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 5, 1998

Russian Federation

Politics

Court Decides On Presidential Term

· Russia's Constitutional Court today ruled that President Boris YELTSIN cannot seek a new presidential term in 2000 because his current term in office is considered his second. The Constitution limits a president to two terms. The case went to the Court earlier this year after YELTSIN's aides insisted his first term didn't count because he was elected in 1991, under the constitution of the Soviet Union. YELTSIN has since announced that he will not seek another term. His poor health and low rating with Russians rule out another run at the presidency.

Duma Approves Asylum For Kurd Separatist

· The Russian State Duma overwhelmingly backed an appeal to President Boris YELTSIN in a vote of 298 to one to grant asylum to Turkey's most wanted man, Kurdish separatist leader Abdullah OCALAN. He is the leader of the Kurdistan Workers Party guerrillas who are fighting for self rule in southeast Turkey. More than 29,000 people have been killed in Turkey's long-running Kurdish conflict, which costs the Turkish state about $7 billion a year to defend. Turkey says that OCALAN has been hiding in a Moscow suburb since fleeing Syria. Russian authorities have not been able to confirm his presence. Turkish Prime Minister Mesut YILMAZ Wednesday said, "The Russian government gave assurances that they would not shelter this murderer, and I believe them." The rivalry between Russia and Turkey dates back centuries but has been renewed as a result of the struggle to secure oil pipeline routes from the Caspian Sea.

Comment: By considering granting OCALAN asylum, Russia continues to irritate already sensitive diplomatic relations with Turkey and silently en

dorses dangerous destabilizing forces in the Caucasus. This is not the first time Russia has denied that it is hiding fugitives. Turkey will join other nations such as Georgia in the red-tape battle to get the extradition of wanted criminals. Georgia has repeatedly called for extradition of Igor GIAGADZE, the former head of Georgian Security Service accused of organizing an assassination attempt on Georgian President SHEVARDNADZE on August 29, 1995.

Blast Outside The Kremlin Linked To Nationalist

· Wednesday night, Ivan ORLOV's car sped past the GUM department store across Red Square toward the Spassky gate. He bailed out of his car just before it exploded with the force of 13 pounds of dynamite. Two Kremlin guards and one presidential guard were injured in the blast, which produced lingering clouds of smoke around St. Basil's Cathedral. ORLOV has been identified as a journalist for a nationalist magazine Russian Truth. The Federal Security Service (FSB) have opened a criminal investigation. ORLOV has been detained at the hospital for questioning. He may be charged with terrorism for the incident under article 205 of the Russian Criminal Code. This article of the Criminal Code envisages imprisonment for a term of 5 to 10 years on charges of terrorism, i.e. staging explosions, making arson attempts or any other activities fraught with loss of life. The FSB department reported that no fire was opened by the Kremlin guards during the incident and no damage was done either to the Kremlin or other buildings

nearby.

Today's News Highlights

Russia

Russia Unable To Pay Debts

Primakov Cancels Rosneft Sale

European Republics

Ukraine Receives $148M Loan

Adamkus To Visit Ukraine

South Caucasus & Central Asia

Rus-Georgia Sign Border Agmt.

Tajik Clashes Continue

Uzbek Gets $130M From WB

Kyrgyz GDP Rises

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Economy

Ruble = 15.54/$1.00 (NY rate)

Ruble = 15.24/$1.00 (CB rate)

Ruble = 15.50|15.60/$1.00 (buy|sell rates)

Russia Unable To Pay Debt

· Russian First Deputy Prime Minister in charge of the economy Yuri MASLYUKOV admitted that Russia can't afford to make payments on its debt, which he estimated at $21 billion. The sum is, "too much for our weakened economy," he said. Russia has $3.5 billion in foreign debt payments due in the fourth quarter of this year and $17.5 billion due in 1999. Russian has already delayed payment of $450 million on rescheduled Soviet-era debt. Among payments due in the fourth quarter and next year are $2.04 billion in interest on Russia's Eurobonds. Russia plans to meet these debts as well as payments to the International Monetary Fund and World Bank, while negotiating new terms on old Soviet debts and the London Club of commercial creditors. MASLYUKOV said, "Either we have to take extraordinary measures for squeezing out this money from all spheres of the economy or agree on a restructuring of our debt. We are choosing the second path." Prime Minister Yevgeny PRIMAKOV's Cabinet approved a plan last weekend that proposes greater government intervention in the economy. Former prime minister Sergei KIRIYENKO said that the plan is unclear and that the economic measures was a profile in political cowardice that was aimed primarily at papering over divisions within its own ranks, The New York Times reported. KIRIYENKO believes, "There is no chance of receiving money from the West. Credits will be provided only for a clear, concise, consistent plan of action that would show that the Russian budget can receive more money than it spends." MASLYUKOV struck back that the government is merely trying to cope with the mess left by KIRIYENKO's market reformers.

Gold And Currency Reserves Increase

· Russian gold and currency reserves increased by $300 million or by 2.26 percent, from $13.3 billion to $13.6 billion in the period from October 23rd to 30,1998, according to official information from the department of external and public relations of the Russian Central Bank. As compared with early 1998, when the volume of gold and currency reserves of the country amounted to $17.8 billion, this index as

of October 30th was approximately 24 percent less.

Business

Gazprom Sale Starting Price Lowered

· Federal Property Fund chairman Igor SHUVALOV today said that the Russian government hopes to sell 2.5 percent of its stake in the gas monopoly Gazprom by the end of this year. "There is a high probability that the deal of selling 2.5 percent of shares of Gazprom will be made, we are not sure of this one hundred percent." The government has set the initial price at $651 million. The starting price, though well below the $1.65 billion the government set in August for a 5 percent stake, still reflects a 15 percent premium over the stake's value on international markets. Bids will be registered from November 4th to December 18th. "We hope to get to the budget the money from the sale of this share package before the end of this year," SHUVALOV said. Potential bidders include Royal/ Dutch Shell, Italy's ENI, and Germany's Ruhrgas, which is Gazprom's largest export customer. The stake can be split between more than one investor by auction or commercial tender. Payment is to be made in rubles.

Chief of Gazprom's department in charge of bills of the Commonwealth of Independent States (CIS) Alexander NEMUDROV said that the overall debt owed by consumers of Russian gas in the CIS has doubled since the beginning of 1998, reaching $1.8 billion. According to him, Ukraine accounts for over 50 percent of the overall debt, or around $1 billion.

Svyazinvest And Itar-Tass Sign Memorandum

· The Svyazinvest stock company and the Itar-Tass News Agency today signed a cooperation memorandum within the framework of the fulfillment of the presidential program Russian People's Telephone. The purpose of the memorandum is to give additional impetus to the implementation of the Tass-Luch-Telecom and Metrosvyaz projects. The projects, initiated by Itar-Tass, provide for the creation of national satellite communication networks, using the Russian Luch satellite and local communication networks in various parts of the country, on the basis of promising modern technologies. The decree on the presidential program was signed by Russian President Boris YELTSIN on January 11, 1995. The program is aimed at providing the Russian population with telephone communication services, as well

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as at preserving and modernizing jobs at the enterprises, where the conversion from military to civilian production is still going on. It was decided that the program would be financed with the help of the money, received from the distribution among legal entities and natural persons of the bonds of enterprises with various forms of property, which will give the right to their owners to have telephones installed in their apartments within the time limits, indicated in the bonds.

Primakov Cancels Rosneft Sale

· Prime Minister Yevgeny PRIMAKOV has signed a decree which cancels an investment tender for stocks of Rosneft oil company. A stake of 75 percent of authorized capital plus one share was considered for sell-off. The decree orders the Federal Property Fund to attend to relevant arrangements to cancel the tender. PRIMAKOV more than once said that because of Russia's situation, the state would not benefit from selling off the 75 percent stake at a price set by the previous government.

concerning regional cooperation between Lithuania, Poland, and Ukraine in various fields and the impact of the financial crisis in Russia on their economies. Ukraine is fourth among Lithuania's trading partners.

South Caucasus & Central Asia

Russia-Georgia Sign Border Documents

· Russian First Deputy Foreign Minister Alexander AVDEYEV and Georgian Ambassador to Russia Alkhaz KAKABADZE on Tuesday signed an agreement on Border cooperation in Moscow. Border Guard chief of Russian Konstantin TOTSKY and Georgian counterpart Valery CHKHEIDZE signed a second document, "On the terms of transfer of border areas guarded by the Russian Federal Border Guard Service and real estate and movable property, possessed by units of the Russian Federal Boarder Guard Service stationed on the territory of Georgia, under Georgia's control." This document pertains only to the transfer of property not the removal of Russian border guards from the Georgian external border. The transfer will occur step-by-step until completion in July, 1999.

IMF To Extend $440M Loan To Kazakhstan

· The International Monetary Fund (IMF) is prepared to extend a loan to Kazakhstan between $400 million and $440 million as part of the Extended Fund Facility, "to support National Bank reserves." IMF official Willy KIEKENS said that the IMF has estimated that Kazakhstan's trade with Russia has fallen 50 percent over the past months, due to the Russian economic and financial crisis. KIEKENS praised Kazakhstan's, "strict budget and fiscal policy" as well as its tax and pension reform for keeping the country afloat without an IMF Extended Fund Facility loan. Unfortunately, the IMF also predicts that Kazakhstan will fail to reach its target of 3 percent gross domestic product growth this year and that there will be no growth in 1999, RFE/RL Newsline reported.

Standoff In Tajikistan Continues

· Over 100 Tajik government troops and almost two dozen rebels have been killed in heavy fighting in Khodzhand Tajikistan's second-largest city, and clashes are continuing for a second day. Tajik Interior Ministry officials in Dushanbe said approximately 300 government reinforcements have arrived

European Republics

Ukraine Receives $148 Million Loan

· Ukraine's Central Bank on Wednesday said that it received about $148 million in loans from the International Monetary Fund (IMF) and World Bank. According to a spokesman, "Ukraine has received the latest tranches of $78 million from the IMF Extended Fund Facility loan and $70 million from the World Bank." The IMF approved the installment last week. Ukraine is required to meet a number of conditions, including maintaining a minimum level of foreign exchange reserves, to continue subsequent payments. Ukraine has a mixed track record with the IMF an loans have frequently been halted because of the government's failure to meet conditions.

Lithuanian President To Visit Ukraine

· Lithuanian President Valdas ADAMKUS left for Ukraine today for an official state visit. ADAMKUS will meet with Ukrainian President Leonid KUCHMA, Prime Minister Valery PUSTOVOITENKO, Parliament Chairman Alexander TKACHENKO and other high officials. They will discuss problems surrounding the implementation of a bilateral agreement on free trade. The agreement entered into force on November 21, 1995, but it is not functioning. Issues

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in Khodzhand to fight rebel troops led by Makhmud KHUDOBERDYEV. The government has retaken two buildings belonging to the Interior Ministry, which the rebels seized early Wednesday morning. Fighting continued through the night near a regional airport in Chkalovsk and around a regional police directorate, but the airport and the directorate remain in control of the rebel forces. Fighting was also reported at the Anzob Pass north of Dushanbe, the highest point on the road between the capital and Khodzhand. Negotiations failed, after KHUDOBERDYEV issued several demands, including granting 40 percent of the Cabinet posts to his group called Movement for General Peace in Tajikistan, backing down of government troops in a 10 kilometer radius from Khodzhand, and allowing former prime minister Abdumalik ABDULLAJONOV to speak on national television and radio. Deputy Prime Minister Abdurakhmon AZIMOV said the government will not accept the ultimatum language of the rebels. He said, "there will be no negotiations...The matter in question is to block and liquidate them." KHUDOBERDYEV urged his supporters not to yield to provocation and to preserve self-control. He maintains that he has enough means, "for defending the rights and freedoms of our compatriots."

Sino-Kazakh Border Agreement Passed

· The Fifth Meeting of the Standing Committee of the Ninth National People's Congress (NPC) Wednesday approved a number of treaties and agreements with Central Asian nations. The NPC approved the Sino-Kazakhstan Supplementary Border Agreement, which was signed on July 4th in Almaty by Chinese President JIANG Zemin and Kazakhstan President Nursultan NAZARBAYEV on behalf of their respective governments. Prime Minister ZHU Rongji said in his motion to the NPC Standing Committee that the supplementary agreement thoroughly resolves border issues between China and Kazakhstan, and will be of great significance in maintaining stability in the border areas of the two countries and in promoting the normal development of bilateral relations. He said the two sides reached agreement on the basis

of the original bilateral border agreement and in accordance with the principles of international law, and in the spirit of equality and mutual understanding. Another agreement passed by the NPC is the Sino-Kyrgyz Extradition Treaty.

WB Grants $130 Million To Uzbekistan

· The World Bank has announced it will grant Uzbekistan $130 million in credits in the first half of 1999. Tashkent, Samarkand, Burkhara, and Namangan will benefit from $70 million earmarked for investment development of municipal passenger transports. Approximately $30 million will be given to restructure agricultural enterprises. Another credit of $15 million will be used for institutional development of the financial sector, while $15 million will serve as the basis for a "social transformation fund" which will be used to alleviate poverty.

Kyrgyz GDP Rises, Som Loses Value

· Kyrgyzstan's gross domestic product (GDP) grew by 1.4 percent during the first three quarters of this year. Industrial and agricultural output increased by 6.9 percent and 2.1 percent respectively. Metallurgical industry, which accounts for 40.3 percent of the country's total industrial production, rose by 28.5 percent in output, while the output of food industry increased by 14.7 percent. Electricity, energy and machinery production, however, went down respectively by 14 percent, 12 percent, and 5.3 percent. Kyrgyzstan's total trade volume in the first eight months of this year amounted to $867 million, up 10.7 percent over the same period in 1997. Imports increased by 27.6 percent, while exports decreased by 7.7 percent, resulting in a trade deficit of $177 million, against $35 million during the same period last year. Chairman of the Kyrgyz National Bank Marat SULTANOV said that the som, the national currency, is continuing to lose value because foreign investors are withdrawing from the country. Since July, the som has dropped from 17 soms per dollar to 24 soms per dollar. SULTANOV said that the National Bank has spent 12 percent of its hard currency reserves since August.

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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