effectively at this post for health reasons, I will make this clear to all my voters." He finished fourth in the 1996 presidential elections. Moscow Mayor Yuri LUZHKOV and his supporters had tried to include the Yabloko party in the political coalition behind LUZHKOV. On Monday, former Soviet Union president Mikhail GORBACHEV gave

his political support to LUZHKOV. GORBACHEV said, "I do not want to idealize him, but I think he is the most probable candidate for presidency." Prime Minister Yevgeny PRIMAKOV and Russian President Boris YELTSIN both denied any ambitions to run in the next Presidential election. PRIMAKOV said, "This is nonsense, the talk about it has nothing to do with reality...I would not be prime minister if I were dreaming of presidency."

14 Russian Servicemen Released In Chechnya

· The Russian Interior Ministry announced that fourteen Russian servicemen were released in Chechnya on Monday. It said the soldiers were released after a long captivity owing to the efforts taken by the Interior Ministry and the Federal Security Service (FSB), including by Deputy Interior Minister Vladimir RUSHAILO with the active assistance from CIS Executive Secretary Boris BEREZOVSKY. On October 11th, nine Russian servicemen were released. According to the Russian Defense Ministry, at least 400 Russian soldiers are being held in captivity in Chechnya.

President Boris YELTSIN today has signed a decree on the appointment of Nikolai KULIKOV as deputy Interior Minister head of the Chief Interior Department for Moscow on Tuesday. YELTSIN heard a report from the Interior Ministry on its work during the last nine months and its plans for the last quarter. He also praised the Interior Ministry saying its performance, "has improved considerably in many

Today's News Highlights

Russia

Oil Suppliers Form Fuel Union

Kamaz Signs Bus Contract

European Republics

Estonia To Build Bus. Center

Rus-Belarus Diamonds Deal

South Caucasus & Central Asia

Georgian Rebels Surrender

Aliyev Inaugerated

Kyrgyz Amendments Pass

Tajik To Form Space Agency

Politics-Economics-Business

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Tuesday

October 20, 1998

Intercon's Daily

spheres." Interior Minister Sergei STEPASHIN said that said he now views the whole block of power ministries as, "a single well-coordinated team."

Economy

Ruble = 17.09/$1.00 (NY rate)

Ruble = 16.93/$1.00 (CB rate)

Leading Suppliers Form Fuel Union

· The leading petroleum product suppliers of Moscow and St. Petersburg on Sunday have decided to form a Fuel Union. The founding documents are scheduled to be signed by the end of this month. The Union will involve the Moscow Fuel Association, Moscow Inter-Regional Oil Union, Association of Suppliers of Oil and Petroleum Products, Legal Company of the Inter-Regional Oil and Gas Group and St. Petersburg Oil Club. The Russian Fuel Union will draft a common concept of the oil market, forecast its development, and coordinate efforts. It is planned to implement joint projects on the construction and reconstruction of petroleum product storages, gasoline stations and the infrastructure. The Union will prepare legislative proposals and take part in various elections.

Meanwhile, oil and gas trade union leader Lev MIRONOV today said that employees of 11 major oil and gas companies plan to picket in front of the Russian government's building on October 27th. Wage debts to the gas industry totaled close to four billion rubles as of October 1st and the oil industry is owed over 3.5 billion rubles in wages. The financial crisis has hit northern cities, where gas and oil productions are the only source of finance and jobs, the hardest. According to the Fuel and Energy Ministry, Russia's oil output is expected to fall off five to six percent in 1998, and it is likely that oil and gas will have to be imported starting in 2001.

New Russian Economic Indicators

· The Russian State Statistics Committee released a report Monday showing that Russia's gross domestic product (GDP) dropped 9.9 percent in September compared with the same period last year and amounted to 257 billion rubles. The Russian Statistical Board said the decline of industrial production by 14.5 percent represent the biggest economic decline since 1994. The largest decline was recorded in the chemical and petrochemical industries,

ferrous metallurgy, machine-building, metal-working, and in the light industry. Agricultural output declined by 156 percent compared with September, 1997. Russia's gross domestic product dropped by three percent during the first nine months of this year, industrial output by 3.9 percent, down to 1.2 trillion rubles, and agricultural output by 9.4 percent. Production grew in the polygraph, medical, glass, and porcelain sectors and in the timber industry.

Unemployment in Russia, computed by the methodology of the International Labor Organization, has grown by 0.5 percent in September to 8.39 million or 11.5 percent of the able-bodied population. Official unemployment remains unchanged, at 1.754 million or about 21 percent of overall unemployment and 2.4 percent of the able-bodied population. As compared with late September 1997, joblessness in Russia increased by 5 percent, while the official rate reduced by 15 percent. The Statistics Committee estimated the able-bodied population at 72.7 million or 49 percent of the country's population. About 66 percent of those employed worked at big and medium-size enterprises. The total wage debt in Russia increased by 4.8 percent in September and reached 88.1 billion rubles by October 1st. Budgets of all levels account for only 23.8 percent of the total debt. The budget wage debt went up by 12.5 percent in September, including by 13.7 percent in the social sector and by 6.9 percent in the production sector.

Business

Kamaz To Deliver Bus Producing Equipment

· The German firm Hofmeister, Russian NEK Eltrans and the Naberezhnye Chelny bus-making plant Chelaz, which is integrated in the Kamaz stock company, have signed a contract for the delivery to Naberezhnye Chelny of equipment for the production of buses. According to Chelaz Director-General Arkady APANASENKO under the contract, a test bench of the Zakson firm, a painting line of the Durr firm and other equipment will be delivered within six months. Expenses on the purchase, transportation and assembly of the equipment on turn-key terms, amounting to $9 million, will be borne by NEK Eltrans. The Tatar government will allocate for the implementation of the project 29 million rubles. Until the new plant is operational in the third quarter of 1999, buses will be assembled on free assembly lines of Kamaz. Chelaz will reach design capacity of

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2,000 buses a year by the beginning of 2000. The Tatar government plans to purchase 70 Chelaz buses in 1999, and the Russian Ministry of Transport plans to purchase 800. The World Bank will grant long-term credits from 10 to 15 years to those Russian cities, which intend to purchases those up-to-date buses.

Russia's Auto Output Declines

· The Russian State Committee for Statistics released a report today showing that Russia's automobile output declined by 12.6 percent between January and September of 1998, as compared with the corresponding period of 1997. Car output was reduced by 14.2 percent, truck output by 5.6 percent and bus output by 0.4 percent. Because of a low demand and a shortage of accessories, automobile output went down by 39.1 percent in Tatarstan, by 20.2 percent in the Ulyanovsk Region and by 17.9 percent in the Samara Region. In Moscow, automobile output showed an increase by 62 percent, and in the Moscow Region by 20.2 percent.

Novosibirsk-Omsk Highway Opens

· On Friday the governors of Novosibirsk Vitaly MUKHA and Omsk Leonid POLEZHAYEV attended the opening ceremony of the highway linking Western Siberia's two largest cities. The highway is part of the Presidential infrastructure Roads of Russia program. The construction of the 681-kilometer-long highway, which meets European standards, has been fully funded from the federal budget. The newest building materials and technologies were used in making the road. Due to better conditions of the newly-built road, a ride along it is several hours shorter than previously was the case, greatly benefiting the transportation of freight.

be business center. The Estonian Association is expected to take part in a trading session for investors to win the right to construction. The Association of Estonian Prominent Entrepreneurs was established two years ago and it incorporates 43 companies, including the Merko joint stock society which deals with the construction of big representing offices. A protocol of intent on establishing the business center was signed by the St.Petersburg governor and the board chairman of the Estonian association in February. Executive Director of the association Yak SAARNIYT reaffirmed Estonian guarantees on disbursement of funds for this project.

Russia To Export Diamonds To Belarus

· Russia agreed to export to Belarus 45,000 karats of jewelry diamonds and 350,000 karats of technical diamonds in 1998 under an inter-governmental accord which was drawn up last Friday at the meeting of the executive committee of the Russian-Belarus Union. According to the agreement, the diamonds will be delivered on terms on Belarus' prepayment to the supplier, to be in convertible hard currency. Russia's diamond giant Almazy Rossii-Sakha, or ALROSA, is to export 45,000 karats of jewelry diamonds. Up to 350,000 karats of technical diamonds is to be exported from stores of Yakutia's government by the republic's committee for precious metals, gems and currency through the state-run company Almazyuvelireksport. The inter-governmental accord lays down that volumes of diamond deliveries will be reviewed annually in successive years after the Russian government decrees export quotas per year and the exports will be fixed by a bilateral protocol signed by representatives of the Russian and Belarus governments. The main restriction on the contract is that Belarus is not to re-export the diamonds, either partially cut diamonds or unfinished brilliants.

South Caucasus & Central Asia

Georgian Rebels Surrender; Leader Escapes

· About 85 percent of the anti-government servicemen led by GAMSAKHURDIA loyalist Akaky ELIAVA have surrendered and returned to their base in the city of Senaki. However, ELIAVA and approximately 30 of his associates escaped to the forest. Georgian authorities are tracking them through the woods. One unconfirmed report suggest that ELIAVA may

European Republics

Estonia To Build Baltic Business Center

· The Association of Estonian Prominent Entrepreneurs has decided to invest $20 million into a project for the construction of the Baltic Business and Commercial Center in St.Petersburg. Officials from the St.Petersburg Committee for Urban Construction and Architecture said that the Estonian entrepreneurs had chosen the territory of the Russian scientific center of Applied Chemistry on the Malay Neva embankment as the site for the would-

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have fled to the Gali region and to the Russian peacekeepers. The Georgian Defense Ministry under the command of David TEVZADZE captured all the military tanks and armored personnel carriers from the rebels. The Georgian forces out maneuvered the rebels neutralizing the situation and minimizing the casualties and damages. There is no exact information about the casualties in occasional shootings between the rebel group and the government troops; it is estimated that one soldier and four rebels were killed in an exchange of fire outside Kutaisi, Georgia's second largest city. The Georgian Prosecutor's office has instituted criminal proceedings against Colonel Akaky ELIAVA and other people involved in the mutiny on charges of high treason. Approximately, 100 Georgian armed servicemen led by ELIAVA revolted against the government on Monday morning with 13 tanks and armored vehicles. They blocked off the road to the Black Sea port of Poti and took all government negotiators hostage, including Teimuraz SHASHIASHVILI, former presidential envoy to Imereti, and Security Minister Jamal GAKHOKIDZE. Georgian President Eduard SHEVARDNADZE along with other Georgian officials have said that the sudden rebellion was organized to thwart plans to build a large pipeline through Georgia. In fact, the Azerbaijan International Operational Company (AIOC), which is building a pipeline from Baku to Supsa suspended work on the pipeline in northern Georgia. The AIOC also declared that it had decided to toughen security measures on the construction of the Baku-Supsa pipeline, which runs through the conflict zone. It is not clear that construction on the pipeline has resumed since the rebellion has been quashed. US President Bill CLINTON expressed his concern over the rebellion. He called, "on opposition force to resolve their differences with the government through peaceful and democratic means rather than by armed confrontation."

Aliyev Inaugurated As Azeri President

· On Sunday, coinciding with Azerbaijan's Independence Day, Geidar ALIYEV took an oath on the constitution and the Koran, being inaugurated as the

president of Azerbaijan. He was re-elected in a national election on October 11 by 76.1 percent. ALIYEV said, that the fact that the inauguration ceremony was attended by leaders of the Russian North Caucasian republics was, "vivid proof to the unity of the Caucasian peoples." ALIYEV promised to serve and defend his country and maintain the territorial integrity of the nation. He is prepared for "constructive dialogue" with the opposition parties and to devote attention to social issues. "Azerbaijan wants and will promote peace in the whole world, primarily in the Caucasus," ALIYEV stressed.

Kyrgyz Referendum Passes Amendments

· Approximately 90.92 percent of Kyrgyzstan's eligible voters on Saturday overwhelmingly approved a package of amendment to the constitution in a nationwide referendum. Kyrgyzstan will be the first Commonwealth of Independent States to introduce private ownership of land, with a five-year moratorium sale and purchase of agricultural land. The number of deputies in the Legislative Assembly changed from 35 to 67 and in the People's Assembly from 70 to 38. The package of amendments, which had to be passed in its entirety, also stripped parliament of the right to discuss budget spending without the consent of the government and lifting deputies' immunity. President Askar AKAYEV, already holding sweeping powers, complained that the legislature was "interfering too much" in economic reforms.

Tajik To Form Space Agency

· Tajikistan President Emomali RAKHMONOV on Monday issued a decree on the formation of the national space agency. It is being set up to restore and develop activity in outer space. Chief of the main agency for geodesics and cartography at the Tajikistan government Muzafar ISHANOV has been appointed the space agency's director-general. He recalled that in the Soviet times Tajikistan had a powerful base for the observation of space objects. ISHANOV believes the service for tracing meteorites at the Astrophysics Institute of the republic's Academy of Sciences was one of the world's best.

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