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, November 19, 1998

Russian Federation

Politics

Gore Presses Primakov On POW Document

· During talks on the sideline of the Asian-Pacific Economic Conference (APEC), US Vice President Albert GORE directly asked Russian Prime Minister Yevgeny PRIMAKOV for his cooperation in searching for KGB documents on US prisoners of war (POWs) which may have been taken from Korea or Vietnam to the Soviet Union for intelligence gathering purposes. PRIMAKOV agreed to look into the issue. The Pentagon's suspicions that this type of program existed were confirmed in personal papers and a book written by Russian General Dmitry VOLKOGONOV, who headed the Russian side of the joint US- Russian commission on POWs. The Washington Times reports that the document which VOLKOGONOV tried to obtain was written in the late 1960s, leading some to speculate that it could reveal the fate of some of the 2,000 Americans missing from the Vietnam War. Earlier this month US officials interviewed retired KGB Chairman Vladimir SEMICHASTNY, who was named by VOLKOGONOV as the signer of the document. SEMICHASTNY denied that such a document existed, but conceded that using captured Americans may have been discussed. Conflicting statements from Russian intelligence officials regarding the document may prove telling. During a plenary session of the commission, Russian officials first said that the document does not exist, then said that it is classified and will never be released. The Pentagon has said obtaining the document is one of the highest priorities for the office responsible for resolving POW and missing in action (MIA) cases.

Region Calls For More Financial Independence

· The Republic of Kalmykia's President Kirsan ILUYMZHINOV on ORT Televsion's program Vremya

on Tuesday night said that Kalmykia is considering seceding from the Russian Federation, sparking a series of top level meetings and investigations. He said the Russian Finance Ministry over recent months has been leaving Kalmykia out of federal funding, depriving it of money. Kalmykia contributes $200 million annually to the federal budget in taxes. ILUYMZHINOV said that the region is, "ready to become an associated member of the Russian Federation, without violating territorial integrity of Russia, staying within the borders of the Russian Federation." President Boris YELTSIN, taking the statements very seriously, has ordered Russian Security Council Secretary Nikolai BORDYUZHA to convene the Security Council over ILYUMZHINOV's statement. The Security Council after its meeting will submit to YELTSIN measures to ensure compliance with the Russian Constitution. Justice Minister Pavel KRASHENINNIKOV declared the statements as unconstitutional. Meanwhile, Duma speaker Gennady SELEZNYOV has suggested that ILYUMZHINOV be questioned at Matrosskaya Tishina or Lefortovo prisons. Today, it appears that the statement was more a desperate call for federal funds, rather than the seeds of an open rebellion. The President of Kalmykia said that his remarks were only meant to dramatize the plight of his region, not as an official statement. He suggested that a commission be created to sort out inter-budgetary relations between regions and Moscow. "Since we live in a market eco-nomy, regions should be given more economic powers and then

Today's News Highlights

Russia

FSB: Hit men To The Kremlin

Russia Without Budget In 1999

Occidential Pulls Out Of Komi

European Republics

Nationalize Bank Ukraina?

NATO To Consider Lithuania?

South Caucasus & Central Asia

Finance Minister Onoprishvili

New Krabakh Peace Plan?

Turkmen-Turkey Pipeline Study

Politics-Economics-Business

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Thursday

November 19, 1998

Intercon's Daily

all problems will get solved." The Duma commissioned SELEZNYOV to hold consultations with the Russian Prosecutor-General about possible federal measures to avert public secessionist statements in the future. Presidential press secretary Dmitry YAKUSHKIN said, "In the current difficult socioeconomic situation, such statements threaten to destabilize the country's political stability." Comment: ILYUMZHINOV's threat of secession, although now slightly retracted, shows that regions are considering independence from Russia. It underlies that internal forces are pulling Russia apart.

FSB: Hit Men To The Kremlin

· Business tycoon and Executive Secretary of the Commonwealth of Independent States Boris BEREZOVSKY has declared that the Federal Security Service (FSB) is infiltrated with criminals. This week three FSB agents revealed that they were ordered to kill BEREZOVSKY, which has ruined what little faith Russians had in the FSB. Their statements have fueled scandalous accusations that the FSB acts as a hit squad with plans to extort and kidnap top businessmen. Each night this week on Russian television after the news, a small clip of an April interview with these three agents is shown. The tape was made this Spring and held from release because the agents feared for their lives. They decided that if anything happened to them it would immediately be released. The officers have now come forward with their story because of an attempt on a fellow officer's life. They blame former FSB chief Nikolai KOVALYOV for ordering this attempt. Apparently, this officer challenged KOVALYOV on some issues and he ordered them to get rid of him. When asked how, KOVALYOV ordered them to kill him. They describe a plan of how FSB agents were to stop him, pretending to be traffic police, drag him out of the car and beat him to death. Tomorrow's segment of the tape will reveal the outcome of this plan. The three agents also describe an FSB botched scheme to get rid of a co-director of the Radisson Hotel in Moscow, which resulted in assassination of American Paul TATUM in 1996, also a co-owner of the Radisson Hotel. The original order was to kidnap the Chechen and exchange him for two Russian security officers held hostage in Chechnya. But the kidnapping plan failed and the order came down to kill him. It is unclear how the Chechen escaped alive and TATUM was hit. Further details will be released

tomorrow on how the FSB planned to hire an American hit man to kill the Chechen, drawing attention to America and away from the domestic police.

Conveniently timed with the denouncement of the FSB by the three officers, the Prosecutor General stated that they have sufficient proof to charge an FSB officer of the Alfa Group with the death of a prominent businesswoman this fall. The murder, which happened on October 25, was investigated at the time and the officer caught. He has been in prison, but only now the Prosecutor General says he has enough proof that he is the killer. This scandalous soap-opera like story is devastating to the FSB. Paul FELGENHAUER, a defense and security expert says that this scandal is, "mostly an indicator of how this organization, the former KGB has become very downgraded."

Economy

Ruble = 16.98/$1.00 (NY rate)

Ruble = 17.2/$1.00 (CB rate)

Russia To Operate Without Budget In 1999?

· Russian State Duma's speaker Gennady SELEZNYOV warns that Russia could be operating without a budget in the first quarter of 1999. He emphasized that absence of the 1999 draft budget at the State Duma, "makes most deputies nervous." SELEZNYOV believes that once a draft budget is presented in the Duma it will take at least three months for it to be studied. "Three months are the minimum number of days, necessary for the budget's debate." The budget must be debated in four readings. Deputies have also requested that they receive a copy of the Russia President's address to the Federal Assembly before it approves a budget. He explains that they want, "the President's proposals to be reflected in the 1999 budget and to influence its examination." However, the chances of receiving this address before the new year is slim.

Uneximbank To Proposed Debt Plan

· On November 24th, one of Russia's largest, Uneximbank, plans to propose a restructuring plan for nearly $2 billion in debts to its creditors in London. Uneximbank has shifted its assets to a new institution called Rossbank. The new bank is expected to be the underwriter of Uneximbank's rescheduled debts. Rossbank has also received assets from

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Mostbank and Menatep, the Financial Times reported. Central Bank chairman Viktor GERASHCHENKO said that the government and Central Bank will work to save SBS-Agro, Menatep, Mostbank, and Vneshtorgbank. He also said that Sberbank the state's saving bank will not be allowed to collapse. Although it is expected that 720 of the nation's 1,500 banks will be closed, GERASHCHENKO predicts that it could be many months before any are shutdown. Inkombank has already had its license to operate revoked. Others may be forced to close as western credit banks litigate for remaining assets to pay debts. Alfa Bank may be the first bank to be sued for not paying its debts following the 90-day moratorium. A senior official with the international bank ING Barings said that Alfa Bank is one of the first banks on their list of debtors with more than $170 million in arrears.

Business

Rosvooruzhenie-India To Sign New Contract

· A delegation from the Russian state-owned arms dealer Rosvooruzhenie is scheduled to arrive in New Delhi to sign a new contract for the delivery of 10 multi-purpose jets of the SU-30 class to India. The new contract confirms details worked out by the Rus-Indian working group for military- technical cooperation in Moscow earlier this month. The signing of the contract will bring the total number of jets of this kind delivered to New Delhi to 50, including 40 jets which are being delivered to India in accordance with the first agreement signed in Irkutsk two years ago. The first batch of eight Russia-made jets was delivered to India by May, 1997 and these jets have already been in service by the Indian Air Force. The rest of the jets of the SU-30 MKI modification will be delivered to India by the year 2002.

First Deputy Prime Minister Yuri MASLYUKOV Wednesday proposed that the leadership of Rosvooruzhenie company be replaced. "The Rosvooruzhenie leadership works insufficiently. Economic indicators by the results of operation for the 10 months are 40 percent below the plan. Therefore, I believe that the leadership should be reinforced...I made an appropriate proposal on this issue: to sack the chief and to find an aggressive and business-like man for his post," MASLYUKOV stated. Yevgeny ANANYEV is now Rosvooruzhenie manag

ing director. ANANYEV, appointed in August, 1997, has been criticized for shrinking Russia's share in world arms sales.

WestLB Reveals Exposure To Russia

· Germany's largest public sector bank, Westdeutche Landesbank on Tuesday announced substantial risk provisions to cover its exposure to Russia. WestLB said that for the first nine months of 1998, its risk provisions of 293.4 million deutche marks ($176 million) covered 70 percent of its total unsecured exposure to Russia of 1.8 billion deutche marks, with restructured loans and securities holdings have been valued at secondary market prices, the Financial Times reported. Despite WestLB's problems in Russia, it expects its 1998 results to be at least as high as 1997. Operating profits in 1997, after provisions, amounted to 1.28 billion deutche marks.

Occidental Petroleum Pulls Out Of Komi

· Komi Deputy Industry, Trade and Communications Minister Valery GEDEEK Wednesday said that the US Occidental Petroleum has decided to quit the oil business in the Komi republic. He said Occidental Petroleum decided to pull out despite the fact that the joint venture with Russia's Parmaneft and Ukhtaneftegazgeologiya has struck an oil field in the Pechora region and tapped an initial 3,000 tons of oil. The venture is preparing launches of three other oil fields: Yuzhnolyzhskoye, Segaveiskoye and Yuzhnoterekhveiskoye. The US company plans to sell 75 percent of its stocks to the Komi republic through its Property Ministry. A 25 percent stake remains with Ukhtaneftegazgeologiya.

European Republics

Nationalization Of Bank Ukraina?

· Ukrainian President Leonid KUCHMA today said that Bank Ukraina should be nationalized and turned into an agricultural mortgage bank. He said, "There is a need for financial recovery of Bank Ukraina and its nationalization and transformation into an agricultural mortgage bank...Today's financial situation of the bank demands an urgent decision which should be adopted as a separate law." Bank Ukraina was formerly part o the Soviet Union's Agroprombank. The bank serves 290,000 companies and 1.4 million private individuals. KUCHMA also noted that the national Oshchadny savings bank needs to improve its financial situation.

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Thursday

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NATO To Consider Lithuania?

· Former US national Security advisor to President Jimmy CARTER, Zbigniew BRZEZINSKI today said that NATO should consider admitting Lithuania to the Alliance. He said, "There would be some merit in considering Lithuania. Considering all three Baltic States would be premature," Reuters reported. He added that," Lithuania is less problematic at this stage than the other two." BRZEZINSKI noted that Lithuania seems close to meeting NATO membership criteria. These include a well functioning democracy, a free-market system, the absence of civilian conflict, civilian control of the military, and spending money on defense. He suggested that it may be appropriate to draw up a NATO-Baltic charter similar to the US-Baltic charter, which is a partnership pact short of security guarantees. "A NATO-Baltic charter could be a positive development which doesn't prejudge the question of whether the Baltic States will be members of NATO."

South Caucasus & Central Asia

Onoprishvili Offers Unpopular Measures

· Georgian President Eduard SHEVARDNADZE's candidate to replace Finance Minister Mikhail CHKUASELI, who resigned last week, was approved by the Georgian parliament. In a vote of 142 to three with no abstentions, David ONOPRISHVILI was appointed Finance Minister. He previously headed the parliament's committee for economic reforms and was once a World Bank official. ONOPRISHVILI, an economist and graduate of Columbia University, realizes that he faces an monumental task of turning around Georgia's economy. Georgia's revenue short fall has led to wage and pension arrears. It has drained the foreign currency reserves to dangerously low levels from $140 million to $80 million, risking the stability of the lari currency. The Georgian Central Bank has been using foreign reserves to cushion the fall of the lari. ONOPRISHVILI said, "I think I will be an unpopular minister, both for parliament and for the ministers." He added that,

"after we take some measures, we will achieve results." He plans to slash ministry staff, postpone some spending slated for 1998 to 1999 and other austerity measures for the 1998 budget of 938.8 million lari ($652 million).

New Karabakh Peace Proposal

· The OSCE Minsk Group has developed a new peace proposal that maybe an impetus to further negotiations between Armenia and Azerbaijan. Armenian and Karabakh officials are optimistic. The proposal aims to resolve the contradiction between Baku that any peace plan must preserve its territorial integrity and Stepanakert's and Yerevan's rejection of any kind of "vertical" subordination of Karabakh to the Azeri government, RFE\RL Newsline reported. The new plan advocates that the unrecognized Nagorno-Karabakh enclave an Azerbaijan form a "common state." This term is unclear, but avoids the use of the word "autonomy" which Armenia rejects. The new plan also calls for all issues to be resolved within a single framework. It is not clear what kind of security guarantees are provided for Karabakh's inhabitants, the Lachin corridor, and whether Karabakh will be able to retain its efficient and professional army. Armenian officials say that the new plan offers a more realistic assessment of the situation than the phase plan rejected last year. The Azeri side said the new initiative needs to be fully studied before an official statement can be released.

Turkmen-Turkey Pipeline Preliminary Study

· US gas and power company Enron has completed a preliminary feasibility study on the construction of a gas pipeline from Turkmenistan to Turkey. The study estimated that the 1,700 kilometer pipeline will cost $2.5 billion and will take up to three years to complete. The pipeline will cross the Caspian Sea to Azerbaijan and Georgia before reaching Turkey. From Azerbaijan it is expected to run parallel to the proposed Baku-Tblisi-Ceyhan oil pipeline. Enron spokeswoman Joan WAYLIK said, "The study, schedule to be finalized in early 1999, shows encouraging initial results."

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

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