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

Thursday, October 8, 1998

Russian Federation

Politics

Low Turn Out Of Protesters, Calms President

· The Russian government today is holding its first round of negotiations with leaders of the Russian trade unions. Chairman of the Federation of Independent of Trade Unions of Russia Mikhail SHMAKOV is expected to meet with Deputy Prime Minister Valentina MATVIYENKO and the leaders of the Ministries of Finance, Economy and Labor. SHMAKOV stressed, "We are prepared for a constructive dialogue, but we have already traversed our half of the path towards the negotiations." He noted that the trade unions have been waiting for the authorities to take specific steps. Negotiations follow Wednesday's All-Russian protest, which demanded early elections for the President and parliament and the payment of back wages. There have been significant differences in the estimated turnout rate of protesters. SHMAKOV said that about 17 million people participated with strikes at 675,000 businesses, while first deputy head of the Public Relations Center of the Federation of Independent Trade Unions of Russia Gennady KHODAKOV estimates that 25 million people marched, with strikes at 75,000 businesses in 10,000 towns and districts. The Ministry of Justice released different figure: it said 6 million people participated including those who striked at work, but did not march. Still another statistic was released by acting chief of the Interior Ministry's Public Order Directorate Major-General Alexander CHEKALIN, who figured that only 615,000 people participated in marches, but he did not figure in those who striked at work. The actual number appears to be closer to the lower end of the spectrum. Despite results showing that the protest was well below predicted levels, President Boris YELTSIN was updated frequently throughout the day as to the protest action. YELTSIN expressed "cautious hope"

that the nation is retreating from headlong confrontation and said "the nation has matured." Today, President YELTSIN reassured the nation that he will serve out his term. Duma speaker Gennady SELEZNYOV called for a referrendum on whether the President should resign or not, a vote that would be consider illegal. Federation Council Yegor STROYEV confirmed that such a referendum would be against the law.

Presidential hopeful and Krasnoyarsk Governor Alexander LEBED spoke at the rally in Krasnoyarsk. He said, "there have been no reforms in the country. They are yet to be made, so the president should heed the opinion of the people." He added, "Power is obliged to serve people, and if it does not cope with this task, it should resign." He also encouraged participants not to the let the country deteriorate to violence. It was the first time that a rally with anti-presidential slogans was held not only under red banners but also under flags of democratic organizations. Trade unions of Kyrgyzstan, Ukraine and Belarus said they understand and support the campaign of their Russian colleagues.

Ministerial Responsibilities Defined

· Russian Prime Minister Yevgeny PRIMAKOV has signed a document on the distribution of duties among the deputy prime ministers. First Deputy Prime Minister Yuri MASLYUKOV has been appointed the responsibility for making industrial and investment policies relations, contacts with

Today's News Highlights

Russia

Rus-PLO Sign Trade Agreement

Alaska Air Stops Russian Flights

European Republics

Rus-Ukraine Power Split

CB Reserves For Small Banks

Ukraine-Argentin Agreement

South Caucasus & Central Asia

New Georgia-Azeri Bridge

Kazakh Early Pres. Elections

IMF-WB Continue Tajik Aid

Politics-Economics-Business

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Thursday

October 8, 1998

Intercon's Daily

world financial organizations; there are no plans to appoint one more vice-premier for the financial sphere in the near future. First Deputy Prime Minister Vadim GUSTOV is in charge of shaping and implementing the state policies on the Commonwealth of Independent States, and the socio-economic development of Russia's constituent territories, including the Chechen Republic. Deputy Prime Minister Vladimir BULGAK is responsible for shaping and implementing state policies on the fundamental and applied science. Deputy Prime Minister Gennady KULIK will coordinate the agrarian policy and land reform, agriculture and related industries, food supplies and the consumer market, as well as the natural resources. Deputy Prime Minister Valentina MATVIYENKO is in charge of social policies, general and vocational training, health care and culture.

Rus-PLO Sign Trade And Economic Agreement

· Russian President Boris YELTSIN and leader of the Palestine Liberation Organization Yasser ARAFAT have held talks in Moscow today on the Middle East peace process and bilateral relations. ARAFAT urged YELTSIN to take a more active position in the Middle East and to send a special envoy to Washington to take part in planned talks between ARAFAT and Israeli Prime Minister Benjamin NETANYAHU on October 15th. The two leaders also discussed the signing of a Russian-Palestinian trade and economic agreement. Culture and Information Minister of the Palestinian Authority Yasser Abd AL-RABBUH and Minister of Trade Georgi GABUNIYA signed the trade agreement, ending a meeting which was attended by Deputy Foreign Minister Viktor POSUVALYUK and Deputy Prime Minister Valentina MATVIENKO. ARAFAT also held talks with Prime Minister Yevgeny PRIMAKOV, Federation Council speaker Yegor STROYEV, as well as meetings with Foreign Minister Igor IVANOV, speaker of the State Duma Gennady SELEZNYEV, the leadership of the Russian Communist Party faction and Patriarch Alexy II. PRIMAKOV said, "We have always been interested in establishing a just peace in the Middle East, which means a peace for all and a lasting peace."

Economy

Ruble = 15.8/$1.00 (NY rate)

Ruble = 15.82/$1.00 (CB rate)

Kiriyenko To Head Sberbank?

· The Russian State Duma on Wednesday instructed its Budget and Finance Committee to investigate a report about former Prime Minister Sergei KIRIYENKO's possible appointment as chairman of Russia's Sberbank. The question cropped up at a plenary meeting of the house on Wednesday when LDPR faction leader Vladimir ZHIRINOVSKY said that, according to his information, former premier Sergei KIRIYENKO is to be appointed Sberbank chairman. ZHIRINOVSKY urged the Duma to oppose his candidacy. In connection with the LDPR leader's statement, the house instructed the Budget and Finance Committee to prepare the statement of the house that KIRIYENKO should not be given the post of Sberbank chairman since they believe he is personally responsible for the decisions of August 17th, that brought about the financial crisis in Russia.

Russian Econ. The Focus Of European Summit

· Chairman of the European Commission Jacques SANTER is expected to arrive in Moscow on a two-day visit to meet with the Russian Foreign Ministry, Prime Minister Yevgeny PRIMAKOV, and speakers of the Russian State Duma Gennady SELEZNYOV and the Federation Council Yegor STROYEV. The two sides plan to discuss a broad range of guidelines in the cooperation between Russia and the European Union to stress the importance of the strategic partnership between Russia and the European Union aimed at strengthening security and cooperation in Europe and the world as well as Russia's financial and economic difficulties. The Russian Foreign Ministry said, "the Russian side is prepared to work with the EU [European Union] over a joint program of concrete top-priority actions in the trade-economic and financial spheres which could be approved at the upcoming Russia-EU summit in Vienna." The EU delegation also includes Commission members Hans VAN DEN BROOKE, who is in charge in the EU for international affairs, Yves-Thilbaut DE SILGUY, who is responsible for the economic, financial and currency policy of the EU. Russia and the EU are both interested in the further development of the regular political dialogue and mutually-advantageous economic contacts in full compliance with the Agreement on Partnership and Cooperation between the Russian Federation and the European Union. Russia's problems will be the focus at the Central European summit which is due to open in Vienna on October

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12th. Russian President Boris YELTSIN is scheduled to meet the leaders of the EU during his visit to Vienna on October 27th and 28th. The Russian theme will also be discussed during talks between Ukrainian President Leonid KUCHMA and Austrian President Thomas KLESTIL in Vienna on October 15th and 16th.

Business

Alaska Airline Suspends Service To Russia

· Alaska Airlines today announced it has halted flights to Russia's Far East for an indefinite period. After a review of accounts, the airline discovered that the operation started losing money. Alaska Airlines, which operated a weekly flight between Anchorage and Magadan, Khabarovsk, Vladivostok, Petropavlovsk-Kamchatsky and Yuzhno-Sakhalinsk, said the Russian economic crisis has caused passenger levels to drop below sustainable levels.

Gov't May Sell Gazprom Stake

· Member of Russia's gas giant Gazprom's board Alexander SEMENYAKA said that the Russian government may sharply reduce its share in Gazprom from 40 percent to 25 percent. He noted that the remaining 25 percent is enough for the government to maintain a blocking interest and stay involved in the efficient management of the company. SEMENYAKA said, "We do not see many problems for the government if it decides to sell a 15 percent package of the company's shares." Such a package might be sold not to portfolio investors, but those companies that are interested in establishing a long-term partnership with the gas producer and have signed strategic cooperation agreements with it, he said. These companies include Italy's ENI and Royal/Dutch Shell. The sale of a 15 percent stake, which will bring in significant revenues to the federal budget, will take 18 to 24 months to implement.

Chairman of Gazprom Rem VYAKHIREV pointed out that only a 5 percent package has been decided on. "I think that the 5 percent block of shares may be sold in a month-and-a-half to two months," he said. He said that he personally believed the selling of such a block was hardly expedient. However, VYAKHIREV said everything will depend on the talks in Washington between the Russian delegation and International Monetary Fund and World Bank leadership.

European Republics

Rus-Ukraine Power Systems Separate

· The power systems of Russia and Ukraine switched from the parallel to separate working systems today, according to a spokesman for the public relations department of United Energy Systems of Russia (UES). Head of the department Andrei TRAPEZNIKOV said the division of power systems of the two countries was done at the request of Ukraine. Ukraine said that a situation arose where it was exceeding the amount of electricity agreed to in fixed accords. According to the existing agreement, the amount of electricity, transmitted from Russia to Ukraine, should be 800 megawatts. Electricity transmission reached 1,800 megawatts, however, during the past four days because of fuel shortages and the reduction of electricity generation at Ukrainian power plants. The UES official said, that the division of the power systems does not mean that they totally stop cooperation. Russia will continue to transmit electricity to the Kharkov and Sumy Regions of Ukraine. According to UES information, the power systems of the two countries worked separately from September 1997 to March 1998, because of fuel shortages at Ukrainian power plants and the exceeding of the coordinated amount of electricity reception. Another case of temporary division of the power systems took place a month and a half ago.

Estonian CB Reserves For Small Banks?

· Chairman of the Estonian Central Bank Council Mart SORG said Wednesday that the Central Bank has 2 billion kroons ($154 million) in reserves that could be lent to small banks to improve their liquidity. SORG noted that granting such a subsidy is a "political decision that may or may not happen." The Central Bank has intervened to help several commercial banks. Justice Minister Paul VARUL, who is standing in for ailing Prime Minister Mart SIIMANN said that the Central Bank's, "Decisive actions" are in line with the government's conservative economic policy, the RFE\RL Newsline reported.

Ukraine -Argentina Military Treaty Signed

· Ukrainian Defense Minister Alexander KUZMUK met with Argentina Defense Minister Jorge DOMINGUEZ to discuss military cooperation. DOMINGUEZ said that Argentina is interested in cooperating with Ukraine in training officers. He also

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hopes to build closer ties in the training and deployment of peace-keeping forces under the guidance of the UN. DOMINGUEZ noted that Ukraine's accomplishment in the production of military equipment is "remarkable." During DOMINGUEZ's visit, he also met with Ukrainian Foreign Minister Boris TARASYUK and other officials. The two nations signed a treaty on military cooperation in Kiev on Tuesday.

South Caucasus & Central Asia

Georgia-Azeri Border Bridge Opens

· Wednesday evening a ceremony was held to open the new motor bridge across the Khrami river marking the border between Georgia and Azerbaijan. The bridge was built in 14 months, with financial assistance from the European Union (EU). The EU allocated 2 million ECU for its construction. The bridge is 238 meters long and 15 meters wide. Georgian President Eduard SHEVARDNADZE said at the opening ceremony, "The new bridge will perform an exclusively transit function by connecting Georgia and Azerbaijan." Azeri President Geidar ALIYEV said, "It will also become one of the major sections of the project seeking to revive the Great Silk Way and...will allow to expand trade and economic contacts among the countries of the South Caucasus, Europe and Central Asia."

Kazakh To Hold Early Presidential Elections

· A joint session of Kazakhstan's parliament today adopted a resolution which calls for early presidential elections. New elections will take place on January 10, 1999 instead of late in December, 2000. Opposition parties and movements are expected to protest the parliament's decision. The deputies claimed the President should know whether his people supported him in the current situation of liberalizing the political system. The deputies further noted it was the President who had come up with the initiative of further democratization of society, and should therefore set a good example. Kazakh President Nursultan NAZARBAYEV approved the parliament's decision for early elections. He was

elected in 1991, and his term was extended in a referendum in 1995, which determined elections to be in 2000.

Wednesday deputies approved amendments to the constitution extending the terms in office of the Majlis, lower house, from four to five years, the Senate from five to six years, and the president from six to seven years. The Majlis size will increase by ten seats. The deputies will be elected from party tickets in accordance with the system of proportional representation and in the territory of a single national constituency. They also voted down an amendment that the president must not be older than 65 and may not serve more than two terms in office.

IMF And WB To Continue Tajik Aid

· The International Monetary Fund (IMF) and the World Bank (WB) confirmed their determination to continue to assistance to Tajikistan in carrying out its economic reforms. The Tajik presidential press service on Wednesday said that such assurances were given to the government delegation at the talks with high-ranking representatives of the IMF and the World Bank in Washington. Tajikistan was represented by Prime Minister Yakhye AZIMOV, Finance Minister Anvarsho MUZAFAROV and presidential economic adviser Gulomzhon BABAYEV. The sides discussed the implementation of the Tajik government's three-year economic program. The IMF and the World Bank have provided $340 million to support the program. The Tajik National Bank has already received the first tranches. The Tajik delegation informed the creditors about the draft budget for 1999 and the government's intention to enact a new tax code. The presidential press service said IMF and WB officials expressed satisfaction with the steps taken by the Tajik government and called for the expansion of cooperation.

The Daily Report on Russia and FSU

will not be published on Monday October 12,

in observance of Columbus Day.

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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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.

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