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, January 4, 1999

Russian Federation

Politics

Yeltsin, Ivanov Outline Foreign Policy For 1999

· On the eve of the New Year, Russian President Boris YELTSIN outlined the main tasks of the Russian Foreign Ministry for 1999. He said these tasks include stepping up integration in the Commonwealth of Independent States (CIS). Foreign Minister Igor IVANOV said that the tasks also include approving the non-proliferation of weapons of mass destruction, as well as Russia's role in the settlement of crises in Kosovo and Iraq. IVANOV pointed out the greatest challenge is to find a political formula for settling the conflict within Yugoslavia, and to fully implement the UN Security Council resolutions on Iraq. The use of force will not help, IVANOV stressed, and will only aggravate the situation. The last task named by the President calls for invigorating relations with European countries, primarily those in the European Union. IVANOV said that Russia attaches a great importance to the Russian-US dialogue as an important factor of stability in the world as a whole. Russia will also develop relations with Asian partners, primarily China, India and Japan.

Russia Calls For Updating CFE Treaty

· Russia's Foreign Ministry on Saturday called for progress in efforts to update the 1990 Conventional Forces in Europe (CFE) agreement ahead of the North Atlantic Treaty Organization (NATO)'s planned eastward expansion later this year. Russia is worried that NATO's admission of Poland, Hungary and the Czech Republic in April, will radically alter the balance of power in Europe to its disadvantage, according to a Foreign Ministry statement. Without progress, Moscow would not have the right to conduct full inspections of NATO forces on the territory of the new members. "This would jeopardize the very future existence of the present Conventional Forces

in Europe agreement." The 30-nation CFE treaty limits the number of tanks, artillery pieces, aircraft and other non-nuclear arms states can hold. The updated treaty would set individual national arms limits and "territorial ceilings." The foreign ministers of the Organization for Security and Cooperation in Europe (OSCE) member states agreed at their talks in Vienna in December that the main issues concerning the CFE Treaty should be settled within the first month of 1999. Russia hopes to strengthen the role of the OSCE as a pan-European security organization and as a counterweight to an expanded NATO. This is widely viewed as unrealistic by many OSCE member states.

Primakov Signs Anti-Monopoly Law

· Russia's Prime Minister Yevgeny PRIMAKOV on Thursday signed the resolution on the Russian Ministry for Anti-Monopoly Policy and Support to Businesses. Under the resolution, the Ministry is a federal executive power institution implementing state policy of the prevention and limiting of the monopolistic activity and the unfair competition. It is responsible for development of businesses and competition on the market, control over observation of laws on consumer rights and advertisement, and regulation of the activity of communication and transport monopolies. Territorial bodies of the abolished state anti-monopoly committee are now assigned to the Ministry.

Meanwhile, PRIMAKOV hinted that the New Year may bring changes to the government. "No drastic staff cuts will be made,

Today's News Highlights

Russia

Back Wages, Pensions Paid

GLONASS Satellites Launched

European Republics

Parliament Passes 1999 Budget

Rus-Belarus Single Currency

South Caucasus & Central Asia

Shevardnadze Reviews 1998

Socar Signs $2.3B Oil Deal

Japan Grants Kazakh $180M

New Kyrgyz Cabinet Announced

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January 4, 1999

Intercon's Daily

but a regrouping of forces is possible," PRIMAKOV said. He added, "Some of the departments will be strengthened and others cut down...State interests must be defended, the lobbying practice must be done away with, executive discipline must be enhanced and work on documents must be accelerated." He stressed that he will not tolerate inefficiencies. "We cannot turn Russia into an economically prosperous country in just a few months, but it's our duty to do as much as possible." He also pointed out that there will be no raises for state bureaucrats until the poorest citizens in Russia benefit from economic reforms. PRIMAKOV promised that servicemen's earnings and pensions will be increased in 1999.

Economy

Ruble = 20.65/$1.00 (NY rate)

Ruble = 20.65/$1.00 (CB rate)

Cabinet Pays Back Wages And Pensions

· The Russian government has fulfilled its pledge to pay back wages and social allowances. The Russian Finance Ministry said that 10.29 billion rubles were allocated in December to pay wages to the personnel of budget-financed institutions and cash allowances to servicemen. As much as 699.3 million rubles were received by educational establishments, 543.1 million rubles by scientific institutions, 389.5 million rubles by public health services, 88 million rubles by institutions of culture and art, and 74.8 million rubles by the mass media. All the cash allowances to servicemen of the Defense Ministry and law enforcement bodies were paid in full, as well as debts owed to them. As much as 325.5 million rubles were allocated from the federal budget to pay scholarships. The Pensions Fund of the Russian Federation received 3 billion rubles from the federal budget, which will pay pensions for December 1998. According to a Finance Ministry press release, the wages debt remains practically the same, despite these transfers. The Finance Ministry believes that the budget-financed employees, who are not paid from federal sources, still do not get regular payments because of unrealistic budgets and incorrect use of funds received from the federal budget. The Finance Ministry early in 1999, is planning to draw up a timetable for the payment of wages. It also is making plans for settling the remaining debt to the budget-financed institutions.

CB To Set Ruble/Euro Rate

· As of January 1st, the Russian Central Bank will set the official exchange rate of the euro to the ruble, as well as make payments, settlements and financial transactions in the euro as a reserve currency. According to the bank the euro to ruble exchange rate will be based on the euro's rate to the US dollar on international currency markets. The official exchange rates of the national currencies of the countries participating in the Economic and Currency Union to the ruble will be established by the Central Bank on the basis of the official rate of the euro to the ruble by using the rate at which the euro is converted into each of the national currencies of the member countries set as of December 31, 1998.

Business

Gazprom Denies Turkmen Gas Transit Deal

· On December 28, 1998, Russia's gas monopoly Gazprom denied reports in Kiev that Gazprom has signed an agreement with Ukraine's Neftegaz Ukrainy on the transit of Turkmen gas through Russia to Ukraine. Gazprom's press service called reports from Ukraine "premature." It said that Gazprom and Neftegaz Ukrainy signed only a contract on Russian gas supplies in 1999. Under this deal, Gazprom will supply 30 billion cubic meters of gas to Ukraine as Russia's payment for the transit of its natural gas through Ukraine. The contract leaves the price of gas and its transit in Ukraine at its current level and provides for a delivery of up to 25 billion cubic meters of gas by independent suppliers to Ukrainian markets on commercial terms. Gazprom's press service pointed out that the transit of Turkmen gas was discussed, but that Ukraine and Turkmenistan failed to resolve how Gazprom would be compensated for its transportation costs.

Russian Launches Three GLONASS Satellites

· Russia's Defense Ministry launched three GLONASS (Global Navigation Satellite System) satellites from the Baikonur cosmodrome in Kazakhstan on Wednesday. According to the press service of Strategic Rocket Forces, the satellites will fill in the gap in the global navigation space system. The system developed by the Russian military will enable ships, planes, and ground troops to pinpoint their position anywhere on earth within 50 feet. This is similar to the US network called the Global Positioning System (GPS). The Russian system can be used

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by civilians who are issued the proper equipment. The satellites, designed and made by the Reshetnev research and production association of applied mechanics, are expected to last for three years. When completed, GLONASS will consist of 24 satellites, like the US version. After Wednesday's launch 21 satellites were in orbit.

larussian counterpart Alexander LUKASHENKO signed an agreement on December 25, 1998, calling for a merger of the two former Soviet republics as early as next year with a single currency. The agreement was regarded as an important step towards integration. Russia and Belarus signed a union agreement in 1996, boosting political, economic and military ties between the two nations, but stopping short of creating one state.

Russian First Deputy Prime Minister Vadim GUSTOV said Russia and Belarus will have a single currency and a joint budget from the year 2000. However, he said, that each country will also preserve its own national budget. GUSTOV said, "The joint budget of the Union of Russia and Belarus will be written on the basis of the European Union model, that is, the national budgets of the two countries will be preserved." GUSTOV noted that a mechanism for introducing the Union's single currency would be worked out in the first half of 1999, and it will be decided then, "what to call it, who is to issue it, and how it will work." According to GUSTOV, after that "the presidents of Russia and Belarus are to make a political decision on when to put this currency into circulation."

South Caucasus & Central Asia

Georgia Survives Drought And Economic Crisis

· Georgian President Eduard SHEVARDNADZE in his national address said that 1998 was a serious test not only for the Georgian economy, but for the whole country. The situation in the country was affected by the world financial crisis and the severe drought in Georgia, which was the worst in the past 100 years. He said, "While last year Georgia harvested a record high grain crop of one million tons, this year we collected only half of this amount. "SHEVARDNADZE added, "Georgia has passed this test and managed to prevent an economic depression." He noted that despite the difficulties Georgia's gross domestic product grew by 6 percent to 8 percent in 1998, compared to 11 percent in 1997, but there was no growth in industry. However, the President said that the number of countries that made investments in Georgia's economy increased in 1998, to more than 40 countries.

Socar, Four Japanese Co. Sign $2.3B Oil Deal

· Azerbaijan's state oil company, Socar, Japan

European Republics

Prominent Ukrainian Murdered

· Mikhail TOKAR, a prominent entrepreneur, philanthropist, and legislator, was found dead last Tuesday in the Transcarpathian region. His body, found just outside his home along side his Mercedes, was riddled with 20 bullets. Police have determined that the assassins were two young men. A foreign-made machine pistol and a Kalashnikov assault rifle were found at the crime scene. Ukraine's Deputy Interior Minister Nikolai DZHIGA is supervising the investigation. TOKAR was formerly known as Gosha, a gangland leader. Since then, he has made a significant lifestyle change, making donations to orphanages, schools and Afghan war veterans. TOKAR was known for helping his "colleagues" break from their criminal pasts and start new fulfilling lives. It is believed that his murder is associated with his gang past rather than his legislative role.

Ukraine Parliament Approves 1999 Budget

· After a failed 3 hour session between the Ukrainian government and the parliamentary committee for budget-related issues on December 28, 1998, the parliament on December 31st approved the 1999 budget in a vote of 226 to two. The rate of budget deficit proved a real stumbling-block in the previous session. The government advocated the 1 percent budget deficit, whereas the parliamentary committee made a stand for a balanced budget. The approved budget will have a total of 23.98 gryvnias ($6.8 billion) in revenues, but a deficit of 1.24 billion gryvnias. The deficit will be covered by foreign loans of 630 million gryvnias and government domestic bonds of 610 million gryvnias. The Cabinet agreed to allocate some funds, which had been earmarked to pay debt obligations, to finance education and health care programs.

Rus-Belarus Common Currency In The Works

· Russian President Boris YELTSIN and his Be

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Petroleum Exploration Co. (Japex), Indonesia Petroleum Ltd. (Inpex), Itochu Corp., and Teikoku Oil Co. on December 25, 1998 signed a $2.3 billion contract to rehabilitate three Caspian offshore oil fields. The oil companies will explore and develop Yanan-Tava, Ateshgyakh-3, and Muran-Deniz. Socar President Natig ALIYEV said that the fields contain 75 million to 90 million tons of recoverable reserves. Japex is the project's operator with a 22.5 percent stake; Inpex holds 12.5 percent; Teikoku 7.5 percent, and Itochu 7.5 percent. Socar controls a 50 percent stake. The contract is intended to run for 25 years with the option to extend for another five years. This contract is the first time Japanese petroleum developers will explore Caspian Sea reserves without a major alliance with international operators.

Japan Grants $180M To Kazakhstan

· Kazakhstan and Japan have signed an agreement on a 22.1 billion yen credit (about $180 million), which the Kazakh side will spend on the reconstruction of the Astana International Airport, according to the Kazakh Foreign Ministry. The credit was granted for a period of thirty years at an annual interest of 2.2 percent with a delay of payments for the first ten years. The money will be spent on the reconstruction of the landing and take-off strips. Plans were also drawn up for the construction of new passenger and cargo terminals, development of the entire infrastructure of the airport.

The Japanese side has been engaged in the free-of-charge prospecting of oil and gas in the northwestern part of the region adjoining the Aral Sea. The drilling of boreholes has already begun. If sufficient reserves of oil and gas are found, the investments in that project could rise to more than $1.3 billion.

New Kyrgyz Government Installed

· Kyrgyzstan's Prime Minister Zhumabek IBRAIMOV, appointed by Kyrgyz President Asklar AKAYEV on December 25, 1998, has formed a new Cabinet. Before his appointment IBRAIMOV headed

Kyrgyzstan's property fund and Presidential administration, as well as represented AKAYEV in the parliament. The nation's previous government, headed by Kubanychbek ZHUMALIYEV was sacked in view of the deteriorating economy. Kyrgyz Ambassador to Belarus Esengul OMURALIYEV was appointed Minister of Industry and Foreign Relations. Mira JANGAROCHEVA became the Minister of Labor and Social Protection, while incumbent Central Bank chief Marat SULTANOV is now the Finance Minister. Naryn Region Governor Emil UZAKBAYEV was appointed the Agricultural Minister. Retaining their positions are Interior Minister Amurbek KUTUYEV, Security Minister Misir ASHIRKULOV, Defense Minister Myrzakan ZUBANOV, and Foreign Affairs Minister Muratbek IMANALIYEV. Prime Minister IBRAIMOV pointed out that, "the government structure will be flexible and everything will depend on changes in the economic situation in the country. Should the situation change, new personnel appointments may ensue." He will meet with Russian Prime Minister Yevgeny PRIMAKOV during an official visit to Moscow on January 12th. IBRAIMOV said, "Russia has always been and still is our priority. We are ready for a deeper and closer union between the two countries."

Uzbek To Cancel Import Duties

· Uzbekistan President Islam Abduganiyevich KARIMOV on Wednesday issued a presidential decree approving the government's decision to lift customs duties on some imported goods. The decision is aimed at alleviating the negative impact on the country's economy caused by the world economic chaos and ensuring the balance of supply and demand. Under the decision, meat, milk, marine products, tea, flour, edible oil, children's food, sugar, leather products and medicine will be exempted from import duties. The decree also ordered the Customs Ministry to strengthen its administration in order to guarantee the quality of imported goods and at the same time take measures to curb the illegal exports of food and other daily necessities.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Jennifer M. Rhodes, Principal Editor

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