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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, October 23, 1998

nologies. SERGEYEV did not exclude a possibility to sell the Russian SU-33 fighter jet to China on the day of his arrival in Beijing. "It is a perfect aircraft. The rest is a matter of negotiations," he said. JIANG confirmed that China will reduce its troops along the border by 500,000, while SERGEYEV promised unspecified cuts on the Russian side.

Anti-Crisis Measures To Be Presented To Duma

· A plenary meeting of the Russian State Duma is meeting today to focus on a program of legislative measures to overcome the economic and financial crisis in Russia. The program was prepared by a Duma commission of all factions and deputy groups, led by Chairman of the Duma Committee on Industry Vladimir GUSEV. "The essence of the program is to create economic and organizational conditions for the production growth," GUSEV said. The program has seven sections, which outline social security measures, ways to combat the payment crisis, stabilize the national currency and encourage the real economic sector. A number of measures suggest an imposition of state control over economics. It is also planned to ensure a legal support to the anti-crisis program. The commission calls for the immediate adoption of federal bills on temporary stabilization measures. It also favors bills on the state property in economics, the state enterprises, the state minimum social standards, the consumer basket and fundamentals of the pension provision. The adoption and the implementation of all the 40 bills will increase the federal budget revenues by about 42 billion rubles a

Russian Federation


Yeltsin Cuts Short Trip To Austria

· Russian President Boris YELTSIN has shortened a trip to Austria which will begin on Tuesday, October 27th from two days to one. The reason for the change appears to be the President's health; he is suffering from bronchitis. Presidential spokesman Dmitry YAKUSHKIN said, "His schedule has not been curtailed, it's just more compressed. It's more convenient that way." He said the meeting will be very intensive. YELTSIN will meet with Austrian Federal President Thomas KLESTIL and take part in a European Union-Russia summit. Austria, which is now the chairperson in the European Union, is closely following the political and economic reforms in Russia. The European Union is especially interested in having Russia stable, with a solid economy, and is ready to help it overcome the financial and economic crisis, KLESTIL stressed. He said, "Russia and Austria, their peoples are bound together by close ties of friendship."

Sergeyev, Jiang Promote Development

· Russian Defense Minister Igor SERGEYEV today met Chinese Chairman and head of the Central Military Council JIANG Zemin and deputy head of the Central Military Council ZHANG Wannan in Beijing. Chinese Defense Minister CHI Haotian on Thursday described the first Chinese visit of SERGEYEV as an important event in the bilateral military relations to promote a comprehensive development of the strategic partnership aimed into the 21st century. The sides will continue negotiations on the military- technical cooperation and related problems. According to sources, the Russian side prefers to sell material and armaments in a seven to three correlation in favor of finished products, while the Chinese partners insist on a greater share of tech

Today's News Highlights


GKO Negotiations Cut Short

Ruhrgas To Buy Gazprom Stake

European Republics

McDonalds Expans In Ukraine

IMF To Assess Ukraine

South Caucasus & Central Asia

EBRD Visits Georgia

Rus-Abkhaz Banking Relations

Nazarbayev Runs For President




October 23, 1998

Intercon's Daily

year, GUSEV said. "We do not allow to make bankrupt the good-working enterprises or break the United Energy System or the Gazprom company," he said. If the program is approved by the State Duma, it will be submitted to the government, "so that the cabinet take into account the proposals of deputies in the formation of its anti-crisis program," to be submitted to the law-makers in the first ten days of November. GUSEV hopes the commission's proposals will be included in the government's program.


Ruble =16.76/$1.00 (NY rate)

Ruble = 16.76/$1.00 (CB rate)

Jun Jul Aug Sep Oct

Cabinet Passes Inter-budget Package

· The Russian Cabinet approved an inter-budget package at its session on Thursday, which includes proposals for the three-tier division of authority with regard to budget spending and revenue. Finance Minister Mikhail ZADORNOV called for delegating more powers from the federal to the regional and municipal governments in this field. He noted that the transfers from the federal center to the regions will be calculated from the level of individual incomes in the regions. Russian Prime Minister Yevgeny PRIMAKOV emphasized that four principles should be taken as the basis for this work. "It is necessary to create most favorable conditions for the region to enable them to function independently in developing their productive forces and improving the living standards. Besides, it is necessary to take measures to stabilize

the federal budget revenue and optimize the consolidated budget spending. It is necessary to counteract the centrifugal forces." The provisions also include a package of questions concerning the restructuring of the government short-term debt (GKO and OFZ), and changes in the taxation policy. Budget revenues collected for October so far total 5.5 billion rubles. The fourth quarter budget is expected to have a deficit of 65 billion to 75 billion rubles ($3.88 billion to $4.47 billion). It is now viewed as inevitable that Russia will have to print money to fill the gap. "In case of external funding the ruble emission will be scaled down," ZADORNOV said. "In our view, the emission will be carried out in the fourth quarter for financing the budget, but it should be reduced to a minimal amount," he added.

GKO, OFZ Negotiations Cut Short

· Russian officials and a group of six Western banks cut short negotiations on the restructuring of more than $10 billion in frozen ruble-denominated debt on Thursday in London. According to a banker involved in the talks, both sides were far from an agreement. Western banks, led by Deutsche Bank, are calling for 20 percent in cash of Russian money to be paid up front on the frozen treasurys, while Russia offered to swap treasurys for 17-year bonds with an eight-year grace period when no interest payments would be made, The Wall Street Journal reported. However, the government, suffering from massive wage debts an a budget deficit, can not afford to offer foreigners a better deal. Negotiations, which have lasted over a month, are expected to resume next week.


Ruhrgas To Buy Gazprom 2.5 Stake?

· The Russian government is considering selling a 2.5 percent state-owned stake of Russian gas giant Gazprom to German gas company Ruhrgas by the end of 1998. A government source did not provided further details on the deal or how much revenue the government hopes to raise from the sale. Gazprom also declined to comment on the sale. Finance Minister Mikhail ZADORNOV on Thursday said that the government was reviewing at least one out of two or three privatization sales in the fourth quarter. Earlier this week, Reuters reported that the government was considering a sale of 40 percent shareholding in Gazprom to Gazprom for a sum of $1

When you need to know it as it happens




October 23, 1998

Intercon's Daily

billion. Gazprom chief executive officer Rem VYAKHIREV said that the State Property Ministry was preparing for a stale of a state-owned stake, which may be announced in early November. He noted that Ruhrgas and the State Property Ministry may meet this week to work out details of a sale.

Russian Oil Production Drops

· The Russian oil production has dropped by 7 percent in the last six months. Deputy board Chairman of Yukos Oil Company Vasily SHAKHNOVSKY said that oil price will decline further by 5 percent to 10 percent next year and domestic oil consumption will be approximately 210 million to 215 million tons. SHAKHNOVSKY warns that Russia will turn from an oil exporter to an oil importer, if the government increases tax pressure on oil companies.

Seaport Assoc. Seeks Cargo Transit

· The Commercial Seaport Association at its 11th conference, which opened in St. Petersburg on Wednesday, declared that it will work to attract cargo transit through Russian harbors. The conference attracted representatives from 55 organizations of sea transport and related branches of customs, forwarding agents, and insurers. Forty percent of transit export-import cargoes pass through foreign ports. Approximately, 210 million tons of Russian cargoes is handled annually by sea transport, of which 88 million tons is transported via the Baltic States, Ukraine, and Finland. because of this, Russia is loosing over $1 billion per year. The Association plans to take organizational, technical, and legal measures to alter a number of tariff and pricing rules. Association President, Oleg TEREKHOV, believes that forming a uniform technological mechanism for cooperation and interaction of Russian's large harbors of related organizations, such as sea transport and railway workers and motorists, may help enhance the effectiveness of Russian ports, making them more competitive and attracting cargo.

declined to set the sale date and refused to offer conditions of the auction, but investment offered by bidders usually determine the outcome of non-commercial auctions. Lutsky Zavod, located in Western Ukraine, has charter capital of 18.99 million gryvnias. The company produces light off-road vehicles, ambulances, trucks, and trailers.

McDonalds To Expand In Ukraine

· McDonalds Corporation has adopted plans to expand operations of its fast food restaurants in Ukraine from 12 to 87 restaurants. McDonalds managing director for Ukraine Karl FRITZ on Thursday said, "The current economic situation in Ukraine is not hindering or delaying any of our projects. We have increased the speed of our development and are planning to open 75 restaurants by 2001." FRITZ noted that McDonalds had developed faster in Ukraine than any other country. It has invested $35 million in Ukraine and planned an additional investment of $50 million. McDonalds in Ukraine has yet to make a profit. FRITZ stressed that McDonalds is investing in Ukraine for the long-term, adding that it is normal for profits not to be earned until year four or five. Prices in Ukraine have been raised sharply due to the financial crisis in Russian and in Ukraine after the devaluation of the gryvnia. FRITZ said that McDonalds has reduced prices by 20 percent in dollar terms. "We were selling the Big Mac at $1.50 when we started and now we are selling at $1.20." FRITZ added, "You can count on stable pricing from McDonalds, if Ukraine continues to stabilize its economy."

Russia To Modernize Belarus Defense System

· Sources in the Russian Defense Ministry Monday said that Russia is upgrading the air defense gun and missile systems in service with the Belarus air defense forces. The Tunguska system is designed to protect motor-riffle and tank units and formations during relocation and in all kinds of battles against air strikes. The system can shoot down low flying targets, including hovering helicopters, both when it is stationary and when it is on the move. According to foreign specialists the Tunguska air defense system is unparalleled in the world and is the most powerful air defense system in its class at present. The current modernization of the systems in service with the Belarus air defense forces will make it even more effective in hitting small targets, as well as

European Republics

Ukraine To Sell 81.11 Percent In Car Producer

· Ukraine's State Property Fund on Monday said that it will sell 81.11 percent stake of car producer Lutsky Zavod. The sale will be a non-commercial cash auction held sometime between November 1st and May 1, 1999. Reuters reported that the Fund

When you need to know it as it happens




October 23, 1998

Intercon's Daily

targets using optical countermeasures.

IMF To Assess Ukraine's Economy

· An International Monetary Fund (IMF) mission will assess Ukraine's economy and finances next week. Their assessment will be used in deciding whether Ukraine will receive the next $125 million installment of an IMF loan by year's end. The mission will hold discussions with Ukrainian officials over balancing the nation's budget revenue and expenditure and welfare expenditures. According to Finance Minister Igor MITYUKOV, the Cabinet will have to take additional measures to meet budget revenue targets. MITYUKOV said, "Balancing budget revenues and expenditures is going to be the main, the most serious, topic of our negotiations." Ukraine must ensure stabilization, create a smaller and efficient government, accelerate deregulation and privatization, and reform the financial sector. Official reports said Ukraine had received $257 million in September as the first tranches of an IMF Extended Facility loan. Ukrainian Prime Minister Valery PUSTOVOITENKO believes, "anti-crisis measures taken in Ukraine have made it possible to escape the collapse of the national currency."

South Caucasus & Central Asia

EBRD Officials Visit Georgia

· A delegation of the board of directors of the European Bank for Reconstruction and Development or EBRD began a four-day visit to Georgia on Wednesday. On Thursday, Georgia's State Minister Vazha LORDKIPANDIZE met with the delegation. Today, Georgian President Eduard SHEVARDNADZE will receive the delegation. They will also hold meetings with Economic and Finance Ministry officials, National Bank chairman Irakly MANAGADZE, and speaker Zurab ZHVANIA.

Rus-Abkhaz Banks Establish Relations

· The Georgian Parliament's Budgetary Office, after a careful investigation, has discovered that

Abkhaz separatists used state-owned property as guarantees against loans from Russian banks. The Abkhaz also offered rest homes, hotels, and plots of land in resort zones as collateral. For example, The Georgian Times reported that SBS-Agro Bank in 1994 transferred to various financial structures in Abkhazia 16 billion rubles ($4 million). Agroprombank transferred 3 billion rubles ($750,000) and Vozrozhdenye 2 billion rubles ($500,000). Other banks and financial institutions that have cooperated with the Abkhaz are Vnesheconombank, Russian Central Bank, joint stock company International Forest Exchange, Chimneft, Moscow Oil Exchange, Moscow Central Stock Exchange, and others. Comment: The illegal collateralization of Georgian property by the Abkhaz in its relations with Russian banks further demonstrates how Russia supports the Abkhaz and undermines resolution of the conflict.

Nazarbayev To Run For President

· Incumbent President since Soviet times, Nursultan NAZARBAYEV announced Tuesday that he will run in the January 10th early elections for President. He said, "I have decided to run for the post of head of state in this difficult historic period." He will face former Prime Minister Akezhan KAZHEGELDIN, who is planning to register in Astana, undergo medical tests, and pass a required exam in the Kazakh language. Communist leader Serikbolsyn ABDILDIN also announced his candidacy. Deputies believe that NAZARBAYEV will win. They feel the sooner he is confirmed, the more stable the country will be. KAZHEGELDIN has accused NAZARBAYEV of having too much power. NAZARBAYEV has the right to hire and fire, rule by decree, and has extensive control of the Justice system. Critics of the President believe that snap elections do not give opposition candidates enough time to organize and offer a serious challenge to the incumbent. The Central Election Committee said candidates must pay a fee of 2.44 tenge ($30,000) to run for president. According to Reuters, this fee is equivalent to over 20 years' wages based on the official average monthly salary.

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