DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, February 16, 1999

Russian Federation

Politics

Anti-Terrorist Commission Priorities Outlined

· Russian Prime Minister Yevgeny PRIMAKOV outlined priorities for combating terrorism today at the first meeting of the Federal Anti-Terrorism Commission, which is headed by First Vice-Premier Vadim GUSTOV. Attending the meeting were the Head of the Presidential Administration and Secretary of the Russian Security Council Nikolai BORDYUZHA, leaders of the Federal Security Service, Interior Ministry, Defense Ministry, External Intelligence Service, Federal Borderguard Service, Ministry for Emergencies, Federal Guard Service, Finance Ministry, and other officials. PRIMAKOV noted that the government would give the commission all-out backing, but warned that its tasks and demands will be tough to meet. Deputy Director of the Anti-Terrorism Department of the Federal Security Service Vladimir PRENICHEV and others also addressed the meeting. The commission was established in connection with the federal law to combat terrorism in November, 1998. It is a coordinating structure, ensuring interaction among the subjects, which are combating terrorism. Its main functions include the elaboration of principles and key directions of the official policy to combat terrorism, proposals to improve the legislation in force, concrete anti-terrorism measures, and exercise of control over the implementation of legal acts aimed at intensifying the struggle against terrorism. GUSTOV said, "The situation with terrorism and extremism remains tense in Russia."

Russia Denies Arms Agreement With Iraq

· The Russian government on Monday denied a report in London's Sunday Telegraph that Russia has signed an arms contract to re-equip the Iraqi air force and air defense systems worth $162 million.

Such an agreement would be a blatant breach of the UN arms embargo, which was imposed after Iraq's invasion of Kuwait in 1990. A spokesman for Rosvooruzheniye, the state-owned firm in charge of weapons sales, said that Russia strictly adheres to international agreements and there was no agreements on arms deliveries or arms modernization without the knowledge of the government. Head of the International Military Cooperation Board for the Russian Defense Ministry Leonid IVASHOV said that the report was "pure invention, if not a planned provocation." He added, "Russia is pursuing an honest and consistent line on the international scene and the Defense ministry is abiding by that line." In January, Russia also denied selling US and European Union food aid to Iraq.

Economy

Ruble = 22.79/$1.00 (NY rate)

Ruble = 22.04/$1.00 (CB rate)

Camdessus On New IMF Loans For Russia

· Managing director of the International Monetary Fund (IMF) Michel CAMDESSUS said that as soon as Russia submits a well calculated economic recovery program and conducts a stiff fiscal policy on the domestic market he will recommend that the IMF appropriate a new aid package to Russia. In CAMDESSUS' opinion, the earliest extension of aid to Russia, apart from helping normal functioning of the budget, will be simultaneously a signal both for the

Today's News Highlights

Russia

EBRD On Economic Situation

McDonald's Expansion Plans

European Republics

Rukh Party Against CIS IPA

South Caucasus & Central Asia

Karimov Survives Attack On Life

Georgia Protests Rus-Abkhaz

Betchel Leads PSG Consortium

WB Loan For Kazakh Roads

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Russian government and people as well as for the international community that Russia is on the right track and that "Russia really takes necessary measures to pull out of the crisis. We have done nothing bad for Russia," he emphasized, replying to opponents of the IMF in Russia. CAMDESSUS noted that following the macro-economic stabilization at the end of 1997, there was a real chance for growth of the Russian economy, and the progress of reforms assumed irrevocable nature. Then, Russian representatives often gave word and did not keep it. The fund was disenchanted with some, "of your decisions on the domestic market." As a result, he summed up, this created a negative image of Russia, for the restoration of which some time will be needed. Obtaining new loans and financial aid packages from international lenders, particularly the IMF, is critical to the Russian 1999 budget and economic recovery. One key payment due is $4.5 billion in debts to the IMF. Central Bank former deputy chairman Sergei ALEXASHENKO said that the government is due to pay more than $1.6 billion in May and around $1 billion in June to service its foreign debt. He said, "If there is no IMF deal by that time, there is a good chance that Russian assets could be impounded." He believes that foreign real estate belonging to the government and overseas property belonging to companies in which the government holds stakes will be among the first assets to be frozen. He added, "If we want to remain within the framework of a civilized economy and civilized society, then one of the primary tasks for Russia is the search for a compromise with the IMF." Prime Minister Yevgeny PRIMAKOV on Saturday continued to insist that the Russian government and the IMF could negotiate terms for a loan agreement. At an annual meeting of the Foreign and Defense Policy Council, PRIMAKOV emphasized that an IMF loan of $4.3 billion, "is very important to us for refinancing our debt."

EBRD On Russia's Economic Status

· Charles FRANK, the Vice-President of the European Bank for Reconstruction and Development (EBRD) today told British reported that Russia has passed the peak of the economic crisis. He said the crisis had affected Moscow in a larger degree than regions. FRANK had returned from a trip to Spain to encourage Spanish businesses to participate more vigorously in investment in the Russian economy. The EBRD seeks to interest the Spanish

business circles in modernizing railways, shipyards and ports in Russia. Spanish firms have so far invested over $290 million (258 million euro) in the implementation of a number of projects in Russia jointly with the EBRD. He stressed that Russia offers good business opportunities because of low outlays, skilled manpower, and the devaluation of the ruble. The EBRD is conducting negotiations with the International Monetary Fund, the World Bank and the Russian government on the restructuring of the banking system. FRANK said the EBRD offers technical assistance only, but it can also attract funds to create new banking structures.

Business

McDonald's Plans To Expand In Russia

· Despite Russia's continuing economic crisis, McDonald's announced plans to invest as much as $100 million in a major three-year expansion program for its chain of fast-food restaurants in Russia. McDonald's, already Moscow's leading fast-food operator has 56 restaurants in four Russian cities, plans to open 14 more in 1999 and another 30 in the next two years, bringing the total up to 100. Officials at the company say they are pleased with the level of sales and prospects for the future. McDonald's has 45 restaurants in Moscow and its suburbs, with room to expand in the city of 10 million. The chain also has restaurants in St. Petersburg, Nizhny Novgorod, and Yaroslavl, northwest of Moscow. The company has aggressively expanded in other former Soviet republics, opening its first outlet in Tbilisi, Georgia, last month. McDonald's is already well-established in Ukraine and the Baltic republics. Other fast food operators have scaled back or put expansion plans on hold because of economic uncertainty in the region. Last December, Kentucky Fried Chicken pulled out of Moscow, and Pizza Hut said it would follow suit, closing one of its two outlets in the Russian capital. There is no sign of Burger King entering the market.

European Republics

Ukraine's Rukh Party Against CIS Assembly

· Ukrainian former foreign minister Gennady UDOVENKO on Monday said that the Rukh Party is against Ukraine joining the Commonwealth of Independent States (CIS) Inter-parliamentary Assembly, calling it legally inappropriate. Rukh Party, which

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may propose UDOVENKO as their nominee for president, said they would appeal to the Constitutional Court if the parliament passed an approving draft law. Since Ukraine had not signed the CIS Charter, its appropriate status at the CIS Inter-parliamentary Assembly, or IPA, would be that of an observer, UDOVENKO said. The Ukrainian parliament's December vote on joining the IPA proved short. The disgruntled Communist faction has been stonewalling ratification of inter-state and inter-governmental accords.

South Caucasus & Central Asia

Uzbek President Survives Assassin. Attack

· This morning in Tashkent, six simultaneous explosions followed by a shoot-out aiming at assassinating President Islam KARIMOV occurred around Independence Square, where key government buildings are located. The President had been on his way to attend a Cabinet meeting, but he had changed his mind at the last minute. Shortly after the blasts, rescue and emergency vehicles raced to the scene which had been sealed off. Four of the blasts appear to be car bombs. Targets of these blasts were the Interior Affairs Ministry, the National Bank, various government buildings and several nearby embassies, including Turkmenistan, Tajikistan, Georgia and Belarus. At lease nine civilians and two assailants were killed and over one hundred injured. No one has claimed responsibility for the attack. The Emergency Situations Committee said in a statement that, "By all appearances it was a terrorist act because the cars blew up at the same time." President KARIMOV addressed his nation on television claiming that the bombs were an attempt to assassinate him. KARIMOV, president of Uzbekistan since gaining independence in 1991, has ruled this Central Asian state strictly, with tight security, limited freedom of speech, religion, and press, and a crack down on opposition groups. KARIMOV argues that his tough policies have maintained stability in Uzbekistan and prevented any spillover of turmoil from Afghanistan and Tajikistan. Since the blasts, KARIMOV said forces were out to destabilize the situation in Uzbekistan. He said, "These were well-planned and well-prepared terrorist acts aimed against our system, our independent policy, the independence of our state...I view these terrorist acts as an attempt on my life." KARIMOV believes that the perpetrators

were Uzbek citizens who were organized by groups abroad. All border checkpoints have been sealed and a curfew announced.

A list of possible enemies which could have planned and instigated such an attack includes insiders, foreigners, and religious groups. The Wahabi sect, also active in perpetrating violence in Chechnya and Daghistan, was singled out as the first on the list of suspects. The KARIMOV government sees Islamic extremism as a major threat. The President had launched a campaign against Islamic extremists and called on local authorities to monitor the activity of mosques. The attacks could also be related to the government's crack down on organized crime. The political sacking of governors and other officials from the country's powerful clan, beginning sometime last year, might of been strong enough reasons to remove KARIMOV by an assassination attempt. Neighboring Tajikistan had motives for an attack. Tajikistan accused KARIMOV of assisting an armed rebel group in Tajikistan of attempting to seize the northern Tajik city of Khodjand in November. Russia's military presence in Tajikistan is also a source of souring relations between Uzbekistan and Russian and Tajikistan. Some Uzbeks may conclude that Russia's military expertise may have aided Tajik militants with equipment and expertise to conduct such an attack in Tashkent. The large Russian minority in Uzbekistan, about 8 percent, have been dissatisfied since the break-up of the Soviet Union. It is possible that they may resent Uzbekistan's decision to withdraw from the Moscow-dominated Commonwealth of Independent States Security Treaty, which expires in May. Some Uzbek sources speculate that certain Russian forces may have taken part in the activities. However, the consensus is that Islamic fundamentalist are the more likely source of the bombing. In any case, such a violent attack will surely be interpreted as a warning to states such as Azerbaijan and Georgia, which are also considering not renewing the Security Treaty.

Georgia Protests Rus-Abkhaz Relations

· The Georgian Foreign Ministry on Saturday lodged a strong protest against some Russian regions' establishment of direct ties with Abkhazia, circumventing the Georgian government. In a note sent to Moscow, the ministry said Russian regions and federal structures, "obstinately continue to es

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tablish direct business contacts with the separatist leadership of Abkhazia" despite numerous protests from Tbilisi. One example includes a deal on trade and economic cooperation between the Kostroma region and Abkhazia. The Rostov region and the Stavropol Territory are also preparing similar agreements with Abkhazia. The Georgian Foreign Ministry said "cooperation with the separatists in any form and in any field is a violation of the Almaty Memorandum on the Maintenance of Peace and Stability in the CIS (Commonwealth of Independent States) of February 10, 1995, and of the decision on measures to settle the conflict in Abkhazia, approved by the Council of the CIS heads of state under the chairmanship of the President of Russia on January 19, 1996." Tbilisi also protested the February 6th to 8th conference of North Caucasus leaders in Sochi in which Abkhaz representative Vladislav ARDZINBA and South Ossetian Lyudvig CHIBIROV attended. The Georgian Foreign Ministry said participants at the meeting, "turned it into a forum to provocative statements against Georgian authorities, into some sort of a trial for Georgia's policy."

Russian Troops Withdraw From Akhaltsikhe

· On Sunday, the last Russian border unit stationed in Akhaltsikhe on the Georgian-Turkish border ceded their post to the Georgian Border Department. Part of the Russian border unit will continue the service on territory of Armenia, the rest will be stationed near Batumi. From now on the sector will be controlled by Georgian border guards under an agreement reached by Moscow and Tbilisi in November, 1998. All Russian borderguards are to withdraw from Georgia's territory, including from Adjaria, by July 1999. Russian troops are required to leave half their arms and equipment to Georgia.

Bechtel Leads Turkmen-Turkey Construction

· US engineering group Bechtel will lead the PSG International Consortium with General Electric Capital to construct a $2 billion to $2.5 billion, 2,000-kilometer gas pipeline from Turkmenistan to Turkey. The route will cross the Caspian Sea before passing

through Azerbaijan and Georgia on its way to Turkey. It is expected to take two to three years to build. Turkmen Foreign Minister Boris SHIKHMURADOV said, "Turkmenistan has lagged behind all others in many area, but the gas pipeline is one issue it has got around to settling relatively efficiently...I am absolutely confident that this one will happen." Turkmenistan heavily relies on Russian gas monopoly Gazprom, which owns the pipeline network linking Central Asia to western markets. In October 1998 in Ankara the presidents of Turkmenistan and Georgia signed an agreement on the Turkmen gas exports to Turkey. Turkmen sources said that Enron and Royal/Dutch Shell were also in the running in the final stages of negotiations. Enron released a feasibility study for the pipeline. According to the Enron's forecast, the Turkish demand for the Turkmen gas can rise to 500-640 billion cubic meters within 20 years. Shell also did a feasibility study for a pipeline running from Turkmenistan to Turkey via Iran.

WB Finances Road Project In Kazakhstan

· The World Bank on Tuesday approved a loan of $100 million for a road restructuring project that will help create greater transport efficiency in Kazakhstan. The project includes the rehabilitation of priority sections of national roads; the upgrading of routine road maintenance, institutional improvement in the Department of Roads; the development of road maintenance and construction industries; and improvement in road transport policies, regulations and road safety. Kazakhstan's road network is in poor condition and rapidly deteriorating, the World Bank said. Of the 17,000 kilometers of national roads, only 37 percent are in good condition. The total project cost, including contingencies, is $135.7 million, of which the Kazakh government is contributing $35. 7 million. The loan will carry the standard interest rate for LIBOR-based single currency loans in dollars, and has a maturity of 20 years, including a 5-year grace period. Since Kazakhstan joined the World Bank in 1992, the bank has committed a total of $1.75 billion for 17 projects in the country.

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: $950.00 per year. A discount is

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