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, January 19, 1999

Russian Federation

Politics

Yeltsin To Face More Tests Before Surgery

· Russian President Boris YELTSIN's chief doctor Sergei MIRONOV said that the President will spend two to three weeks in the hospital recovering from a bleeding stomach ulcer. He was admitted to the Central Clinical Hospital on Sunday. YELTSIN has been advised not to travel abroad for the next three months, canceling planned trips to France on January 28th, Uzbekistan, and Vienna. He is also unlikely to participate in scheduled meetings with International Monetary Fund and World Bank officials, as well as US Secretary of State Madeleine ALBRIGHT. MIRONOV said he believed surgery would not be necessary, but added a final decision on whether to operate or not hinges on tests set for Wednesday. "There is every reason to believe that we will overcome the situation without surgery," MIRONOV told the NTV television channel. According to the President's Doctor, the ulcer could have been caused by a combination of factors, such as bypass surgery in November 1996, lowered immunity, and the burden of medication and stress. Chief of staff Nikolai BORDYUZHA said that doctors are not allowing anyone to visit the President except family and YELTSIN is confined strictly to bed. The President's condition is stabilizing, however the state of Russia's economy, independent of YELTSIN's health condition, has been deteriorating. This latest bout of ill health for the President at a time of increasing difficulties for Russia's citizens, bankers, and businessmen raises new concerns about his ability to serve out his term. Hard-liner Communist Viktor ILYUKHIN said, "It could strengthen the argument for an early presidential election. It's no secret the President is ill, and seriously ill." ILYUKHIN on Monday was admitted to the same hospital as YELTSIN for kidney failure. Russian State Duma

Speaker Gennady SELEZNYOV called on YELTSIN to relinquish his power over the security ministries and Russia's nuclear arsenal to Prime Minister Yevgeny PRIMAKOV as long as he is ill.

NDR To Elect New Chairman

· Our Home is Russia (NDR) movement will hold elections for a new chairman of the party in the Russian State Duma today. The election, to be held after the plenary meeting considering the 1999 draft budget, will be presided over by NDR leader Viktor CHERNOMYRDIN. A contender, in order to be elected, must get the backing of a half of the deputies attending the faction meeting by open or secret ballot. Deputy chairman of the party Boris KUZNETSOV is performing the duties of the chairman since the removal of Alexander SHOKHIN on December 24, 1998, over differences with CHERNOMYRDIN. Candidates for the chairmanship include Boris KUZNETSOV, Vladimir ZORIN, Vladimir BABICHEV, Valery YAZEV, Roman POPKOVICH, Andrei POLYAKOV, and Vladimir RYZHKOV. Duma deputy speaker RYZHKOV said he is ready to head the party, if the movement insists.

Car Explodes Outside US Embassy

· A Zhiguli car near the US embassy in Moscow on Sunday exploded with such a force that it shattered some windows in nearby buildings. The Russian Federal Security service (FSB), however, quickly ruled out any terrorist action. The blast was caused by a fuel leak in the car, destroying the vehicle, which

Today's News Highlights

Russia

Second Reading Of 1999 Budget

LUKoil-Sidanko To Merge?

European Republics

Luzhkov Proposes Baltic Zones

Ukraine Pres. Elections Oct. 31

South Caucasus & Central Asia

Georgian-Russian Relations

Aliyev Hospitallized In Turkey

Us Embassy In Tajik Re-opens

Germany Donates Equipment

Politics-Economics-Business

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Tuesday

January 19, 1999

Intercon's Daily

belonged to one of the embassy's Russian guards. The Zhiguli car was parked several meters away from a police post guarding the embassy. There was no fire in the car after the explosion and nobody was hurt. Investigation of the scene continues and the area is sealed off by police cars. The explosion seems to have been so insignificant that the staff of the embassy initially paid no attention to it. One spokesman said, "Was there an explosion? I have not noticed anything," and later added a "no comment" remark.

Economy

Ruble = 22.35/$1.00 (NY rate)

Ruble = 22.98/$1.00 (CB rate)

Budget To Pass Second Reading?

· The Russian State Duma today opened debates on the second reading of the 1999 draft budget. First Deputy Prime Minister Yuri MASLYUKOV, Deputy Prime Minister Valentina MATVIYENKO, Finance Minister Mikhail ZADORNOV and Economics Minister Andrei SHAPOVALYANTS will present the budget to the Duma. Duma deputies passed the first reading of the document on December 24, 1998. At that time, they approved the main budget targets such as expenditure, revenue and deficit. Communist Party leader Gennady ZYUGANOV said that his party will vote for the 1999 draft federal budget if its specific proposals and amendments are accepted. "We have a number of serious remarks on articles connected with the support for actual production—from the textile to the machine-building industry—in order to ensure that the economic center really goes into operation and the government is able to fulfill its promise to raise the output from the second quarter of this year," ZYUGANOV said. Our Home is Russia's (NDR) press secretary Vladimir KUZNETSOV said it will vote for the budget. Leader of the Liberal Democratic Party faction Vladimir ZHIRINOVSKY confirmed his faction, "would vote for the budget be what it may," but only on condition that the interests of the military and the children shall be guaranteed to the maximum in the new budget. Yabloko leader Grigory YAVLINSKY has declared that his faction would unanimously vote against the budget. International Monetary Fund First Deputy Director Stanley FISCHER said the budget is, "neither sufficiently ambitious nor realistic." However, the budget is expected to be passed in the second reading despite

being called a bad budget and the protests of Yabloko. If results are favorable today, the deputies are to consider the third reading of the document on January 29th and fourth and final reading on February 4th. In accordance with legislation, after the draft budget is considered and adopted in four readings by the State Duma, it is then referred to the Federation Council for endorsement, and after that it is sent to the President for signature.

Tax Collections Increase In December

· Russian Tax Service Chief Georgy BOOS said that tax collections for the federal budget in December totaled 14.5 billion rubles. This is a 7 percent rise in collections from November of one billion rubles ($44 million) and more than 2 billion rubles compared with October. He said tax services for the first time managed to surpass monthly collection targets, but failed to meet the total target set by the law on the 1998 budget. BOOS said 1998 budget implementation is being summed up. Exact revenues will be known by January 26th and spending by January 29th. "We could have had big revenues in the last year if it were not for problems with commercial banks," BOOS said. "All of our measures that recently aimed at finding out additional reserves of collecting taxes, in particular the VAT or alcohol market, are just compensating for money that is stuck at present in commercial banks," he said. Approximately 17 billion rubles of taxes are caught in "dead banks" which became insolvent after the financial crisis and cannot be transferred to the state budget. The Tax ministry will bankrupt tax evaders or will arrest their property and accounts, BOOS warned. Tax Chief BOOS is attending the fourth meeting of tax service chiefs of Russia, Belarus, Kazakhstan and Kyrgyzstan.

Business

Lukoil, Sidanko Merger Considered?

· A merger between Russia's largest oil company LUKoil and Sidanko again is being considered. Last Spring, word of a possible merger raised hopes of many in the oil industry. LUKoil president Vagit ALEKPEROV then said that his company could buy or take over Sidanko, but the deal did not materialize. LUKoil vice president Leonid FEDUN on the New Year's Eve said that mergers of Russian oil companies are inevitable and reflective of worldwide tendencies, but the process in impeded by corporate

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ambitions. The summary output of LUKoil and Sidanko is an estimated 80 million tons a year, or 25 percent of Russia's total.

Electricity Increase Not Severe

· Deputy head of the Unified Energy Systems of Russia management Oleg BRITVIN said in a live program of the Echo of Moscow radio station said that the 30 percent increase of electricity tariffs in Russia will not hurt its customers. He noted that the monthly spending on electricity by a family of four will not exceed "the price of one kilogram of meat" after the tariffs are raised. The larger electricity tariffs for the population will be accompanied by smaller electricity tariffs for industries, and that will have generally favorable social consequences, BRITVIN said. Under the governmental plan of gradually unified electricity tariffs for the citizens and businesses, the tariffs for Russian residents will amount to 60 percent of the electricity prime cost in 1999. However, if the inflation speeds up, "it will be hard to predict the actual rise of electricity tariffs this year," he added.

Far East Co. Find South Korean Partners

· More than 250 Far Eastern companies found partners in South Korea in 1998 with the help of the mission of the Korean state agency for promoting development of trade and investments (KOTRA) in Vladivostok. Manager of the KOTRA mission in Vladivostok Stanislav NIKULIN noted that the volume of trade operations between Russian and Korean businessmen registered through the mission amounted to $22 million. NIKULIN said that the trade activity of Russian companies is gradually returning to the pre-crisis level.

India To Buy More Russian T-90 Tanks

· India is expected to buy 300 "state-of-art" Russian T-90s battle tanks equipped with the latest high-precision armaments and enhanced protection levels. India and Russia are to sign a $750 million deal for the sale of 300 T-90s tanks to the Indian army this week. India will make an outright purchase of 100 T-90s from Russia, while another 200 will be manufactured in India under license, according to the Indian Defense Ministry. The Indian command is going to arm with the new tanks five regiments to spearhead the army corpses deployed near India's border with Pakistan. The T-90 version for India will be equipped with reinforced engines, dynamic protection sys

tems and standard arms that include a 125-millimeter gun which can fire guided self-propelled missiles. The T-90s will replace India's aging Vijayanta and T-55 tanks. Russia's latest T-90 tanks have been through tests, but are not in serial production.

European Republics

Luzhkov Proposes Baltic Zones

· Moscow Mayor Yuri LUZHKOV confirmed Russia's desire to create a zone of stability and cooperation in the Baltic region. LUZHKOV noted that one plan of action is to reduce by more than 40 percent of Russia's forces in the northwest, announced by Russian President Boris YELTSIN in Sweden a year ago. LUZHKOV said that Moscow has considerable interest in the development of ties with all countries in the region, including with the Baltic states. He said, "we sincerely wish to solve the existing problems in order to restore economic, trade and other ties with these states." The Mayor said his city will do its best to create a favorable climate for foreign investors and establish transparent and clear rules of game for businesses.

Ukraine Presidential Elections Set For Oct. 31st

· The Ukrainian parliament on Friday in a vote of 232 to 23 approved a law for Ukraine to hold its presidential election on October 31st. The law stipulated that the presidential election be held on the last Sunday of October in the last year of the president's term. The parliament may make resolutions on the election no fewer than 180 days prior to the voting date. The president is directly elected for a period of five years and may hold office for no more than two consecutive terms, according to the country's constitution adopted on June 28,1996. A candidate must be nominated by a political party or group of more than 500 people and collected 1 million signatures of endorsement. Ukrainian President Leonid KUCHMA is expected to seek re-election. Last week, the parliament decided to submit a bill abolishing the post of president to the Constitutional Court. A ruling on this amendment is expected in a week. Deputy speaker Viktor MEDVEDCHUK expressed doubt that the office of the president would be abolished. KUCHMA said he will defend his position, not permitting the matter to develop further. Prime Minister Valery PUSTOVOITENKO has called on politicians, scientists, and cultural workers to form a nation wide

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movement called Zlagoda or Harmony to back KUCHMA. The pro-presidential People's Democratic Party, of which PUSTOVOITENKO is an active member, and United Social Democratic Party are expected to form Zlagoda's core.

South Caucasus & Central Asia

Chitaya Welcomes Relations With Russia

· Head of the foreign relations committee of the Georgian parliament Kakha CHITAYA on Georgian television Monday said, "I believe that the formation of the relations of strategic partnership between Georgia and Russia is very important not only for Georgia, but also for Russia." He stressed that, "the absence of real strategic partnership between the two countries is inflicting serious damage on the true interests of Russia itself." CHITAYA expressed hope that the Russian State Duma would ratify this year the framework treaty between Georgia and Russia, signed by the Russian President Boris YELTSIN and Georgian President Eduard SHEVARDNADZE in February 1994 and ratified by the Georgian parliament three years ago. "I think most Russian politicians realize perfectly well how necessary it is to have the treaty ratified and how important it is for both countries to establish relations of strategic partnership," he said.

Azeri President Takes Ill

· Azeri President Geidar ALIYEV, on Sunday, was flown to a military hospital in Ankara, Turkey for bronchitis and a respiratory infection. Azeri government officials deny rumors that ALIYEV is suffering from cardiac problems. The Azeri President suffered a severe heart attack in 1988. US heart surgeon Michael DEBAKEY clarified that his trip to Baku in December was for consultations on the construction of a cardiovascular center and not to examine ALIYEV. A group of six medics, including ALIYEV's personal doctor, examined the Azeri leader on Monday to check the condition of his heart and lungs. ALIYEV was re-elected in October for a second five-year term. He has ruled Azerbaijan since 1993, making

crucial decisions which have brought billions of investment dollars to the oil rich nation. ALIYEV's illness and absence raises concerns over the stability of Azerbaijan racked by civil war and several coup attempts. President of the Pennzoil Caspian Corporation Igor EFFIMOFF said, "ALIYEV is the one who has created the fertile environment for investment here, so should something happen to him, everyone is going to hope that what he laid down will continue," The New York Times reported. President of the parliament Murtuz ALESKEROV will run the country in ALIYEV's absence, which is not expected to last more than one week.

US Opens Embassy In Tajikistan

· US Ambassador to Tajikistan Robert FINN said that the embassy has resumed normal operations after being closed since September because of terrorism concerns. Embassy employees have received housing that meets international security standards. The embassy, located in a hotel in Dushanbe, was closed following an international reassessment of security after the bombings of the Kenyan and Tanzanian embassies. FINN also announced that the US plans to allocate $47 million to Tajikistan in 1999. Of that figure, $30 million will be spend on food products. FINN believes that Tajikistan has passed a critical point and is working on a fresh new way of life.

Germany Donates Equipment To Tajikistan

· Germany's federal criminal police have donated several thousand dollars worth of computers and other equipment to the Tajik commission on narcotic drugs. The donation was passed over to Tajikistan by Ambassador Mathias MEYERS on Saturday. The Ambassador hopes that the equipment will help Tajik police officers to expose more drug peddlers. Director of the Central Asian Office of the UN Program on International Drug Control Bogdan LISOVIC noted during a recent visit that other nations are prepared to help Tajikistan combat its drug problems. According to him, $1.5 million were allocated to the Tajik commission on narcotic drugs last year to strengthen its material and technical base.

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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