DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, October 27, 1998

investment, trade and economic cooperation, most important for the country." Austrian Economic Chamber president Leopold MADERTHANER said the Russian-Austrian visit is expected to give momentum to bilateral cooperation and more incentive to Austrian businessmen entering Russia's market. MADERTHANER said the economic and financial difficulties confronting Russia are seen as temporary and surmountable if the Russians unite and the government works out a realistic economic policy. Austrian businessmen do not doubt that Russia will go the path of reforms and development of a socially oriented market economy, he added. The EU wants to see in Russia a reliable economic partner and supporter and a display of trust in the measures of Russia's government and financial institutions is especially important this day, MADERTHANER said. The Rus-EU Summit talks are expected to reveal prospects of investment, economic cooperation and a pattern of further contacts. It is expected that Russia will ask for EU food aid, although some Russian officials denied the need for food aid.

Russia-Austria trade increased 14.1 percent in 1997. Russia exports fuel and raw materials to Austria, in which the natural gas makes 56 percent and oil and oil products 16 percent. Russia exports the gas under long-term contracts that provide for over 90 percent of Austria's demand. The bulk of Russia's imports from Austria are finished products, with machinery and equipment making a 40 percent proportion. Over 1,200 Austrian companies are operat

Russian Federation

Politics

Yeltsin Sends Primakov In His Stead To Austria

· Russian President Boris YELTSIN in the last hours before a scheduled trip to Austria decided to follow Doctors' orders, canceling the trip, but sending Prime Minister Yevgeny PRIMAKOV on his behalf. Presidential press secretary Dmitry YAKUSHKIN said YELTSIN was suffering from "nervous exhaustion" in the wake of a bout of bronchitis. YELTSIN briefed PRIMAKOV on Russia's relations with Austria before entering the Barvikha sanatorium for rehabilitative treatment. YELTSIN said the trip is important in order to, "give our European partners confidence about Moscow's economic course." His trip was intended not only to show Russia's resolve to overcome its economic crisis, but also the strength of the President.

PRIMAKOV's entourage included Vice Premier Vladimir BULGAK, Foreign Minister Igor IVANOV and Economics Minister Andrei SHAPOVALYANTS, who will meet their Austrian counterparts and discuss bilateral relations. PRIMAKOV will meet with Austrian President Thomas KLESTIL and Chancellor Viktor KILIMA to discuss a wide range of international and bilateral issues as well as security measures. Since Austria currently holds the European Union (EU) rotating presidency, PRIMAKOV will also meet with EU Present Jacques SANTER and EU Commissioner Hans VAN DEN BROEK. More than 10 major economic agreements worth $600 million will be signed during the visit. The agreements include joint venture contracts, a program to train Russian managers abroad, and a project to create ecologically safe sewage systems in Russia. A Kremlin official said that signing the large-scale package of contracts and agreements, "means for Russia a breakthrough at the European direction of

Today's News Highlights

Russia

Rus. Can't Repay Foreign Debt

Kamaz Plant Nationalized

Gaz Plant Raises Prices

European Republics

Kuchma Visists Hungry

Lat. Commander Urged To Quit

South Caucasus & Central Asia

Georgian Security Min. Resigns

CIS Procurators-Gen. Meeting

Kyrgyz-Japan Build Relations

Politics-Economics-Business

Page

Tuesday

October 27, 1998

Intercon's Daily

ing in the Russian market, and 500 joint ventures have been registered.

Economy

Ruble = 16.69/$1.00 (NY rate)

Ruble = 16.6898/$1.00 (CB rate)

Anti-Crisis Plan Released To Public Or Not?

· Monday, Prime Minister Yevgeny PRIMAKOV and top Cabinet ministers, including Communist First Deputy Prime Minister Yuri MASLYUKOV, Central Bank Chairman Viktor GERASHCHENKO, and Finance Minister Mikhail ZADORNOV, met to discuss cuts and additions to a draft anti-crisis plan. PRIMAKOV said the plan they were working on, "is not MASLYUKOV's program. It is a collective work." The Cabinet gave initial approval to emergency economic measures. One Cabinet members said that in PRIMAKOV's absence, they will continue to discuss the still unpublished version. The Wall Street Journal noted that a Cabinet members said many of the Soviet-style measures floated in an earlier plan, such as selective re-nationalization and price controls, have been dropped. Economics Minister Andrei SHAPOVALYANTS said, "Extraordinary steps toward government intervention in the economy are needed." MASLYUKOV said plans to present the anti-crisis program to the International Monetary Fund (IMF) have been put on hold. "The IMF will have to wait." SHAPOVALYANTS said the IMF will be the first to read the new plan.

However, the IMF is likely to have reviewed a draft version which was published in the Russian business daily Kommersant today. The newspaper commented that the plan, "will bring about additional tension both in the financial and social spheres." It warned that the drafted version would increase payment problems, reduce incomes, and lower tax revenues. Despite drops in imports, the draft said the account balance in 1998 will be four to five times less than in 1997, and foreign borrowing and investment possibilities are greatly reduced.

Privatization Revenues Fall Short Of Target

· Russia's Federal Treasury today said that privatization revenues from January to September sales were only 11 percent of the government's projected figure. Preliminary data shows that priva

tization revenues totaled only 1.352 billion rubles for the first nine months of this year, compared with the 11.87 billion rubles goal set by the government in the Spring. The State Property Ministry had expected that most of its 1998 target revenues would come into the budget during the fourth quarter, when tenders for stakes in oil company Rosneft and telecommunications holding company Svyazinvest were to take place. These two privatization sales alone were projected to bring in 14 billion rubles. Both auctions were canceled following the collapse of the ruble, lack of interest, and the plunging of the stake price for both companies. The government is still considering a sale of up to 5 percent of Russian gas giant Gazprom. In August, the State Property Ministry set the starting price for a 5 percent stake in Gazprom at $1.65 billion, more than double the international market price.

Russia Can't Repay Foreign Debt In 1999

· Chairman of Russia's Central Bank Viktor GERASHCHENKO said the country should not count on getting new financial aid this year from the International Monetary Fund (IMF). "We're not counting on receiving big sums from the IMF." Without additional funding, Russia will not be able to repay what it owes in 1999. Head of the Russian State Duma's Budget Committee Alexander ZHUKOV said that Russia will owe $17.5 billion in foreign debt in 1999, but it won't have the hard currency to pay it. His announcement follows the breakdown of talks in London with Western banks over the restructuring of Treasury bills and bonds. ZHUKOV insists that Russia will find a way to pay off this year's debts.

Tax receipts and other revenues collected during the first nine months, totaling only 51 percent of targeted totals, may not be enough. Chairman of state-controlled Vneshekonombank Andrei KOSTIN today said Russia will have to pay about $3 billion by the end of this year and $18 billion next year. KOSTIN said, "If the government decides it cannot make foreign debt payments next year, it should say so in advance." ZHUKOV also noted that Russia may not have enough revenues to meet $8 billion in forward currency contracts, under which the government promises to sell dollars to foreign investors at fixed exchange rates on specified future dates. The Central Bank has announced plans to print another 20 billion rubles in 1998 to help cover the budget deficit.

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

October 27, 1998

Intercon's Daily

Business

Bridgestone To Establish 200 Outlets

· Major automobile tire manufacturer, Bridgestone Corp., plans to establish a wholly-owned sales subsidiary in Moscow by mid-November. The new subsidiary will have 20 staff positions; its charter capital has not been determined. Bridgestone want to set up 200 sales outlets in five years, with eventual sales projected to reach 10 billion yen. A Bridgestone official said that Russia can offer a strong market with growth potential. He cited Toyota Motor Corp.'s move to begin a feasibility study on a proposal to make commercial vehicles in Russia. Japanese manufacturers have avoided producing in Russia because of political and economic instability.

Russia Nationalizes Kamaz

· Russian national and regional governments on Monday agreed to take control of the country's largest truck producer, Kamaz, in return for assuming a third of its debts. The plan, expected to save thousands of jobs, involves the sale of convertible bonds to help Kamaz reduce $1 billion in debt and avoid bankruptcy. This type of take over could become a national trend as the Kremlin tries to save industries and jobs in this time of economic and financial difficulty. Kamaz, based in Tatarstan, will sell $347 million of bonds in December, convertible to shares in the company after one month. The bond sale will increase Tatarstan's stake to about 25 percent from 9 percent, Moscow will receive a 25 percent stake, and publicly owned banks will also have about 25 percent. Dmitri CHERNYAK, a Merrill Lynch analyst in Moscow said, "This is a move toward nationalization," Bloomberg News reported.

Gaz Plant Raises Prices

· The Gaz car company in Nihzny Novgorod has been forced to raise prices by 20 percent on the average. The largest car plant in Russia has kept car prices at the same level for three years, even following the ruble collapse in August. At that time a technological chain was developed to ensure stable prices, including a reduction in production costs, an order of settlements with the dealers, use of the old stock of assembly parts. However, when excess stock ran out, Gaz had to raise prices to cover costs. The cheapest Volga will now cost 70,000 rubles ($4,375), while the most expensive car is over

100,000 rubles. Gazele trucks will cost 15 percent more, while prices for minibuses remain the same.

European Republics

Kuchma Leaves For EU Talks In Hungary

· Ukrainian President Leonid KUCHMA today left for Hungary on an official visit to discuss the enlargement of the European Union (EU) and other pressing international issues. KUCHMA is scheduled to meet President Arpad GONCZ, Prime Minister Viktor ORBAN and other leaders for economic and political talks. They will try to reach an agreement on visa-free travel between the two nations. Ukraine believes that future eastward expansion of the EU will create a new "iron curtain" between it and other more developed former communist European countries by erecting new barriers to travel and trade. Hungary and Poland are under pressure from Brussels to place new visa restrictions on travelers from all former Soviet republics. Ukraine hopes that its associate membership in the EU will developed into an integrated relationship with European structures such as the EU.

Latvian Presid. Urges Commander To Quit

· Latvian President Guntis ULMANIS on Monday demanded that the commander of Latvia's armed forces resign over a financial scandal. ULMANIS said that Juris EJHMANIS and several other top officials, "violated the laws of the country and moral principals." The demand came after it was revealed that EJHMANIS spent $75,000 of state funds to refurbish his own apartment and purchase defective weapons from abroad.

South Caucasus & Central Asia

Georgian Security Minister Resigns

· Georgian President Eduard SHEVARDNADZE accepted the resignation of Security Minister Jemal GAKHOKIDZE Monday evening at a Security Council meeting. The Presidential press service gave no reason for the decision. It appears that the one-day rebellion in Senaki was the final straw which broke the camels back for GAKHAKIDZE. He had been security minister since July 1997. GAKHAKIDZE will become deputy to Nugzar SAJAIA, Georgian National Security Advisor.

SHEVARDNADZE defended the decision to use the army to crush the revolt without parliamentary ap

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

October 27, 1998

Intercon's Daily

proval. "When a whole tank brigade marches toward the country's second city and the live of thousands of people are in danger, the president should act quickly, resolutely, and without any hesitation." He added that since the revolt took place in a military unit, the army had the responsibility for re-establishing order. Only three people were killed in clashes outside of Kutaisi before most of the forces agreed to return to the base. SHEVARDNADZE said the revolt had been sponsored by an "evil power," suggesting it was organized from abroad with an aim to discredit Georgia and disrupt plans to construct an oil pipeline across Georgia from Baku to Ceyhan. "Not a single person from any region of Georgia supported it. But blood was spilled, a few people died, and the evil power which organized this conspiracy is not fully isolated. It operated in our country and outside of it." He noted that this evil power had spent "millions of dollars," causing unrest in Georgia. Comment: These continued actions by Russian intelligence (GRU) target SHEVARDNADZE and destabilize Georgia. As long as Georgia is made to look weak, Russia bolsters its strength in the region.

CIS Procurators-General Meet In Tblisi

· A summit meeting of the Commonwealth of Independent States (CIS) Procurators-General opened a meeting today in Tblisi. On Monday, Russian Procurator-General Yuri SKURATOV said, "the meeting of the Coordination Council of CIS Procurators-General is to complete first and foremost the process of determining our status, the status of this Council. We are planning to ask the CIS Heads of State Council to grant our Council the status of an official institution." SKURATOV noted that the Tblisi summit is the first meeting of the CIS Procurator-General Coordination Council to be held outside of Moscow.

Aliyev Re-Appoints Foreign And Defense Min.

· Azerbaijan President Geidar ALIYEV on Monday appointed two key government officials. Tofik ZULFUGAROV was re-appointed as head of the Foreign Ministry. He is the youngest member of the

Cabinet, being first appointed as Foreign Minister in February. ZULFUGAROV in his previous capacity as deputy foreign minister represented Azerbaijan as chief negotiator at talks with Armenia over disputed Nagorno-Karabakh. Lieutenant General Safar ABIYEV was re-appointed as Defense Minister.

WMC-Uzbek May Form Gold Venture

· According to an official from Uzbekistan's geology and mineral resources committee, Uzbekistan and Australia's Western Mining Corp. (WMC) may agree to form a gold venture in the near future. "Negotiations will resume on November 8th to 9th. We suppose an agreement will be reached then. It may be signed in the nearest future," he said. The joint venture would be set up on a 50/50 basis and would process 2 million tons of ore per year. In February 1996, WMC won a tender for rights to develop Uzbekistan's Zarmitan gold field. The date of the Charter agreement signing had been repeatedly delayed and in March WMC said it would suspend work on the feasibility study for the project, worth approximately $170 million, due to low world gold prices. Zarmitan's reserves are estimated at 25 million tons of auriferous ore with an average concentration of gold of 10 grams per ton.

Kyrgyz-Japan Strengthen Relations

· Kyrgyzstan President Askar AKAYEV and Prime Minister Kezio OBUCHI signed a joint statement on friendship and cooperation following talks today on expansion of bilateral political, economical, and cultural ties. AKAYEV also held talks with Foreign Minister Masahiko KOMURA. Japan welcomed Kyrgyzstan's progress toward democratization and creation of market-oriented economy, while Kyrgyzstan urged Japan to increase its development aid to Central Asia. The joint declaration did not specify whether Japan will make any financial commitments to Kyrgyzstan. The two leaders agreed to cooperate in reforming the UN, including the expansion of the number of Security Council members. Japan also congratulated Kyrgyzstan on becoming the first former Soviet republic to join the World Trade Organization.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1998, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page