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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, January 5, 1999

minister Viktor CHERNOMYRDIN declined in popularity from 2 percent to 1 percent. Less than 1 percent would vote for former first deputy prime minister Boris NEMTSOV, down from 6 percent in December, 1997. Support for Liberal Democratic Party leader Vladimir ZHIRONOVSKY remained unchanged at 4 percent. In addition, five percent of respondents said they would vote against all candidates; 10 percent said they would not vote; and 15 percent said their choice was undecided. However, 70 percent of 6,000 Russians surveyed expressed an interest in presidential elections. It appears that Russians are already looking for a new leader and discounting YELTSIN's feeble attempts to rebuild Russia's economic welfare.

Compromising Materials Flash On Internet

· The Financial Times has reported that a few weeks ago compromising material on the Kremlin and prominent politicians flashed up on the Internet. The site was disabled in a few hours. On 300 lurid pages, the site displayed transcripts of confidential conversations between Kremlin officials and personal details of prominent politicians. It was reported that only Federal Security Service (FSB) could have gathered this type of information. Another organization with access to confidential matters is the governmental intelligence information protection agency, FAPSI. It is unknown who posted the site and for what political purposes. It is estimated that the material was available to 1 million Internet users in Russia. Comment: One can possibly conclude that as So

Russian Federation


Yeltsin Era Over Before Term Ends

· Although 18 months of his term remain before presidential elections in 2000, Russian President Boris YELTSIN's regime is crumbling. In 1998, YELTSIN has been plagued by questions of his physical and mental capabilities. He has heightened concerns around his ability to rule by constantly changing members of his Cabinet and its focus. Russia on August 17, 1998, was forced to devalue the ruble and default on its domestic debt, leading to the removal of almost all the "young reformers" from the government and replacement of Soviet-era apparatchiks to prominent posts. These include Central Bank chairman Viktor GERASHCHENKO and First Deputy Prime Minister Yuri MASLYUKOV. YELTSIN also appointed his Foreign Minister Yevgeny PRIMAKOV to Prime Minister and handed over much of his power to PRIMAKOV. With YELTSIN on the downward slide of his term and dragging his feet to implement needed reforms to pull the country out of its economic despair, presidential contenders are gaining popularity. New indicators show that the popularity of Russia's up-and-coming leaders has fluctuated from 1997 through 1998. According to a poll conducted by the Sociology and Parliamentarism Institute, support for the leader of the Communist Party Gennady ZYUGANOV increased from 14 percent in December 1997 to 18 percent last month. If elections were held today, Yabloko leader Grigory YAVLINSKY would receive 13 percent of the vote, a rise from 8 percent in 1997. Only 4 percent of Russians would choose Prime Minister Yevgeny PRIMAKOV and 3 percent would vote for former prime minister Sergei KIRIYENKO. Krasnoyarsk Governor Alexander LEBED's popularity dropped from 10 percent to 7 percent in December, 1998. Leader of Our Home is Russia and former prime

Today's News Highlights


Plutonium For Peaceful Means

Tokobank Declared Bankrupt

European Republics

Ukraine Banks To Convert Euro

Latvia Seeks Leadership In EU

South Caucasus & Central Asia

Rus-Armenia On Relations

Nazarbayev Hold Rally In Almaty

New Uzbek Poltical Party




January 5, 1999

Intercon's Daily

viet-era policies return, so too do old tactics to damage popular opinions of politicians known as Kompromat, or compromising material, with a modern global access twist. It has also been reported in the press that the FSB is taking a more active role in politics, by leaking sensitive information, in support of the resurgence of the Communist Party. However, FAPSI is in the premier position, possessing information critical to Russia and other nations.

Plutonium Converted For Peaceful Means

· Russian specialists from the Research Institute of Nuclear Reactors in the city of Dimitrovgrad, Ulyanovsk Region have developed and practiced a new "dry" technique to convert weapons plutonium into fuel for nuclear reactors. They have processed eight kilograms of plutonium with the new technology and have been heating the building of the institute and the adjacent residential areas since the beginning of January. The fuel obtained will be enough to provide heat until April. According to the estimates of Dimitrovgrad specialists, this is "the technology of the third millennium," because it provides for the turning of weapons plutonium into fuel for nuclear reactors without an enormous amount of water, which is usually needed for working with nuclear components. The new system will considerably reduce the expenses of processing plutonium. Director of the Research Institute Alexey GRACHYOV, "Humanity has accumulated thousands of tons of weapons plutonium, but we were the first to use it for peaceful purposes."

Meanwhile, the Russian Fuel and Energy Ministry is planning a conference to be held in Irkutsk on January 27th to 29th. The conference's agenda includes the delivery of raw materials to the Angarsk Oil Refinery, prospects of the development of the Kovytkino gas condensate deposit, the export of electricity to China, and on the development of coal mining in the area.


Ruble = 20.65/$1.00 (NY rate)

Ruble = 20.65/$1.00 (CB rate)

Ruble = 24.09/1 euro (CB rate)

Tokobank Declared Bankrupt

· A Moscow court on December 29th declared Tokobank bankrupt. The bank, which was once one

of Russia's largest, ran into problems even before the devaluation of the ruble on August 17th. In May, the Central Bank had taken over its management. According to an audit, the bank owes 7.8 billion rubles ($378 million), while its assets only amount to 3.4 billion rubles, RFE\RL Newsline reported.

Economic Figures For 1998 And Predictions

· The Russian State Statistics Committee on Thursday said inflation in Russia reached 84.4 percent in 1998, compared with 11 percent in 1997. The high inflation was attributed to the financial crises and two government reshuffles in 1998. The consumer price in December rose faster than in November by 11.6 percent against 5.7 percent. The average daily price increase stood at 0.355 percent in December against 0.184 percent in November. Foodstuffs in 1998, were 96.9 percent more expensive, compared with 9.1 percent in 1997, and the prices on non-food items went up 99.5 percent, compared with 8.1 percent in 1997. Tariffs and services increased 18.3 percent against 22.5 percent in 1997. In Moscow, inflation was 109.6 percent in 1998, showing that prices rose by 2.1 times.

The Russian ruble fell by a dramatic 71 percent against the US dollar over 1998. On December 30, the ruble closed at 20.6473 to the dollar compared to six to one on January 6, 1998. The sharpest slide followed the August 17 Central Bank decision to unhook the ruble from its stable dollar peg. Chairman of the State Duma Committee for the Budget, Banks, and Finances Alexander ZHUKOV said in a live-broadcasting program Monday said that the dollar's exchange rate, equal to 21.5 rubles, will probably remain the same for the first quarter of 1999. "It is obvious that later the exchange rate will exceed this figure, and its level will depend on the policy, pursued by the state," he added.

The International Monetary Fund in its World Economic Outlook forecasts that Russian output will contract by 5.7 percent in 1998 and 8.3 percent in 1999. Chase Securities also forecasts devastation for the Russian economy in 1999. The US bank predicts that whereas $45.6 billion of foreign investment poured into Russia in 1997, there will be reversal of capital flows resulting in a net flight of $3 billion in 1999. Chase estimates an additional $17.1 billion of domestic capital flight in 1999.

When you need to know it as it happens




January 5, 1999

Intercon's Daily


Gazprom To Accept Euro In Settlements

· Russian gas monopoly Gazprom Friday said that it is fully prepared for the introduction of clearing settlements in the euro in the 11 countries of the European Currency Union. In a company statement former Central Bank chairman and now Gazprom deputy board chairman Sergei DUBININ, who is in charge of the firm's financial questions said, "the Russian gas company sees no obstacle to make settlements, starting from January 1, with its foreign trading partners in the new currency." Gazprom has scrutinized all of its foreign contracts to see if any additional amendments or clarifications are needed in connection with the upcoming settlements in the euro. Gazprom and Gazprombank, Natsionalny Rezervny Bank and Vneshtorgbak, through which Gazprom services its financial flows and export earnings, have consulted Western banks and confirm they are technically ready for servicing the gas concern's finances in the euro. "It is important, of course, what share the euro will have in the package of reserve currencies by a decision of the Russian government. This will determine the situation on the Russian market and a dialogue between the euro and the dollar," DUBININ added.

Tuesday Tid-Bits

Hot New Years Night In St. Petersburg

· The typical New Year's celebration of confetti and noisemakers was interrupted in St. Petersburg by sirens from the city's fire engines. On New Year's night, the St. Petersburg fire fighters had to put out 20 fires caused by careless use of Bengal lights and fire-crackers. City residents repeatedly complained to the police about public disturbance of the peace by "pyro-technically minded youngsters." Moscow suffered similar problems and a rise in traffic accidents and crimes.

Candy Factory Produces Monica Chocolates

· Khmelnytsky Candy Factory in Ukraine has named its newest chocolate candybar after Monica LEWINSKY. Plant officials on Christmas Eve said that the rectangular chocolates bearing the name Monica are intended to show support for US President Bill CLINTON. Several years ago CLINTON visited the plant, which has been fond of the troubled US President ever since. The plant is hoping its

Monica chocolates will be in large demand on the market. Its Israeli partner has ordered a large batch.

European Republics

Ukraine's Banks To Convert Euro

· Ukrainian commercial banks are offering conversion of currencies of countries of the European Union into euro. Authorized Ukrainian banks are also permitted to buy and sell the euro at the Ukrainian and Kiev interbank currency exchanges. The bidding for euro will begin on January 11th. Over the recent years, 80 percent to 85 percent of commercial transactions in Ukraine happened in dollars and a small part in European currencies. Bankers predict that with the introduction of euro the situation will probably change. The new European currency holds a promise for economic subjects in Ukraine for the use in settlement under foreign economic contracts. The National Bank of Ukraine studied the situation in the European currency market and held consultations with Western bankers. Ukrainian bankers predict that if the situation in the economy is stable, Ukrainian banks will keep their assets in euro in a year. It is possible that the euro may become the main currency for export and import operations.

Latvia Seeks Leadership In Assoc. EU

· Latvian Prime Minister Vilis KRISTOPANS on Friday in an interview on the national television said that Latvia's primary goal for 1999 is to become a leader among the 11 associate members of the European Union (EU). He said that Latvia has a chance to do that if it ensures further economic growth, improves living standards and perfects laws. Latvia already holds the lead in the region in terms of export services. The amount of transit export cargoes passing through its territory exceeds that in Estonia and Lithuania together. KRISTOPANS believes that transit will not drop because Russia continues to boost exports to the West. He noted, however, that local manufacturers are suffering but are covering losses with profits from services. KRISTOPANS expressed the hope that Latvia will be invited to Helsinki in December to begin accession talks with the European Union.

South Caucasus & Central Asia

Rus-Armenia Foreign Min. Discuss Relations

· Russian Foreign Minister Igor IVANOV and his

When you need to know it as it happens




January 5, 1999

Intercon's Daily

Armenian counter part Vartan OSKANYAN on December 28, 1998 met in Moscow for a regular consultative meeting on bilateral relations. Both ministers expressed satisfaction with the talks. Russia and Armenia have identified concrete ways to invigorating their bilateral political dialogue, and developing trade and economic relations and cooperation in international organizations. IVANOV noted that the Nagorno-Karabakh issue was discussed in detail "in light of the additional steps that have to be taken in the interests of its settlement." He believes that points of disagreement can be worked out through a constructive direct dialogue with the assistance of the Minsk Group and Russia. OSKANYAN stated that, "the main question for us is to resume talks on equal terms," which he hopes will take place in 1999. IVANOV stressed, "Russia is not interested in the preservation of any conflict situations on the territory of CIS. On the contrary, we are interested in their full and final settlement, because this is in line with our national, strategic, long-term interests, and we intend to promote it." He said that, "speculations about Russia's alleged interest in the maintenance of tension in various regions for the sake of preserving its presence or its influence there are absolutely groundless." He added, "within the framework of that commission [tripartite intergovernmental commission] we have the right to discuss any problems and to remove the suspicions that may arise, using the way of a dialogue." OSKANYAN said that Armenian-Russian military cooperation, "is not directed in any way against any third country." It is absolutely transparent and is fully kept within the framework of European cooperation on conventional armaments, he said. The ministers also discussed international issues and global problems concerning the new world order. During his visit in Moscow, OSKANYAN met with Russian First Deputy Premier Vadim GUSTOV and with the Russian president's envoy in negotiating political settlement in Nagorny Karabakh, Yuri YUKALOV.

Nazarbayev Presents Economic Plan

· On Monday, Kazakh President Nursultan

NAZARBAYEV's supporters held a rally in Almaty, at which the presidential candidate attacked his opponents' economic plans and presented his. NAZARBAYEV called his opponents' plans populist policies that would lead the country to ruin. He said if re-elected he will, "continue to pursue the creation of an independent, democratic, and economically developed state." He would also spend $100 million to support domestic manufacturers and launch a campaign for consumers to buy Kazakh made products. He said he will tighten controls on the banking system, promote political stability and ethnic harmony, combat corruption and crime, develop an effective social policy, and enhance ties with other Commonwealth of Independent States. NAZARBAYEV said that the International Monetary Fund will extend a $217 million loan and the World Bank $75 million in loans. He noted that Kazakhstan's gold and hard currency reserves remained stable at $2 billion in the end of 1998. Inflation was only 2 percent in 1998, instead of an estimated 9 percent to 10 percent. The early presidential elections are scheduled for January 10th. The other candidates running are Gany KASYMOV, Communist Serikbolshyn ABDILDIN, and Engels GABBASOV. The US and the Organization of Security and Cooperation in Europe (OSCE) have criticized the government for preventing NAZARBAYEV's key rival and former prime minister Akezhan KAZHEGELDIN from running.

Uzbek Registers New Political Party

· On December 28, 1998, Erkin NORBUTAYEV was elected general secretary of a new political party, the Fidokorlar National Democratic Party. The party, with 8,000 supporters, said it will unite, "selfless people with progressive views who put the fate of their fatherland above their own and are capable of assuming responsibility for the happiness of the people, democracy, and justice." In early December, Uzbekistan President Islam Abduganiyevich KARIMOV met with the party organizers.There are five leading parties in Uzbekistan: the Popular Democratic Party, For Progress of the Fatherland, Justice, national Revival, and Unity Party.

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

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When you need to know it as it happens