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

Monday, October 5, 1998

However, Ernst and Young Chief Executive Director Michael HENNING said that the foreign businessmen did not receive any new information at the meeting. Russia, with its rich human and natural resources, needs to make radical changes to its tax, banking and other laws to facilitate the influx of more foreign investment, HENNING said. He assured the government that Western investors remain committed to the idea of investing in Russia.

Body Of Saidov Found In Chechnya

· A Russian government official based in the breakaway republic of Chechnya was found dead Saturday on the border of the neighboring Ingushetia Republic. The body was identified as Akmal SAIDOV, a deputy to the Russian government's representative in Chechnya who was abducted Tuesday in Grozny. A preliminary examination of the body showed he was apparently strangled. Attached to the body was a note claiming responsibility for the murder by "the Wolves of Islam." The note threatens, "those cooperating with the FSB [Russia's Federal Security Service] against the Chechen Republic." The Chechen Justice Ministry said there was no registered organization in the North Caucasus republic called the Wolves of Islam. The FSB has denied that Saidov was its agent, describing the allegation as "pure invention." In a special statement, the FSB said, "SAIDOV made a serious contribution to the resolution of the social problems facing the Chechen people and tried to deal with local economic problems promptly and efficiently." SAIDOV,

Russian Federation

Politics

Primakov Meets Western Investors

· Russia's Prime Minister Yevgeny PRIMAKOV on Saturday urged foreign companies to invest in Russia's real production sectors to help it stave off an economic crisis. At a meeting with senior representatives of major Western companies investing in the country's production sectors, including representatives of ABB, BASF, Coca-Cola, Fiat, Mitsui, Procter & Gamble, Renault, and Siemens, PRIMAKOV reassured them that the government will reduce rather than increase the tax burden on producers. PRIMAKOV and the businessmen also discussed the need for transparency in Russian companies' audits and accounting statements and other major terms for the operation of companies in the country. Task forces will be created within the Consultative Council on Foreign Investments in Russia to prepare proposals on Russia's legislation and protection of investments. PRIMAKOV said that foreign investors were the force that will allow Russia to minimize its losses from the current crisis. He called for long-term rather than speculative investments in Russia, noting that long-run investment can ensure real returns. Regarding privatization sales, PRIMAKOV said his government would "continue privatization of state property. But this privatization must not be just for replenishing the budget. Privatization will be accomplished for growth of production, growth of investment, and growth of production effectiveness through renewal of major funds...We shall conduct privatization so that it serves interests of the people, the state, interests of business." Economy Minister Andrei SHAPOVALYANTS said, "We are satisfied with the discussion, and we hope the investors have received the new information about the government's plan of action to bring the country out of the crisis."

Today's News Highlights

Russia

Ruble Not To Be Poegged To $

Boeing To Pay $10M Fine

Rus-US Oil Consortium Formed

Coal Miners To Build Cars

European Republics

Parliament Election Results

Citizenship Amend. Approved

South Caucasus & Central Asia

Shevardnadze Meets Seleznyov

BSEC Forms Crime Force

Politics-Economics-Business

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October 5, 1998

Intercon's Daily

an ethnic Uzbek and Moslem, handled assistance programs for the Chechen population.

Prime Minister Yevgeny PRIMAKOV has contacted Ingushetia's President Ruslan AUSHEV and Russian law officials investigating the murder stating that such acts must not be left without punishment. First Deputy Prime Minister Vadim GUSTOV in a statement said, "we are confident that such a situation benefits only extremist forces seeking to oust the popularly elected president, even by aggravating the already difficult social status and everyday life of the republic's residents." The Chechen Foreign Ministry agrees that SAIDOV's murder was a "political provocation aimed at complicating Russian-Chechen relations." Chechen acting Foreign Minister Movladi UDUGOV said that the Prosecutor General's Office has instituted criminal proceedings, adding that the investigation will be supervised personally by President Aslan MASKHADOV. Chechen law enforcement agencies have been put on red alert. Additional checkpoints and roadblocks have been set up on all major highways leading to and from Grozny. Border regime has been tightened.

Economy

Ruble =15.9706/$1.00 (NY rate)

Ruble = 15.7944/$1.00 (CB rate)

New Loan Decided In October-November

· Russian Finance Minister Mikhail ZADORNOV and Central Bank chairman Viktor GERASHCHENKO on Saturday said they believed the issue of new Western loans to Russia could be decided in October or November. They are in Washington to participate in International Monetary Fund (IMF) and World Bank (WB) meetings. ZADORNOV and GERASHCHENKO held talks with IMF director Michel CAMDESSUS and president of the European Bank for Reconstruction and Development (EBRD) Horst KEHLER as well as attended a session of the G-7 finance ministers. According to ZADORNOV, CAMDESSUS regarded the new economic program of the Russian government "rather favorably." By program, he means the emergency budget for the fourth quarter. He reassured the IMF that Russia will continue economic reforms and look for ways to end the crisis. On Russia, the policy-setting committee of the IMF encouraged the new government in the country to take immediate measures to re-establish

confidence in the ruble, restore the payments mechanism, and work with its creditors to develop a cooperative solution to Russia's debts. The IMF called for decisive action to remove deep-lying causes of the crisis, particularly low tax collection and the banking systems. The next IMF mission is to go to Russia on October 13. Traditionally, the IMF board of directors decides on the release of the money only after mission reports. GERASHCHENKO said that, "both CAMDESSUS and the EBRD leadership treat our difficulties with understanding and a great desire to know the situation in Russia in detail."

Ruble Not To Be Pegged To The Dollar

· Russian Finance Minister Mikhail ZADORNOV said at a press conference in Washington that the Russian government's economic program does not envision pegging the ruble to the dollar or another hard currency. "A floating rate of the ruble is envisaged. This is a common position of the government and the Central Bank of Russia," he said. Central bank Chief Viktor GERASHCHENKO said, "there is an acute issue of paying off foreign debt in the amount of over $3 billion which falls due in the fourth quarter." ZADORNOV said the "profile of the debt" is such that, "within the nearest five years we shall not even be able to pay some coupon yields." The Finance Minister said long term currency issues are being considered in the restructuring of the internal GKO and OFZ debts. ZADORNOV said investors have to agree to the redemption options proposed by the Russian government. He declined to discuss the fourth-quarter budget.

Maslyukov On Economic Program

· First Deputy Prime Minister Yuri MASLYUKOV has refuted reports on an economic program, allegedly drawn up under his supervision. The government, which has been working for only three weeks, has no economic program so far. It is only outlining priority measures. He said that the government does not plan to initiate a ban on the free use of dollars in Russia. On NTV, MASLYUKOV said, "Only an idiot can generate such an idea...There are no grounds to say anyone in this government plans to ban the use of the dollar, limit the import of dollars or the right of residents to buy or sell dollars. That is nonsense." He noted that monetary cash totals 20 to 30 percent of the economy and barter makes over 70 percent of circulation. Prime Minister Yevgeny PRIMAKOV said

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at his Saturday meeting with leaders of Western companies investing in Russia that, "Any ravings that are disseminated by the mass media that the government allegedly is following the course toward a ban on the dollar's circulation, toward nationalization, winding up the privatization absolutely do not correspond to the reality."

Business

Boeing To Pay $10 Million Fine

· Boeing Co. has agreed to pay a $10 million fine to settle charges that it improperly transferred military technology to its Russian and Ukrainian commercial satellite partners. The penalty was the largest ever imposed under the 1976 Arms Export Control Act. Boeing spokesman Tim DOLAN said that agreement will enable the international Sea Launch venture to resume scheduled launches of commercial satellites in 1999. The Sea Launch projects as halted on July 27th after a government investigation found that Boeing violated the law on 207 occasions, mainly by exporting services or products without prior approval. Boeing holds a 40 percent stake in Sea Launch. The other partners in the venture are RSC Energia of Moscow, Kvaerner Maritime of Oslo, and KB Yuzhnoye/PO Yuzhmash of Ukraine.

Rus-US Form Oil Consortium

· A new consortium, Pegas Star, was created by the companies Mobil, Texaco and by their Russian partners, Rosneft and Rosneft-Sakhalinmorneftegaz. Representative of the companies Mobil and Texaco, David SIMERKA made this announcement in Yuzhno-Sakhalinsk. According to Itar-Tass, the new consortium will promote the large oil and gas project, Sakhalin-3. The tender for the right to use the Kirinsky deposits in the northeastern shelf of Sakhalin was won by these American companies on Saturday. The consortium in order to speed up work it is necessary to introduce changes in the Russian federal law on agreements on production sharing.

Hundai-Avtos Offer Jobs To Coal Miners

· Approximately 500 coal miners, released from profit-losing mines in the city of Anzhero-Sudzhensk, will receive new jobs at a car assembly factory which was launched there by Avtos and South Korean Hundai Corporation. The first batch of 157 Lantra cars will be adapted for Russian conditions. Jointly produced cars will be equipped with stronger sus

pension and a heating system, adapted to Siberian frosts. Factory specialists noted that prices for cars would be lower than on the car market thanks to saving on customs duties when importing foreign cars into Russia in the form of spare parts. Along with the assembly of imported cars (up to 10,000 cars by the year 2002), Avtos prepares to manufacture a Russian cross-country motor vehicle, combining the best qualities of various Russian jeep models. The undercarriage of the cross-country vehicle is being tested, while the body is in the stage of development. The Anzhero-Sudzhensk Factory plans to assemble 2,000 cross-country vehicles in 2002.

European Republics

Six Latvian Parties Win Parliament Seats

· Only six out of the 21 parties earned enough votes to pass the necessary 5 percent barrier in the Latvian parliament elections of October 3rd. In contrast, the out going parliament on November 3rd, has double the number of parties. Initial talks on forming a new government are expected to begin today. Preliminary results released by the Central Electoral Commission show that the People's Party of former Prime Minister Andris SKELE came in first with 20.93 percent (24 parliament seats), followed by Latvian Path with 18.22 percent (21 parliament seats). The National Harmony Party, which groups former communists and independence activists, finished third with 14.44 percent of the votes and Fatherland and Freedom Party, of which Prime Minister Guntars KRAST is a member, polled 13.8 percent. The Social Democratic Alliance earned 12.95 percent and the New Party 7.46 percent. Voter turn out was estimated to be 72.67 percent. The surprise in the election was the National Harmony Party, led by Latvia's last Communist boss Alfred RUBIKS, earning the third highest percentage of votes. The Harmony Party favors a soft monetary policy, running a budget deficit and heavy state controls over the economy. It opposes NATO entry, but favors Latvia's bid to join the European Union. Harmony is not expected to be a part of any government coalition.

Citizenship Amendments Pass In Referendum

· In addition to voting for a new parliament, Latvians on Saturday participated in a nationwide referendum on its citizenship laws. Approximately, 53 percent of Latvians voted in favor of the amendments, while 45

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percent voted against. The approval of the amendment will affect the naturalization of 700,000 residents; it was passed by the legislature in June on recommendation of the OSCE. The amendments cancels the "naturalization windows," provide for the naturalization of non-citizens' children born after 1991, and use simpler language tests for non-Latvian residents older than 65. The original citizenship law has been strongly objected by ethnic Russians, which account for one third of the Latvian population, and criticized by Russia, the US and the European countries. Russian Foreign Ministry spokesman Vladimir RAKHMANIN said, "A clear signal was given to the newly elected parliament and the future government that Latvian people connect long-term interests of their country with achievement of inter-ethnic harmony, integration of society and observance of human rights in compliance with internationally recognized civilized norms."

South Caucasus & Central Asia

Shevardnadze Meets With Russian Delegation

· After meeting with a Russian parliamentary delegation on Saturday, Georgian President Eduard SHEVARDNADZE expressed satisfaction with Moscow's beginning to overcome its crisis. Today he said, "Stability in Russia is very important for stability in Georgia and other nations of the world." He also encouraged Russia to continue with its Democratic development. Head of the Russian delegation and speaker of the Russian State Duma Gennady SELEZNYOV stated that Russian Prime Minister, "Yevgeny PRIMAKOV and the ministers who have been appointed will be able to propose a real anti- crisis program that can take the Russian economy to a new level of development. This will have a positive effect on the mood in the CIS countries which are experiencing the consequences of the crisis in Russia because their economies are interconnected vessels." He expressed hope that Russia will pull itself out of its economic crisis as soon as possible." According to the presidential press service, the two sides discussed resuming the work of the inter-

governmental economic commission, which in its time played a major role in creating the basis for economic cooperation between the two states, and serves as a foundation for settling political problems. Georgia and Russia also discussed he settlement of the Georgian-Abkhaz conflict. SELEZNYOV said, "Russia does not give up its mediatory mission in the settlement of the conflict in Abkhazia, we would very much wish a boost in the process of the Georgian-Abkhazian conflict settlement. This process involves the OSCE and UN representatives." SELEZNYOV was in Tblisi participating in the expanded meeting of the OSCE Parliamentary Assembly's bureau.

BSEC Creates Crime Fighting Force

· Interior ministers from the member countries of the Black Sea Economic Cooperation (BSEC) on Friday ended a two-day gathering by signing an intergovernmental agreement on cooperation in counteracting crime, particularly organized crime. Head of the Russian delegation, Interior Minister Sergei STEPASHIN expressed confidence that the document will help enhance the effectiveness of cooperation among the BSEC member states in the area of counteracting crime, and will begin decisive measures to struggle against organized crime. STEPASHIN said, "we have agreed to determine, in May, the format of a working group, to be created under the signed document, to serve basically as an operative headquarters for the implementation of concrete operations." "We do not go beyond Interpol and its Charter, but we will organize this work in the region. The creation of such a headquarters in the BSEC will undoubtedly help solve urgent problems faster." He added that an agreement will be signed in November between the Russian and Greek interior ministries to move from the extradition of criminals and information exchanges to joint police operations. STEPASHIN confirmed his ministry's readiness to develop all forms of cooperation with Greece to fight international crime, including concerted investigation and search efforts with regard to concrete criminal groups and individuals and specific criminal cases.

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

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $895.00 per year. A discount is

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