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, December 14, 1998

freed on the border of Chechnya and Ingushetia in an operation carried out by the Interior Ministry and the Federal Security Service (FSB). Two interior officers received light wounds in the rescue mission and three kidnappers were killed. Prime Minister Yevgeny PRIMAKOV praised the liberation of COCHETEL, but refused to reveal operation details, "not because we want to conceal something from the public, but in order not to complicate the liberation of other hostages." On Saturday, before leaving for France via Geneva COCHETEL said, "I know the people who are responsible for my abduction. I think there should be a trial. If there is no trial, this process will continue...very often people who take and kill hostages are well-known people and, unfortunately, they are never arrested and tried. This must be stopped." He said that he considers himself lucky, since other colleagues have met a worse fate. COCHETEL said the pre-dawn raid lasted less than five minutes.

Acting chief of the UN Vladikavkaz mission, Vladimir GOROKHOV on Sunday said, "We thank all those who took part in his liberating, we are grateful to the leadership of the Russian Federation, North Ossetia, other North Caucasus republics that rendered assistance in searching and liberating him." The Russian operation was mounted after French President Jacques CHIRAC on Friday called Russian President Boris YELTSIN to plead for Moscow to do everything to free COC-HETEL. Earlier last week, the severed heads of three British telecommunications

Russian Federation

Politics

Yeltsin Defends Constitution

· Addressing the nation on Saturday, Constitution Day, Russian President Boris YELTSIN defended the Russian Constitution he helped draft five years ago, saying it should be changed "with extreme caution." He said, "It is this Constitution that has become the nucleus of Russia's new statehood. This Constitution is the backbone of strong power." He warned that friend and foe alike are trying to rewrite the Constitution, stripping the president of power and shifting it to parliament and government. "I categorically disagree with this and I think this would be fatal to our country." He noted that the Constitution is the main guarantee against slipping back to totalitarian rule. YELTSIN said, "The Constitution has become an obstacle for those who want to revive the arbitrary rule of the [Communist] party bureaucracy, the persecution of the church, the command system in the economy." YELTSIN said he would use the Constitution to prevent restrictions on freedom of the press, "prevent curtailing of market reforms and preserve the unity of the Russian state." He also plans to use it to combat extremists, referring to the rise of neo-Nazi movements and anti-Semitic remarks from a Russian State Duma deputy.

Russian Commandos Rescue Cochetel

· French citizen Vincent COCHETEL was held hostage in Chechnya for 11 months before he was rescued from his kidnappers by Russian special forces. COCHETEL while working for the Geneva-based United Nations High Commissioner for Refugees (UNHCR) was kidnapped on January 29th in Vladikavkaz, capital of North Ossetia. Russian Interior Ministry chief spokesman Alexander MIKHAILOV said no ransom had been paid for the release of COCHETEL. He said that COCHETEL had been

Today's News Highlights

Russia

US-Rus Steel Talks In London

Rus-John Deere Co. Negotiate

European Republics

IMF-Belarus Loan Conditions

EU Puts-off Accession To 2005

South Caucasus & Central Asia

Georgia-EU Joint Com. Meet

$200M For Crisis-hit Nations

Rus-Kazakh Transport Agmt

Almalyk Tender Announced

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December 14, 1998

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engineers and their New Zealand colleague, abducted one month ago by Chechen gangsters were found after a failed attempt to free them. Foreign Minister Igor IVANOV warned, "One should be cautious and understanding in the region where many uncontrolled groups commit extreme crimes." Meanwhile, Chechen Prosecutor General Mansur TAGIROV, who was investigating these murders, was released Saturday after apparently being taken captive on Thursday.

Economy

Ruble = 20.1/$1.00 (NY rate)

Ruble = 20.1/$1.00 (CB rate)

Council For Investments Meets In Moscow

· Prime Minister Yevgeny PRIMAKOV addressing the Consultative Council for Foreign Investments in Russia today said that Russia regards the attraction of foreign investments as one of its top priorities. PRIMAKOV stressed that the government would not start uncontrollable emission, or restrict trade and economic relations with other countries. Russia, "has become part of the world economy, and will remain as such. We shall not give up the market-based system. At the same time, the government will exercise state control in the interests of the Russian economy, of the whole of the population, and not of individual groups," he said. First Deputy Prime Minister Yuri MASLYUKOV said that, "We must give the green light to large strategic investors into the economy of Russia." He noted that large investors need to be attracted to the Russian agricultural sector to provide farm machinery to producers. MASLYUKOV pointed out some of the actions taken by the Russian government to attract investors. These include, "a law was adopted to amend the legislation on agreements to share production; the tax on the profits of the investors was abolished for the time needed by an enterprise to reach its designed capacity; a law on foreign investments and a law on leasing were also approved."

PRIMAKOV promised that the government would not suspend the free circulation of the US dollar in Russia. He told investors at the gathering, the government neither does intend to start nationalization, nor to stop the privatization of state-owned properties. "Russia expects long-term investments from foreign investors, primarily in the real sector of

the economy" to help overcome the its economic hardship. PRIMAKOV also assured foreign investors that there would be no redistribution of properties in the privatization process. The meeting sponsored by the World Economic Forum brought together some senior executives of big multinational companies operating in Russia. Eighty percent of foreign investors sent representatives to the Council's meeting, which will end on Thursday.

Moscow Trade House To Open In Hong Kong?

· Head of the Department for the Development of Small Business Yevgeny YEGOROV, leading the first-ever delegation from the Moscow city government to Hong Kong, today will examine the possibility of establishing a Moscow Trade House in Hong Kong. The Hong Kong Association for Trade with Russia invited the Russian delegation to attend its annual meeting, whereby the Russian delegation requested their agenda be enlarged for the discussion of joint projects. YEGOROV and Director-General of the Moscow International Business Association Alexander BORISOV stressed that Russia, particularly Moscow, has much to offer Hong Kong. They pointed out that Moscow is seeking investments and has modern technologies and goods to offer in return. YEGOROV noted, "Our task is to seek viable forces both in Moscow and the regions, to help them find foreign investments, partners, and new technologies." BORISOV said that his association will try to benefit from, "Hong Kong's present role of regional commercial and financial center, and will draw on the already existing experience of our business partnership with Hong Kong."

Business

US-Russia To Hold Steel Talks

· US Department of Commerce spokesman Morrie GOODMAN said Friday that the CLINTON Administration has agreed to meet with Russian trade officials next week in London to discuss how to avert penalty tariffs on shipments of Russian steel into the US. US Assistant Commerce Secretary Robert LARUSSA will lead the US delegation. Russian trade officials, led by Deputy Trade Minister Roald PISKOPPEL, will present a proposal to limit steel shipments. Russia wants the US to suspend a case brought by the steel industry accusing Russia of dumping steel in the US, or selling steel at unfairly low prices. Both President Bill CLINTON and Vice

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President Albert GORE have raised the problems of the US steel industry in meetings over the past month with Russian leaders. The US steel industry has complained that imports are up 64 percent this year, pushing down domestic prices, and threatening thousands of US jobs.

Russia Holding Negotiations With John Deere

· Russian Agricultural Minister Viktor SEMYONOV on Thursday said that the Russian government is negotiating a leasing deal with US farm equipment maker John Deere & Co. worth $1 billion to upgrade outdated machinery. He said, "We will have no tools to harvest fodder and grain in two or three years unless we find a way to supply machinery to farmers." The amount of farming machinery, including tractors and harvesting equipment used by Russian farmers dropped by 33 percent to 55 percent between 1991 and 1997. Because this has been the worst harvest for Russia in 40 years, it has turned to the US and European Union for food aid to avert food shortages during the Winter.

Russian Internet Firms Form Alliance

· Three Russian Internet firms, Demos-Internet, InfoArt and Sovam-Teleport, have formed a strategic alliance to provide a single source for Internet advertising. The Internet offers companies an opportunity to play their advertisements immediately. It also provides clients with access to respond immediately to advertisements. According to these three companies, this is what differentiates Internet advertising from other media options such as radio and television advertising. The companies say that Internet ad technology is sufficiently flexible to take into account a wide number of variables, such as the user's location, age, individual preferences, time of day, and numerous other factors. To support their new joint venture, the three firms have created an Ad Alliance Web site at http://www.banner.ru, which routes to their respective Web site services. Because of the current economic problems affecting Russia, the Ad Alliance says that it has cut advertising rates on their respective Web sites by around 30 percent until year's end.

Belarus may receive a $100 million loan in March, if it fulfills the IMF's recommendations. These include liberalizing economic policies, tightening the government's credit policy, and dropping control of the currency market. Both sides have signed an agreement on establishing a track record of policy cooperation between the IMF and Belarus, which the IMF executive board requires before deciding on the loan, the RFE\RL Newsline reported.

EU Expansion To Eastern Europe In 2005?

· The date for joining the European Union (EU) for Poland, the Czech Republic, Hungary, Slovenia and Estonia is slipping as these nations enter the second round of difficult and complex negotiations with the EU. The EU is being strict to ensure that these nations will meet its standards, survive the rigors of a market economy, and eventually be able to adopt the single currency, Euro. Before the negotiations began, a realistic date for accession was 2002 to 2003, now it seems to be pushed back to 2004 to 2005. As reported in The Journal Of Commerce, the EU is held up on the fact that the "eastern enlargement" will cost the EU more than $50 billion initially, with tens of billion to follow in aid programs after applicants join.

On Saturday in Vienna, EU leaders turned down a European Commission proposal to promote Latvia, Lithuania, and Slovakia to the fast track of enlargement. It agreed that the commission should only submit its next interim report on accession progress to the Helsinki summit at the end of 1999. Sweden was the only member state to support the promotion of the Baltic states and Slovakia. Latvia, Lithuania, and Slovakia in March were admitted to the membership process but at a slower pace.

South Caucasus & Central Asia

Georgia-EU Joint Committee Meets

· The 4th meeting of the Georgia-European Union joint committee on cooperation opened in Tblisi today. The meeting is to be attended by a European Commission delegation. Speeches at the committee meeting will be presented by the Georgian Foreign Affairs Minister Irakly MENAGASHVILI, Economics Minister, Finance Minister David ONOPRISHVILI, the President of the National Bank Irakly MANAGADZE, a number of other Ministers and departmental chiefs.

European Republics

IMF Places Conditions On Belarus Loan

· International Monetary Fund (IMF) representative Thomas WOLF in Minsk on Friday said that

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Meanwhile, Georgian President Eduard SHEVARDNADZE expressed hope that Russia would overcome its financial and economic crisis. In his weekly national radio interview, SHEVARDNADZE said, "Georgia is vitally interested in the success of the Russian efforts to promptly overcome the current financial-economic difficulties." He added that if Russia overcomes its difficulties, it would positively influence the economies of the neighboring states, including Georgia.

$200M For Countries Hit By Russian Crisis

· Senior executives of the World Bank and the International Monetary Fund (IMF) with the participation of the Asian Development Bank, the European Union and some individual donor countries, including the United States, Canada, Switzerland and Holland, on Friday agreed to provide $200 million to the poorest nations neighboring Russia, which have been hit by the Russian crisis. With the recovery of economic growth and the reduction of inflation to single digits before the Russian economic and financial crisis, Armenia, Azerbaijan, Georgia, Kyrgyzstan, Tajikistan, and Moldova had been successful in structural reforms and macro-economic stabilization. According to a World Bank press release, participants in Friday's meeting believe that Russia's crisis threatens these gains and support for reformist policies in the whole region.

It is estimated that these countries lost a total of $400 million as a direct result of Russia's crisis. The meeting was called to provide funding for at least half of the losses. Director of the European Department of the IMF John ODLING-SMEE and Vice President of the World Bank's Europe and Central Asia region Johannes LINN, in their concluding statement said, "These pledges by the participants, combined with the governments' policy adjustments, will address the worsening balance of payments situation resulting from the Russian crisis and will help promote stability in financial markets." LINN said these nations will receive the money in 1999, provided economic policies are appropriately in place.

Kazakh-Russia Sign Transportation Pact

· Chairman of the State Committee for the National Security of Kazakhstan Nurtay ABYKAEV and director of the Federal Service of Security of Russia (FSB) Vladimir PUTIN signed on Wednesday in Almaty a transportation security pact in an effort to safeguard international traffic. The two countries will cooperate with each other to curb illegal immigrants, combat smuggling and organized crime, and ensure the safety of international traffic routes linking them. Joint operations against sabotage and terrorist activities along transportation routes will also be conducted. Approximately, 70 percent of goods transportation between the two countries relies on roads.

Uzbek To Sell 46.5 Percent Of Almalyk

· Today, Uzbekistan's chairman of the State Property Committee Viktor CHZHEN announced the international tender for 46.5 percent of major copper and gold producer, Almalyk Metallurgical Plant. The Almalyk tender is the highlight of the Uzbekistan's 1999 privatization program, under which 30 major enterprises are set to be sold. Uzbek also plans to sell Tashkent Aviation Production Co. and Uzmetkombinat. Almalyk is expected to raise $478 million for the federal budget. But at a time when international copper prices have hit their lowest level in over 11 years, trading at $1,499 a ton, some say the tender will yield a far lower price. Plant Director Vitaly SEGEDIN has hope that the low price for copper is only temporary. He believes that the price in copper at the beginning of 1999, will rise to above $2,200 per ton. According to the announced terms, bids must be received by January 15th with a $1,000 fee. Offers must be presented no later than March 15, 1999. The results will be released on May 15th. Earlier this year, South Korea's Daewoo Corp., US Gerald Metals, Swiss-based Glencore, and a consortium of Germany's Thyssen, Siemens, and Sweden's Svedala expressed interest in the tender. The Almalyk Plant is the sole copper and the second largest gold producer in Uzbekistan. The copper output for 1998 is estimated to be 115,000 tons, with silver at 77 tons and gold at 13 tons.

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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