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

Tuesday, December 15, 1998

Russian Federation

Politics

Cotti's First Ever State Visit To Russia

· Swiss President Flavio COTTI arrived in St. Petersburg for the beginning of his first-ever state visit to Russia. COTTI will meet with St. Petersburg Governor Vladimir YAKOVLEV and attend the inauguration ceremony for the Swiss Consulate General in St. Petersburg. On Wednesday, he will go to Moscow for talks with Russian President Boris YELTSIN, Prime Minister Yevgeny PRIMAKOV, and representatives of Swiss business interested in investing in Russia. During his visit, COTTI will also hold talks with Chairman of the Federation Council Yegor STROYEV and Moscow Mayor Yuri LUZHKOV. COTTI described relations between Switzerland and Russia as, "excellent," saying they have never been as, "good and intensive" as now. The Presidents plan to discuss the development of economic and cultural cooperation. COTTI said, "I realize the difficulties through which Russia is living. But that difficult moment should not impede the state to progress towards democracy and reforms which are necessary to achieve that economic and social prosperity which history has so long denied you country. As most people of Switzerland, I continue to believe in the immense Russian potential." The talks in Russia will also focus on the situation in the Balkans, the conflicts in Europe and the Middle East, as well as on cooperation in the OSCE framework.

Who Is Mayor of Vladivostok?

· There are two acting Mayors in Russia's Maritime territorial center of Vladivostok: Yuri KOPYLOV appointed by the territory's Governor and Nikolai BELETSKY appointed by the Vladivostok Mayor himself. Governor Yevgeny NAZDRATENKO found the replacement for the Mayor after Russian President Boris YELTSIN issued a corresponding decree.

The Mayor, Viktor CHEREPKOV, refuses to quit the post, saying the issued decree violates the Russian Constitution and the local law on self-governance. CHEREPKOV's administration staff have barricaded themselves in the Mayor's office and do not leave their working places day and night. Rumors spread last night that KOPYLOV planned to storm the office building. Reporters from ORT, NTV and RTR television companies and CHEREPKOV supporters gathered on the scene by the midnight, but nothing happened. This morning KOPYLOV said on local radio that an end will come to "Cherepkovism" in the next few days. Both acting mayors held working meetings today with municipal services — KOPYLOV in one of the city's district administration where his office is situated and BELETSKY in the Vladivostok administration itself. Most Vladivostok residents take the situation with humor. It is unclear how this dispute will end and under what circumstances CHEREPKOV will consider stepping down.

Economy

Ruble = 20.1/$1.00 (NY rate)

Ruble = 20.26/$1.00 (CB rate)

EBRD To Invest $1B In Russia

· The European Bank of Reconstruction and Development (EBRD) is going to provide up to $1 billion for the Russian economy in 1999, according to the bank's president Horst KOEHLER. After the meeting of the Consultative Council for Foreign Investments

Today's News Highlights

Russia

American Int'l Acquires Stake

Duma To Review Budget Dec.23

European Republics

Latvia Still Interested In NATO

Estonia To Approve 1999 Budget

South Caucasus & Central Asia

Totsky To Visit Georgia

IMF Inconclusive On Georgia

Azeri Protest Iranian Oil deal

Tajik-Iran To Sign Accords

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in Moscow Monday, KOEHLER said that the EBRD will provide $150 million by year's end to implement earlier projects. The EBRD is one of the largest direct investors in the Russian economy. It has provided $3 billion in investments in Russia since 1994. The EBRD president said that despite the August economic crisis in Russia, the EBRD has not given up its plans of investments in the Russian economy. KOEHLER also noted that the EBRD is interested in developing Russia's banking sector and that the bank has already invested considerable sums in this sector and wants it to operate efficiently. "Our concern is that some insolvent banks are operating too long without getting some substantive control from the Central Bank or even being liquidated," KOEHLER said. He called for improvements in Russia's investment climate, corporate governance, and strengthening minority shareholders' rights. Russian Prime Minister Yevgeny PRIMAKOV at the council meeting reassured investors that the Russian government will not ban free circulation of the US dollar in the country, start nationalization or stop the privatization of state-owned property.

Duma To Consider Budget December 23rd

· Speaker of the Russian State Duma Gennady SELEZNYOV said that debate on the 2,550-page draft 1999 budget and 19 accompanying tax bills will not begin until December 23rd. The Duma must pass the budget in four readings. Prime Minister Yevgeny PRIMAKOV's government wants the budget passed before January so that it can make further plans to pull the nation out of its economic crisis. The passage of the budget could help Russia attract loans from international lenders which have been frozen since August and September. It will form the basis of talks between Russia and the International Monetary Fund (IMF) for new credits to help Russia through its financial crisis. The government and the Duma have battled for months over the budget in years past. However, with PRIMAKOV's wide support in the Communist-dominated Duma, there is hope that the budget can been approved without a lengthy debate. PRIMAKOV said in an interview with ORT television on Saturday that the government had invested a lot of time and effort in drafting the budget and both houses of parliament, "had an opportunity to participate in this work," and therefore their criticisms should have already been heard. He noted that if there are more criticisms then, "We [the

government] are ready to consider all this within limits of logic of coming proposals."

Overall revenues are projected at 11.85 percent of gross domestic product (GDP) and spending is planned at 14.4 percent of GDP. The deficit is targeted at 101.5 billion rubles (about $5.08 billion), or about 2.5 percent of GDP. The budget projects a primary surplus before debt servicing costs of about 70 billion rubles ($3.5 billion), or 1.64 percent of GDP. It sets aside $9.5 billion for servicing the country's foreign debt. Privatization revenues are expected to total 15 billion rubles ($750 million). The budget also sets aside 27 billion rubles ($1.35 million) for pay increases. The money allowances of army officers will increase 60 percent on January 1st and on April 1st the salaries of civilian government employees will rise by 50 percent. The budget is based on predictions of 30 percent inflation in 1999.

Gold, Currency Reserves Down

· According to an official report from Russia's Central Bank, Russia's gold and currency reserves were reduced by about $700 million between November 27th and December 4th from $12.8 billion to $12.1 billion. This is a 5.5 percent drop. In comparison with the beginning of the current year, when the country's gold and currency reserves amounted to $17.8 billion, the December 4th figure is smaller by 32 percent. In November, Russia's gold and currency reserves were reduced by 8 percent from $13.572 billion on November 1 to $12.480 billion on December 1st. During the past month, currency reserves were reduced by 15 percent to the level of $8.175 billion. However, the gold reserves were increased by 10 percent to reach $4.306 billion. The share of foreign currency in the total gold and currency reserves was reduced from 72.5 percent on January 1st to 65.5 percent on December 1st, while the share of gold went up during the same period from 27.5 percent to 34.5 percent.

Business

American Int'l Acquires Zao Nafta Stake

· American International Petroleum Corp. on Monday completed the acquisition of a 25 percent interest in Zao Nafta, a Russian oil and gas exploration and production company, Reuters reported. Zao Nafta owns 17 oil and gas licenses in the Samara and Saratov regions of European Russian covering

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877,000 acres. Total recoverable oil reserves of the licenses based on Russian government estimates is about 200 million barrels. American International Petroleum Corp. said that it paid $300,000 in cash for the stake. The corporation is negotiating with Zao Nafta a plan to gain controlling interest in some licensed areas where commercial development may be implemented.

New Bankruptcy Case Against ORT

· The Federal Service for Insolvency and Financial Improvement (FSDN) submitted to the Moscow Court of Arbitration on Thursday the appeal declaring the Public Russian Television ORT Company to be a bankrupt. The tribunal is to decide on whether it will institute proceedings against the ORT this week. Under the law, it may refuse to consider the FSDN's case. The tribunal withheld the motives or causes which made the FSDN to file the bankruptcy suit, saying the information was classified. ORT, beset by problems, plunged into a deeper crisis after bailiffs spent two days in its offices taking stock of company property, prohibiting the station from providing regularly scheduled programs on the air. On December 1st, deputy prime ministers Valentina MATVIYENKO and Vladimir BULGAK attended a conference on ORT's financial position. Government officials agreed to withdraw suits against ORT and suspend inventory-taking. They also expressed intent to order the Finance Ministry to reschedule ORT's debts to telecommunications companies.

Tuesday Tid-Bit

Russian Leaders Get Make-Overs

· Located within the Gum on Red Square, the L'Oreal Professional Salon has been a favorite place for Moscow's new rich to obtain a new look. Stylist Yelena VASINA was asked by Moskovski Komsomolets how to give some of Russia's leading politicians a spiffy new look. She suggested that Prime Minister Yevgeny PRIMAKOV needs a better haircut. Communist Party leader Gennady ZYUGANOV, in her opinion, would look better in shirts with wider collars and ties with a large knot to offset his large head and wide face. VASINA believes that to update former prime minister Sergei KIRIYENKO's look, he should choose different eyeglass frames with a something more dignified.

European Republics

Latvia Still Interested In NATO Membership

· Latvian President Guntis ULMANIS in an interview with the Japanese NHK TV Network today in Tokyo reiterated his nation's interest of joining NATO. He expressed hope that the issue will be discussed at a NATO summit in Washington next April. ULMANIS said, "I believe that the admission of three Baltic states, including Latvia, into NATO is absolutely necessary for the creation in the 21st century of a stable Europe free of bloodshed and violence." He stressed that in his opinion it is not necessary for Latvia to have nuclear arms on its territory. ULMANIS is completing his first visit to Japan, after meeting with Japanese Prime minister Keizo OBUCHI. During the visit, OBUCHI announced that Japan will open an embassy in Riga in the next fiscal year. Tokyo will provide $350,000 for the purchase of instruments for the Latvian Symphonic Orchestra.

Estonia To Approve Budget Before Year's End?

· The Estonian Cabinet has requested that an extra session of the parliament be convened on December 18th to continue the second reading of the 1999 draft budget. According to the proposal, the budget bill would be the only item on the agenda. Leaders of the United Opposition have approved the idea of an extraordinary session to discuss the budget, but they do not believe that the draft should be endorsed by year's end at all costs. The parliament's last regular session this year is December 17th. The draft budget is not on the parliament's agenda for this week, RFE\RL Newsline reported.

South Caucasus & Central Asia

Rus-Georgian Border Chiefs Tour Georgia

· Russian Federal Border Guard Service Director Colonel-General Konstantin TOTSKY is scheduled to arrive in Georgia on December 16th for a two-day visit. TOTSKY will meet with his Georgian counterpart Valery CHKHEIDZE and Georgian President Eduard SHEVARDNADZE. Later in the day, TOTSKY and CHKHEIDZE will fly out for Batumi where they will meet with Adjaria republican parliament chairman Aslan ABASHIDZE and visit the Russian units which guard the Georgian-Turkish border. On Thursday, TOTSKY and CHKHEIDZE visit Sukhumi and hold meetings with Abkhazian leaders. TOTSKY's

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visit will most likely focus on issues concerning the implementation of the Tblisi December 4th protocol on the procedure for transferring the Georgian border sections guarded by Russian troops as well as land belonging to Russian guard units deployed in Georgia under the Moscow November 3rd, 1998 agreement on border guard cooperation between the two countries. The transfer of the Georgian-Turkish border sections from Russian border troops to Georgian Border Guards will be carried out in two stages—the first will be over by January 1, 1999, and the second by July 1, 1999. Georgia assumed coastal control of Georgian territory in July and the port of Poti in September.

IMF-Georgian Negotiations Inconclusive

· International Monetary Fund (IMF) representative Hunter MUNROE reach inconclusive results after negotiations with Georgia on its reforms. He refused to predict how soon the Georgian lari will stabilize, after loosing almost 50 percent of its value since early December. MUNROE said, "Georgia will receive the support of the international financial organizations only if the government adopts a stronger economic policy." MUNROE said that the IMF will take a decision on whether or not to release the next installment of an ESAF loan after a delegation visits Georgia in January. Georgia has taken active measures to increase tax collection, tighten spending, and eliminate corruption in the bureaucracy. The parliament has passed laws revamping the tax code and consolidating tax legislation. Georgian President Eduard SHEVARDNADZE has ruled out emission of new money to counter the loss in the lari's value. Georgia has stopped intervening in the foreign exchange currency market, allowing the lari to float. It appears that these attempts to meet IMF requirements do not measure up to expectations.

Azeri Protests Iran-Britain Caspian Oil Deal

· Azerbaijan has issued letters of protest to Britain's Lasmo Plc and Royal/Dutch Shell over their agreement with Iran for a Caspian oil exploration study. The agreement covers parts of Azerbaijan's sector

of the Caspian Sea. The Azeri Foreign Ministry issued a statement urging respect for sovereign rights of all the Caspian littoral states and that the agreement is inadmissible and undermines the spirit of cooperation and trust in the region. Lasmo Plc. and Shell signed an agreement with National Iranian Oil Company (NIOC) to explore the disputed area. The agreement was Iran's first step toward oil and gas exploration in the region. Azeri presidential aide Vafa GULUZADE said that if the $19 million, 18-month exploration study proceeds, Azerbaijan will demand the consortium to keep out of its area. This latest dispute with Iran underlines the Caspian's continuing unresolved legal status over a sea shared prior to the Soviet Union's collapse by just Moscow and Tehran. Azerbaijan believes the Caspian Sea should be divided up into sectors according to existing international maritime laws, while Iran has argued for an equal distribution of its resources and a collective status agreement.

Tajik-Iran To Sign Economic Agreements

· Tajik President Emomali RAKHMONOV arrived in Iran on Sunday for a three-day official visit. On his arrival, RAKHMONOV said he plans to discuss the bilateral cooperation and regional problems with Iranian President Sayed Mohammad KHATAMI and stressed the role of Iran in restoring peace in Tajikistan. Iran is the guarantor of the peace treaty signed by the Tajik sides in summer 1997 in Moscow. He said, "The Tajik government is ready for a comprehensive cooperation with Iran." He called on Iranian businessmen to invest in economic projects in Tajikistan. KHATAMI said the two countries should take advantage of the commonalties between them to expand their relations. Prior to the visit, the Tajik government approved draft agreements to be signed with Iran on the energy cooperation, the construction of a Kulyab-Kalai-Humb-Horog highway, the development of the food and processing industries and an Iranian state easy-term credit to Tajikistan. According to Tajik military sources, it is likely that an agreement between the Tajik and Iranian Defense Ministries will be also signed during the visit.

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