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, November 23, 1998

has not received any special instructions on whether he will be called to stand in for the President if he becomes incapacitated. Today, YELTSIN's press secretary said that the President had been hospitalized for psychological and emotional stress regarding the shocking murder of deputy Galina STAROVOITOVA.

Democracy Defender Starovoitova Murdered

· Late Friday evening, two people assassinated human rights advocate and leader of the Democratic Russia Party Galina STAROVOITOVA , as she was climbing the stairs to her home along the Griboyedov Canal in St. Petersburg. The assassins used machine guns and a pistol with a silencer to brutally murder her and critically injure her aide Ruslan LINKOV, who was able to telephone in the crime. While murders of top businessmen and governmental officials in a contract killing format are not unusual in St. Petersburg, the death of the most prominent and popular woman in politics has come as a shock to those who supported her causes and worked with her. STAROVOITOVA's death has overshadowed the Sino-Russian summit and plans to turn around Russia's economic problems. Russian President Boris YELTSIN, condemning the murder, declared he will personally oversee the investigation under the terrorism statute. STAROVOITOVA is the sixth deputy of the Russian State Duma to be killed since 1993, but she is the first high level woman to be assassinated. She has been described as a sharp-tongued grandmother who was involved in the pro-democ

Russian Federation

Politics

Sino-Russian Summit Held In The Hospital

· Russian President Boris YELTSIN and Chinese President JIANG Zemin held a "no necktie" summit today in the Central Clinical Hospital of Moscow, where Yeltsin was hospitalized because of pneumonia and a high temperature. For just forty minutes the two leaders exchanged views on bilateral relations and international issues. JIANG and YELTSIN signed two documents: the Russian-Chinese political statement and the statement on the completion of the demarcation on the Western sector of the state border. The political statement analyzes the development of bilateral relations, sets forth various approaches to evaluate international situations, and outlines ways to boost relations in the next century. They stressed that the stance of Russia and China on the key problems of world politics were absolutely identical. The border statement expressed satisfaction in the September 1994 agreement and that the fieldwork of demarcation in the western part of their border has been finished. The two countries agreed that the smooth settlement of the border issue on the basis of equal consultation and mutual understanding will help preserve peace and harmony in the border areas and make important contributions to the reinforcement of regional security and stability. With the total amount of trade between the two countries expected to fall below the $6.12 billion registered last year, the sides are expected to propose the promotion of trade in the border areas.

JIANG then met with top government officials in the Kremlin including, Prime Minister Yevgeny PRIMAKOV and Russian State Duma speaker Gennady SELEZNYOV. It is possible that YELTSIN may remain in the hospital for at least eight to ten days to recover from pneumonia. PRIMAKOV noted that he

Today's News Highlights

Russia

New Banking Agency

Conspiracy Against Media?

LUKoil To Pay All Debts

European Republics

Lithuania's State Debt Grows

South Caucasus & Central Asia

Georgia-Armenia Boost Ties

Azeri Rejects New Peace Plan

Kyrgyz Defense Min. In Moscow

Politics-Economics-Business

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November 23, 1998

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racy movement during the last few years of Soviet rule alongside of human rights campaigner Andrei SAKHAROV. Liberal leaders say her death should be a new call for unity. Former deputy prime minister Boris NEMTSOV said, "How many more honest, decent Russians have to be killed before democrats understand that only by sticking together can they achieve something in power and ensure that Russia becomes a safe country," and not a land of bandits and gangsters.

STAROVOITOVA had hoped to lead a liberal challenge in the upcoming elections in the Leningrad region outside of St. Petersburg against the Communist governor Vladimir YAKOVLEV. STAROVOITOVA spoke out against the Communist party last month after it failed to censure Albert MAKASHOV's anti-semitic remarks. Former deputy prime minister Anatoly CHUBAIS said, "Whose path did she cross? The answer is simple: Communists and gangsters," the Associated Press reported. His comments allude to who may be behind the murder. Her colleagues without any evidence have declared that her Communists enemies are behind the murder. Viktor KRIVULIN, head of the St. Petersburg branch of Democratic Russia noted that she intended to present at the Duma's next session a report on contract killings traceable to Duma speaker Gennady SELEZNYOV, Communist Party Leader Gennady ZUGANOV, RFE/RL Newsline reported. Interior Minister Sergei STEPASHIN in a news conference stated there is no evidence that SELEZNYOV was involved in the slaying.

STAROVOITOVA prior to her assassination had received many threats. In fact, two months ago LINKOV entered the office late one night to find two individuals trying to affix a listening device to the government communication line. The aide confronted the man and woman team and there was a struggle in which the man escaped, but the woman was held. She told him to let her go and call the Federal Secret Service (FSB). He called the FSB and launched a formal complaint, which was never followed up. This may prove in some indirect way that the FSB was involved in trying to monitor STAROVOITOVA's telephone conversations. Nothing became of complaint; it was just ignored.

Preliminary reports say that the couple who killed STAROVOITOVA was a man and woman team.

Ruslan LINKOV, the aide who was shot twice in the head and throat, regained consciousness today and is giving testimony. Doctors say he is lucid. His ward at St. Petersburg Military-Medical Academy is under heavy guard. LINKOV may be able to provide more details on the assailants. Mourners are bringing flowers, candles, and other tributes to STARO-VOITOVA to the site of the murder. The doors to her home and surrounding area have been sealed off.

Economy

Ruble = 16.96/$1.00 (NY rate)

Ruble = 17.17/$1.00 (CB rate)

Ruble = 16.95|17.45/$1.00 (buy|sell rates)

Bank Restructuring Agency Formed

· Prime Minister Yevgeny PRIMAKOV on Friday signed a decree establishing The Agency for Restructuring of Credit Organization responsible for "restoring and efficiently developing the banking system." The organization will be a non-bank credit agency in the form of a closed joint-stock company with authorized capital of 10 billion rubles ($590 million). The Russian federal Property Fund will hold 51 percent of the shares and the Central Bank 49 percent. The Central Bank will register the agency by December 1st and will issue it a license to operate as a non-banking credit agency. The Finance and Economics Ministry will jointly redistribute unspent loans from the European Bank for Reconstruction and Development and the World Bank to finance the restructuring. The Central Bank says it will spend 54 billion rubles ($3.2 billion) to save the country's most essential banks. Government experts estimate that in order to save the entire banking system the nation needs to spend 150 billion rubles ($9.37 billion).

No Budget Plan Reached After Four Hour Mtg

· After four hours spent reviewing three versions of the 1999 budget, Russian top officials and ministers rejected all three on Saturday. Ministers called for more revisions, including changes on external debt servicing and tax reforms. Economics Minister Andrei SHAPOVALYANTS simply put it, "More work is needed." Government officials say they may not be able to adopt a budget until it is determined whether foreign creditors can be persuaded to restructure a portion of $17 billion in debt payments due in 1999. "Only when we know how much we will have to pay on our external debts will we be able to set our fiscal

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policy," SHAPOVALYANTS said. The three budget versions put the disparity between revenues and spending at $9 billion, $16 billion or $21 billion. The first two versions envision some aid from international lenders, while the third does not. Russian State Duma speaker Gennady SELEZNYOV say that deputies may need three months to approve the budget even if it is ready by December 1st. The International Monetary Fund (IMF) has said that a realistic budget is a pre-condition for the release of the second installment of the $22.6 billion aid package. In addition to the budget, the IMF insists on a comprehensive plan to combat the economic crisis and signs that it has been implemented.

Russia Attempts To Restructure Soviet Debt

· The Russian government on Friday released a statement clarifying its foreign debt obligations and its ability to meet them. The statement promised payment on Eurobonds and other borrowing assumed since the Soviet Union's collapse, but said it will seek to restructure for a second time debt inherited from the Soviet-era. Deputy Finance Minister Mikhail KASYANOV said restructuring talks could begin this week with the London Club, holding $30 billion in Soviet debt. Russia also hopes to have similar talks with the Paris Club, which is owed $38 billion. KASYANOV has said that the government can pay only $10 billion of the $17 billion foreign debt payments due in 1999. Of that amount only about $7 billion is owed to the Paris and London Clubs, while $5 billion is owed to the International Monetary Fund (IMF) and the World Bank. First Deputy Prime Minister Yuri MASLYUKOV has said that Russia will request new terms on payments due to the IMF. An IMF mission arrived in Moscow last week to hold meetings with top officials. However, it is unlikely that the visit will unlock the frozen $22.6 billion loan package. Charles BLITZER of Donaldson, Lufkin & Jenthey said, "There is no way they are going to receive any substantial money from the West until they lay down a track record on being able to deliver on a clear and responsible policy," The Wall Street Journal reported.

Business

Conspiracy Against The Media?

· Last week acting on a court order, prosecutor deputies burst into the ORT Television station seizing its assets, taking an inventory in case assets

needed to be sold to settle debts, and totally disrupting media production of the day's news. Meanwhile, over at Ekho Moskvy the fire department was delivering a health warrant informing the radio station that it could be shut down for sanitary violations. ORT's news director Sergei DORENKO said, "It can't be anything but political." Eko Moskvy's chief director Aleksei VENEDIKTOV said, "At first I thought it was just one of the usual problems, only more so. But compare it to what's happening to ORT, and it looks like an attempt to settle accounts with the mass media." He added, "I think the Russian authorities do not like the press in general. The whole political elite is getting ready for elections and looking for levers of power they can control," the Baltimore Sun reported. VENEDIKTOV said, "Perhaps we can satisfy the fire inspectors. But there's no guarantee we won't be visited by the sanitary inspectors, and that they won't find cockroaches and seal the building up." Both news ogranizations had been airing information on the whistle-blowing agents, who say that the Federal Secret Security (FSB) ordered them to kill prominent businessmen.

LUKoil Pledges To Pay Its Debts

· Russia's largest oil producer LUKoil has decided to honor its debts, despite the financial crisis which has made it difficult for oil companies to get loans. LUKoil vice president Leonid FEDOUN said that it is working out a policy for dealing with investors. He said that paying off the debts, "will not be simple to do. Indeed, after the moratorium was announced, creditors made demands, despite the fact that it applied to banks, to hasten the process of returning credits." FEDOUN said he had talks with several companies at which their strategic alliances with LUKoil were confirmed, in particular by the United States' oil company Arco. Tyumen Oil Company's vice president Alan BIGMAN said that Russia's 90-day debt moratorium did not apply to the company because it did not have unsecure debts to Western banks. BIGMAN hailed LUKoil's decision to pay off its debts, saying it would positively reflect on Russia's oil industry.

Sakhalin Awards Lyden With Logistics Contract

· Houston-based Sakhalin Energy Investment Co., a joint venture formed by several multinational oil companies, has awarded a contract for logistical services to Lyden International, a division of Lyden

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Air Freight. Lyden will support the company's oil exploration and production efforts in the Russian Far East by providing materials management through air and sea shipping of oilfield supplies. These supplies include construction materials and household goods for Sakhalin Energy employees. Lyden's offices in Khabarovsk and Yuzhno Sakhalinsk offices will coordinate the transport of cargo onto the island from locations world wide.

Georgia offered to act as an intermediary in Armenia's conflict with Azerbaijan, if it is requested or needed.

Azerbaijan Rejects New Karabakh Peace Plan

· Azeri Foreign Minister Tofik ZULFUGAROV told the OSCE Minsk Group that his nation cannot accept the concept of a "common state" comprising the Azeri republic and the unrecognized Nagorno-Karabakh region. He noted that Baku is prepared to resume peace negotiations on the basis of the 1997 proposal by the Minsk Group. Karabakh has rejected the 1997 proposal and then Armenian President Levon TER-PETROSYAN under pressure was forced to resign for his support of it. OSCE hopes that some of the new plan can be salvaged. Later this week, Polish Foreign Minister and OSCE chairman Bronislaw GEREMEK will meet in Baku with Azeri President Geidar ALIYEV. GEREMEK urged all three conflict parties, "to demonstrate the political will to negotiate and compromise in the interests of achieving a mutually acceptable resolution of the conflict," RFE/RL Newsline reported.

Kyrgyz Defense Min. Visits Moscow

· Kyrgyz Defense Minister Myrzakan SUBANOV arrived in Moscow on Sunday as part of an official visit. Today, SUBANOV and Russian Defense Minister Igor SERGEYEV are holding talks focusing on issues of strategic partnership. The ministers will discuss a wide range of issues of strategic partnership in the military field to ensure mutual security. They also plan to discuss the state of and prospects for bilateral military and technical cooperation, to sign a protocol and to approve a plan of military cooperation for 1999. The Russian and Kyrgyz sides plan to coordinate military service in the Russian Armed Forces of Russian citizens living in Kyrgyzstan and on military service in the Kyrgyz Armed Forces of Kyrgyz citizens living in Russia. Meanwhile, Kyrgyz President Askar AKAYEV is meeting Czech counterpart Vaclav HAVEL in Prague. The two sides aim to develop trade and economic cooperation and exchange experience in political and economic reforms.

European Republics

Lithuanian State Debt Grows

· Lithuania's State Statistics Service said that the nation's state debt grew by $133.9 million in the first nine months of 1998. As of October 1st the state debt amounted to $419 per capita, an increase per capita of $38 since January 1997. Before October, foreign lending institutions gave Lithuania 284 loans totaling $2,749,085,000. Approximately 48 percent of the loans were geared toward improving financial investment projects, 21.3 percent to cover the budget deficit, and 17 percent to stabilize the national currency, gryvnias.

South Caucasus & Central Asia

Georgia-Armenia Strengthen Ties

· Georgian President Eduard SHEVARDNADZE and Armenian President Robert KOCHARYAN pledged to boost economic and political ties on Friday in Tblisi. SHEVARDNADZE said, "For the first time [we] are about to realize joint projects, both on the regional level and in the framework of international organizations. KOCHARYAN described the talks as "permanent, continuous, and quite fruitful." The Armenian President also met with State Minister Vazha LORDKIPANIDZE and parliament speaker Zurab ZHAVANIA. The two sides signed documents on the development of their bilateral cooperation. ZHAVANIA said that the two countries should create a common economic space and that their parliaments should coordinate investment legislation.

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

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