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

Monday, November 9, 1998


secret police. An estimated 10,000 communists gathered in St. Petersburg, where the revolution began in 1917. Throughout Russia, crowds fell short of organizer's expectations. Demonstrators waived red flags and banners in between speeches made by Leftists leaders. Besides criticizing YELTSIN, communist leaders continued to make anti-Semitic remarks, which the President denounced on Friday. The speakers also vowed to help the poor make it through the winter with enough food.

Anti-Semitism On The Rise

· Russian Communists and Ultranationalist groups are fostering a dangerous trend of anti-Semitic comments, blaming the Jews for Russia's economic and financial crisis. Last month, retired General and Russian State Duma deputy Albert MAKASHOV made a series of rude election speeches using derogative terms against Jews and claiming that they were the root of the nation's problems. At one point, he rallied the crowd with the cry, "To the grave will all the Yidz!" A motion on Wednesday censuring General MAKASHOV for his, "harsh, abusive statements," and for inciting racial hatred was defeated in the Duma in a vote of 121 to 107. Among the Communists deputies 83 voted against censure and 43 abstained. This vote was taken only after Leftist deputies tried to remove it from the agenda. MAKASHOV appears to have received no more than a mild reprimand from Communist Party leader Gennady ZYUGANOV, who said, "We took note of the impermissible form of his remarks and con

Russian Federation

Politics

Yeltsin Returns To Heavy Schedule?

· Russian President Boris YELTSIN returned from the Black Sea resort of Sochi on Sunday. He is spending today at his out-of-town Rus residence. The President's press secretary Dmitri YAKUSHKIN said, "Boris Nikolayevich is in good health and in a good mood." A series of foreign visitors are scheduled for this week, however many are expected to meet with Prime Minister Yevgeny PRIMAKOV instead of YELTSIN. On Tuesday, Canadian Foreign Minister Lloyd AXWORTHY is due to arrive for a two day visit along with Finland's Prime Minister. On Wednesday, Germany's Foreign Minister will meet with his Russian counterpart Igor IVANOV in the Kremlin. On Thursday, World Bank President James WOLFENSOHN is to arrive in Moscow to review the economic and financial measures proposed by the government with top banking officials at the same time YELTSIN will be discussing with Japanese Prime Minister Keizo OBUCHI a wide range of problems. YAKUSHKIN noted that, "Many people are looking forward to seeing the results of those talks, since Russian-Japanese relations are very delicate because of the differences over the territorial problem." It appears Russians will be critical of YELTSIN's ability to perform his duties at this meeting and will use it as a test of the President's health.

Communists Remember Revolution Day

· Holding on to old beliefs and symbols of the past, Russia's communists on Saturday marched in Russia's major cities and Kiev, Ukraine to mark the 81st anniversary of the Russian revolution and demand the resignation of President Boris YELTSIN. Demonstrations were held in over 200 cities and towns. About 5,000 people gather at Lubyanka Square outside the former headquarters of the KGB

Today's News Highlights

Russia

US-Rus Agree on Food Deal

Rosneft Salvneft, Onako Merger?

Shishedo Annnounces Launch

European Republics

Belarus Econ. Fends Off Turmoil

South Caucasus & Central Asia

Azeri Protests End Violently

Kazakh-Iranian Oil Swap Up

Tajik Rebels Flee To Highlands

Politics-Economics-Business

Page


Monday

November 9, 1998

Intercon's Daily

demned his intemperance." While Russian President Boris YELTSIN on Friday denounced such statements, the Communists blasted the media's negative coverage of the Communist Party. YELTSIN said that the Russian Constitution protects ethnic minorities. Ethnic Russians make up more than 80 percent of Russia's population and Jews total less than 0.5 percent. Nationalist leader Vladimir ZHIRINOVSKY, whose father is Jewish, sided with General MAKASHOV. ZHIRINOVSKY warned, "The Jewish people are very talented, but it's necessary to approach this talent with caution, because it can be used against us." CIS Executive Secretary Boris BEREZOVSKY, United Energy Systems of Russia chief Anatoly CHUBAIS and former prime minister Yegor GAIDAR have called for the banning of the Communist Party. BEREZOVSKY, also a Jew, said, "It is necessary to overcome communism, and the first move to do that is a ban [on communism] at the state level." GAIDAR said that the communists are embracing Fascists ideas, which are banned everywhere. Comment: The powerful and dangerous impact of the merging ideology of the Communist Party and the Ultranationalists with that of fascism is one that looms large on the Russian political horizon. These trends reflect an old Russian and Soviet tradition of blaming others for their own failures, particularly using the Jews as a scapegoat. In a country where former prime minister Sergei KIRIYENKO and Prime Minister Yevgeny PRIMAKOV both have changed their surnames to conceal their Jewish heritage, one would think there would be a movement to support ethnic minorities. But it appears that those in control are looking the other way. The President has pushed aside responsibility for failed privatizations, reforms, and new corruption on his former Cabinets. The government and parliament are paralyzed in acting to resolve the nation's problems or taking a tough stance against racist remarks. In Russia, no one is doing anything except pointing fingers and looking for a scapegoat.

Economy

Ruble = 15.01/$1.00 (NY rate)

Ruble = 15.01/$1.00 (CB rate)

Russia And Creditors Reach Compromise

· Foreign creditors and Russian government negotiators agreed not to link a restructuring of the Russian government's debt on short-term treasury

bonds to unfulfilled forward currency contracts of Russian commercial banks. Deputy Finance Minister Mikhail KASYANOV noted that at least one or two more rounds of talks are needed to work out details. Russia is anxious to finalize the agreement in order to finish its draft budget for 1999 and present it to the International Monetary Fund (IMF). In the debt restructuring compromise proposed to foreign investors, Russia will convert about $40 billion in frozen government bonds, more than $10 billion of which is held by foreigners, into ruble cash and securities. Investors will receive 10 percent of the sum owed in a cash payment upfront, 20 percent in a zero-coupon bond that can be used for tax payments or to purchase stakes in Russian banks, and the final 70 percent in bonds with four to five-year maturities, The Wall Street Journal reported. Western bankers are calling for clarification on a number of details, particularly how much the ruble proposal is worth. The government didn't specify the ruble-dollar exchange rate for the new securities. Robert DEVANE, a Moscow-based independent investment adviser said, "There are a lot of unanswered questions. It's like saying you're going to get a car without specifying whether it will be a Lada or a Mercedes."

US-Russian Sign Food Aid Deals

· Russian Deputy Prime Minister Gennady KULIK and US Ambassador to Russia James COLLINS said that the US Department of Agriculture and the Russian government on Friday signed three protocols on food and humanitarian aid to Russia. The first protocol provides for a non-taxable credit against goods worth $600 million for the purchase of 1.5 million tons of foods, including corn, soy beans and oil-seed meal as well as meat and dried milk. The credits are for 20 years with a 2 percent annual interest rate and a five-year delay in payment. The second protocol announces the US intention to donate 1.5 million tons of wheat to Russia. The third protocol provides for the humanitarian aid of 100,000 tons of foods to be delivered to specific regions. The food will be distributed by local organizations, to be supervised by a government commission for the humanitarian aid.

Business

Rosvoorzhenie Participates In Milipol-98

· In an effort to help pull the country out of its economic crisis, the Russian state-run company Rosvooruzhenie has been actively seeking non-

When you need to know it as it happens

Politics-Economics-Business

Page


Monday

November 9, 1998

Intercon's Daily

traditional markets to export weapons and special equipment. Earlier this year Rosvooruzhenie displayed its products for Latin American markets. On Friday, the Russian company said it will display its weapons and equipment at Milipol-98, an exhibition in Doha, the capital of Qatar. The exhibition is devoted to problems of law enforcement, security, civil defense and anti-terrorist activities. Rosvooruzhenie will display weapons for policemen and special task force units, small submachine guns, grenade launchers, pistols and submachine guns. Potential buyers are expected to show a particular interest in the newest model of a Russian-made machine gun Pecheneg, characterized by a denser target hitting capacity and which has no analogues in the world. The Russian exposition includes metal detectors, explosive-proof evaporation detectors, time-bomb detectors, anti-explosion devices and mechanical equipment for remote control movement of potentially explosive objects.

Rosneft Seeks To Sell Sakhalin Stake

· Russia's oil company Rosneft started negotiations with Western corporations on selling its stake in Sakhalin-1 project, according to a worker of Japan's Sakhalin Oil and Gas Development company. The company is an operator in the project. The stake of Rosneft-Sakhalin, which represents Rosneft in the international consortium Sakhalin-1, is 17 percent. Other consortium members are Russia's Sakhalinmorneftegaz-Shelf, with 23 percent, Japan's Sakhalin Oil and Gas Development, with 30 percent, and the United States' Exxon Neftegaz Ltd, with 30 percent. Sakhalin-1 project is the development of Sakhalin's offshore oil and gas fields Chaivo, Odoptu and Arkutun-Dagi. The fields store a total of 290 million tons of oil, 425 billion cubic meters of gas and 33 billion cubic meters of gas condensate. Total investment in the project is estimated at $15 billion.

Russian Fuel and Energy Minister Sergei GENERALOV on Thursday said that Russian state-controlled oil companies Rosneft, Slavneft, and Onako may merge into one company under the common name of Rosneft in 1999. The state holds 100 percent of Rosneft, 80 percent of Onako, and 77 percent of Slavneft.

Shiseido Announces Russian Launch

· Shiseido Co. last week announced that it will

start sales of its skin-care and cosmetic products in Russia beginning March 1999. The cosmetic company plans to open five stores in Moscow and St. Petersburg initially and eventually expand the number to 20 by 2000. Russia will be Shiseido's fifth market in Eastern Europe. It has set up marketing operations in the Czech Republic, Hungary, Croatia and Poland. Sales of Shiseido products in Russia will be made through Hermitage S.A., a local importer with which Shiseido has a partnership contract. Shiseido expects the Russian venture to generate 150 million yen ($1.2 million) in turnover sales by 2000. The move is motivated by Russia's newly rich, who have continued to support the country's luxurious cosmetics market despite the country's economic trouble, the Shiseido Co. said.

European Republics

Lukashenko Running Economy His Way

· Belarus President Alexander LUKASHENKO, at a meeting with Robert ANTRETTER, vice president of the Parliamentary Assembly of the Council of Europe, called on the West to abandon its policy of double standards with regard to Belarus, RFE/RL Newsline reported. The President said, "The level of democracy, the protection of our people's rights is not one bit lower than in countries that have recently joined this respected and very influential organization." LUKASHENKO has been criticized by Western economists for his Soviet-style policies and by human rights groups for cracking down on opponents. Despite the struggles and failures of Russia and other former Soviet republics, Belarus has formed an economic policy based on large government subsidies to state-controlled farms and industries. The government claims that the economy grew by 11 percent in 1997, and will increase another 11 percent this year. These figures may be misleading because the country has printed large sums of money, leaving the currency almost worthless. Because of this, inflation is expected to hit 30 percent and unemployment is believed to be higher than the official rate of 2 percent. Belarus has limited private enterprises and attracted little foreign investment. Although Belarus heavily relies on trade with Russia, it has fended off Russia's economic turmoil. Internal criticism is growing. Vice President of the Belarus Union of Entrepreneurs Alexander POTUPA said the government has built a house of cards by printing new

When you need to know it as it happens

Politics-Economics-Business

Page


Monday

November 9, 1998

Intercon's Daily

money to patch budget holes and pay wages.

South Caucasus & Central Asia

Azeri Protests End Violently

· This weekend two protest marches in Baku ended in violence. On Saturday, Police used clubs to disperse 2,000 demonstrators who were protesting last month's presidential election in an unsanctioned march. The rally was led by Etibar MAMEDOV, leader of the National Independence Party, who finished second after President Geidar ALIYEV in the election. A police spokesman Agshin ZEYMALOV insisted that police didn't beat protesters and noted that 10 policemen were hurt in the clashes. However, Russian television broadcasts clearly showed police with riot sticks beating demonstrators. Human rights groups have criticized ALIYEV for his crackdowns against opposition movements. On Sunday, a sanctioned opposition rally turned bloody when an unidentified gang attacked several opposition leaders. Approximately 15,000 people attended Sunday's rally, including Azeri's former president Abulfaz ELCHIBY, who was injured in the attack. Demonstrators detained one attacker and turned him over to police. Deputy chief of the Baku police Yashar ALIYEV said the attacks are being investigated.

Kazakh To Increase Oil Swaps With Iran

· Kazakhstan's Deputy Energy Minister Dosayev YEVBOLAT said Kazakhstan plans to increase the amount of oil transferred to Iran under an existing swap agreement. Under the agreement, 2 million tons (40,000 barrels per day) of Kazakh crude will be delivered North of Iran in exchange for right to a similar amount of Iranian crude in the Persian Gulf. A deal for 1 million tons in 1997 was only partially fulfilled after Iran questioned the quality of Kazakh oil. YEVBOLAT did not mention how much additional oil will be shipped.

Meanwhile, Iranian Oil Minister Bijan ZANGANEH warned the US not to undermine Iran's efforts to win a share of the Caspian Sea oil. At a Caspian oil and

gas conference attended by some 40 international companies including 15 from the US, ZANGANEH said the US was putting politics above the economic interests. He said, "The Caspian energy will both be commercially developed and exported as long as the US sanctions remain in place. Moreover, sanctions will always remain as bitter memories in the minds of the people of the area." Washington bars US companies from doing business in Iran as part of a campaign to isolate the country. He added that, "The shortest, safest, most cost-effective and environmentally sound routes are offered by Iran."

Tajik Rebels Flee Into Highlands

· Tajik Presidential Press Secretary Zafar SAIDOV said the anti-government rebels were driven out of their last base in the district center of Aini, north of the Tajik capital. Joint units of the presidential guard, defense ministry and commandos of the Interior Ministry, with the participation of sworn in opposition units have been combing the highlands in search of the rebels, particularly the masterminds of the rebellion ex-colonel Makhmud KHUDOIBERDYEV and ex-premier Abdumalik ABDULLADZHANOV. They were declared wanted and criminal proceedings were instituted against them, as well as former deputy Transportation Minister Narzullo DUSTOV and former Khudzhand Mayor Abdughani ABDULLADZHANOV. It is believed that KHUDOIBERDYEV and ABDULLADZHANOV have fled the rebellion zone and may be on their way to Uzbekistan. According to Tajik President Emomali RAKHMONOV, there were external forces behind the rebels, which tried to undermine the process of peaceful reconciliation, which began in the country after the signing of the June 1997 General Peace Agreement. "However, they have miscalculated, because most people in the republic refused to back the rebels and their henchmen." The President assured his fellow-countrymen that all the criminals would be punished. Government troops are now taking steps to clear the northern part of the republic of all the rebels and are restoring the buildings that they have damaged.


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

available for non-profit institutions.

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.

When you need to know it as it happens

Politics-Economics-Business

Page