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, November 24, 1998

Russian Federation

Politics

Starovoitova's Memory Disrupted By Activities

· Russia's most prominent female lawmaker, Galina STAROVOITOVA was buried today alongside of Russia's greatest national heroes at the Alexander Nevsky Monastery, after funeral services which were held in the marble hall of St. Petersburg's Ethnography Museum. Huge crowds of followers filled the area surrounding the museum for a final farewell and a chance to pay their respects to the open casket. Among the speakers at the funeral were former prime ministers Viktor CHERNOMYRDIN and Sergei KIRIYENKO, deputy chief of the presidential staff Yuri YAROV, and former deputy prime ministers Anatoly CHUBAIS, Boris NEMTSOV. YAROV said, "The shooting in St. Petersburg is a grim lesson for the whole of Russia. Irrespective of real motives for that murder, a crime of this magnitude is a political act, and society should know the truth about it." CHUBAIS said, "To stop us, they want to scare us. They will never succeed. We will fulfill the goals she sacrificed her life for." The pictures of the funeral and tributes to this fighter for democratic reforms were covered in all forms of media. The television channel One carried all day coverage of the event. Throughout Russia there were small gatherings for citizens to pay their respects, but turnout was very low.

Also in St. Petersburg, a radical communist organization was launched in memory of Lavrenty BERIA, called The Working People's Front. BERIA, the henchmen of Soviet dictator Joseph STALIN, headed the NKVD secret police. The Working People's Front said it had intentionally announced its formation plans on the day of the funeral of STAROVOITOVA. The organization noted that BERIA, "was especially industrious when purging the USSR of persons such as STAROVOITOVA."

Meanwhile, an anti-Semitic demonstration was granted permission to protest outside the Russian parliament in Moscow. About two to three dozen supporters of the Black Hundred extremist group carried signs and shouted slogans such as "Down with the Jews" and "Kill the Jews." Their protests violate laws in Russia against discrimination and racists remarks. However, earlier this month the Russian State Duma was unable to pass a vote censuring deputy Albert MAKASHOV for anti-Semitic remarks in October.

CIA Russian Corruption Reports Rejected

· The New York Times reported Monday that US Vice President Albert GORE and the CLINTON Administration rejected Central Intelligence Agency (CIA) reports in 1995, which provided evidence of personal corruption of then Russian prime minister Viktor CHERNOMYRDIN and Anatoly CHUBAIS. It appeared to the CIA that the Vice President did not want to hear corruption allegations of his Russian counterpart. The newspaper reported that, "The incident has fostered a perception in the agency's ranks that the Administration is dismissive of "inconvenient" intelligence about corruption among the Russian leaders with whom the White House and State Department officials have developed close personal relationships." As a result the article said that the CIA has become more selective about distributing its information. The Administration says that it could not let allegations and rumors impede working with the Russian leadership on a range of issues

Today's News Highlights

Russia

1999 Budget By Dec 1st?

Uneximbank Begins Negotiations

US Anti-Dumping Decision

European Republics

Estonian-Solvenian Summit

Baltic Bank Stakes For Sale

Rus-Ukraine Reduce Fares

South Caucasus & Central Asia

Tevsadze-Sergeyev Meet

Seleznyov Visits Turkmenistan

Politics-Economics-Business

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Tuesday

November 24, 1998

Intercon's Daily

from curbing nuclear weapons to increasing US-Russian trade. They also say that the CIA never submitted enough concrete evidence to prompt them to distance themselves from CHERNOMYRDIN, CHUBAIS, and other top Russian officials. CHERNOMYRDIN was unavailable for comment. CHUBAIS' spokesman Andrei TRAPEZNIKOV complained that if the CIA had evidence against CHUBAIS, they should formally present it. GORE said he would not comment on top-secret documents, but his staffers noted there is a close relationship between GORE and the CIA. Today, CIA spokesman Bill HARLOW said, "The notion that we pull any of our punches is simple wrong. We call them as we see them. The Vice President is one of our most ardent consumers of intelligence. He asks a lot of questions and he demonstrated an in-depth interest in a variety of topics," the Associated Press reported.

Atomic Energy Minister To Inspect Bushehr

· Russian Atomic Energy Minister Yevgeny ADAMOV is in Iran on a four-day official visit to inspect progress at the Bushehr Nuclear Plant. ADAMOV is accompanied by the head of Russia's oversight agency for nuclear safety Yuri VISHNEVSKY, deputy nuclear power minister Yevgeny RESHETNIKOV, chairmen of the State Duma's committees Vladimir GUSEV and Anatoly LUKYANOV, and other officials and businessmen. The Bushehr plant is being constructed with Russian assistance. Tehran has been encouraging Russia to speed up production. Russia has reiterated its determination to fulfill its commitment to complete the plant. The US and Israel object to the Bushehr plant saying that it is capable of producing nuclear weapons, but Russia insists it can only be used for civilian purposes. Iranian officials have declared that its nuclear program is focused on peaceful use of nuclear energy and not building nuclear weapons. To prove their point, Iranian officials have invited experts from the International Atomic Energy Agency to inspect the Bushehr plant. ADAMOV said, "Russian-Iranian cooperation in the area of nuclear power engineering is focused around the construction of a nuclear plant in Bushehr, but we would not like it to be confined by only one facility, we are interested in the further broadening of ties." He and the head of Iran's Atomic Energy Organization Mohammed AGHAZADEH signed an agreement to complete the Bushehr plant and conduct a feasibility study over

the next three months for a second plant.

Economy

Ruble = 17.17/$1.00 (NY rate)

Ruble = 17.17/$1.00 (CB rate)

Ruble = 17.20|17.73/$1.00 (buy|sell rates)

Budget: Key To Recovery Or Disaster?

· First Deputy Prime Minister Yuri MASLYUKOV today said that the government hopes to submit the 1999 Federal Budget to the Russian State Duma by December 1st, but noted it could be delayed until December 7th. He said, "We won't present the budget unfinished. It should be completed." With the Russian President too ill to assist in Cabinet debates over the aims of the budget and its policies to pull the nation out of its financial and economic crisis, it appears that the government may be operating without a budget in 1999. The International Monetary Fund (IMF) mission visiting Russia has said that the government's tax collection plans are not strict enough. The Fund also believes that the government's support for the domestic industry will not lead to improved output or an increase in profits that would better the lives of its citizens. The IMF insists that the government take a more proactive stance on tax collections. MASLYUKOV says, "We agree with this, but three are limits to what is possible." He added that, "The discussions still haven't finished, and no agreements have been reached. They are studying us and we them."

According to the European Bank for Reconstruction and Development 1998 Transition Report, the gap between countries of Central and Eastern Europe and most former Soviet republics is widening. The gap increased as the Russian and Asian crisis affected countries differently. The report notes that, "Countries which have balanced privatization, liberalization with deep institutional reforms have been more resilient to recent global pressures." EBRD chief economist Nick STERN said, "The striking contrasts in the region show that stability and growth require markets with competition and financial discipline and private ownership with effective corporate governance and the rule of law." Comment: If Russia fails again to adopt and implement budgetary and market reforms, continues to dangerously ignore its power vacuum, and cannot support necessary restructure of the banking system, it appears to

When you need to know it as it happens

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be doomed to declines in gross domestic product, increasing budget deficits, a "state of emergency" without any rule of law, and a continued break down in its cycle of payments due to its devalued currency and frozen banking system.

Russian-Foreign Banks Continue Talks

· Russia and the Western club of privately owned creditor banks have reached agreement in principle on the terms of the restructuring $10 billion in Russia's debts on Treasury bills and federal loan bonds. At least one more round of talks will be needed to finalize and coordinate the terms. In a joint statement, Russia's Finance Ministry and Germany's Deutsche Bank, representing six foreign banks, said that the agreements reached apply to the mechanism of convertibility of ruble profits made by Western investors into dollars and repatriation of the converted funds to the west. Foreign Banks will get a 10 percent cash payment in rubles, 20 percent in non coupon securities tradable for tax debts or stakes in Russian banks and 70 percent in interest-bearing, ruble-denominated securities. Head of the Russian delegation to the talks Deputy Finance Minister Mikhail KASYANOV declared that, "the sides managed to reach progress, which is an ideal variant." The two sides have not decided on when the ruble payments can be repatriated. The Russians want creditors to wait at least a year to convert rubles to dollars, while the foreigners want to convert sooner.

Uneximbank Starts Debt Negotiations

· One of Russia's largest banks, Uneximbank, has started first round of talks in London with the committee of Western creditors on the restructuring of Uneximbank's debt. Uneximbank is seeking to revise the terms an change the payment schedule of the $2 billion debt. The Russian bank amassed numerous currency forward contracts, which weighed down its finances after the ruble depreciation in August. On November 12th, Uneximbank formed a committee to negotiate with creditors.

Business

Preliminary Decision On Steel Dumping

· The US Commerce Department issued a preliminary decision that imports of hot-rolled steel from Russia and Japan create critical circumstances on the US market. This projectionist decision means

that "punitive" tariffs, having a retroactive force, can be imposed on Russian exporters and that access to the US market for Russian hot-rolled steel will be fully blocked. This decision is in response to an anti-dumping investigation launched by a group of US steel companies and trade unions on September 30th against competitors from Brazil, Russia and Japan. Evidence against Brazil was deemed insufficiently convincing. Another decision by the Department of Commerce will be released in mid-February. A lawyer representing the American steel lobby said, "We suppose that import from those two countries will virtually come to an end," if retroactive tariffs are imposed. The Russian side flatly rejects dumping accusations and tries to defend positions of its exporters to the US market. According to information from the Russian Iron and Steel Trade Union, imposition by the US of punitive duties will entail a loss of 10,000 jobs at the Cherepovets, Novolipetsk and Magnitogorsk iron and steel mills.

Ericsson-Tomsk TurnKey Request

· Swedish telecommunications company Telefon Ecrisson today said that it has received a request from the Russian telecom operator Tomsk Cellular for a turnkey Global System for Mobile (GSM) network. The network will initially cover Tomsk, with a capacity for 3,000 subscribers. Then it will expand from Tomsk to its surrounding area and serve up to 7,000 users. The GSM network will enable services such as multiparty, closed user group, call waiting, and call hold. Ericsson is the market leader in GSM, with nearly half of the world's 120 million subscribers connected to its systems.

European Republics

Estonian-Slovenian Summit

· Today, President Milan KUCAN of Slovenia arrived in Estonia to hold talks on defense cooperation. During the visit KUCAN is to meet with Estonian President Lennart MERI, Prime Minister Mart SIIMANN and parliamentary speaker Toomas SAVI. The sides will discuss issues of Estonian-Slovenian cooperation and problems of security in Europe.

SE Banken To Buy Baltic Bank Stakes

· Last week, Sweden's Skandinaviska Enskilda Banken announced that it will buy stakes in two leading Baltic banks, Uhisbank and Unibanka and is negotiating with Vilniaus Bank. Trade shares in

When you need to know it as it happens

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Estonia's second-largest bank, Uhisbank rose after SE Banken said it planned to purchase a 32 percent stake. SE Bank will pay Ekr40 per share for 15 million Uhisbank shares to add to the 6 million it already holds. In Riga, Unibanka's stock rose about 10 percent, following SE Banken's bid for a 36 percent stake in the second-biggest Latvian bank. SE Banken's negotiations with Vilniaus Bank for a strategic investment, prompted Vilniaus' stocks to rise 30 percent. The Financial Times reported that Uhisbank, Unibanka and Vilniaus Bank agreed earlier this year to cooperate in their investment banking activities, as a prelude to a possible merger. SE Banken had said that it intends to keep the institutions as separate banking entities.

Russia, Ukraine Railway Fares Decrease

· Effective Monday, the Russian and Ukrainian management has lowered the railway fare in round trip transportation by 37.5 percent. The Russian Ministry of Railways (RMR) presented the initiative, suggesting that Commonwealth of Independent State (CIS) countries and the three Baltic States lower tariffs on inter-state passenger transportation. Ukrainian railways were the first to support the initiative.

South Caucasus & Central Asia

Tevsadze-Sergeyev Meet In Moscow

· Georgian Defense Minister David TEVSADZE is scheduled to arrive in Moscow today for talks with his Russian counterpart Igor SERGEYEV. The two Defense Ministers will discuss the situation of Russian military bases in Georgia and the prospect of military-technical cooperation. Georgia has been working to restrict Russia's military presence on its territory. The Georgian government has imposed a 20 percent duty on all property supplied to the Russian military bases. The Georgian parliament has not ratified an earlier accord on the stay of Russian bases in Georgia. The Russian Defense Minister is expected to consider shutting down the military base in Vaziani. Russia said it may plan to move all the hardware, munitions, and property of the base despite Georgia's protests.

Stake of International Bank Of Azer. On Sale

· Azeri President Geidar ALIYEV has signed a decree ordering the sale of 46 percent of the International Banks of Azerbaijan, the country's biggest bank. This would reduce the government's stake in the bank from 51 percent to 5 percent. The government's shares in the bank will be transferred to the State Property Committee. Dzanhgir GADZHIEV, head of the investment department at the State property Committee, said that the buyer must agree to finance part of the bank's debts to the state , which total $30 million to $40 million. According to the decree these debts must be paid in full by January 5, 1999, suggesting that the sale will be completed in December.

Russian Delegation Arrives In Turkmenistan

· Turkmen President Saparmurat NIYAZOV and Speaker of the Russian State Duma Gennady SELEZNYOV discussed problems of and prospects for bilateral relations today in Ashkhabad. During the talks, NIYAZOV spoke at length about life in Turkmenistan, answered questions. "We have been able to draw comparison regarding many things in the development in Turkmenistan and Russia," SELEZNYOV said. He noted that each country has progress in some aspects and there exist drawn-out problems. The latter include Turkmenistan's negotiations with Russian gas monopoly Gazprom on terms of the transit of Turkmen gas, lasting for two years. SELEZNYOV believes that this problem clouds relations between the two countries and is for economic representatives to resolve. SELEZNYOV called for closer economic, political, and social integration and a better understanding between the two nations. Inter-parliamentary talks are underway in Ashkhabad, to be followed by a briefing.

The Daily Report on Russia and FSU

will not be published on

November 26th and 27th in observance of the Thanksgiving Holiday

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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