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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, February 2, 1999

Russian Federation


Yeltsin Sacks Prosecutor General Skuratov

· In a surprise visit to the Kremlin for the first time in 1999, Russian President Boris YELTSIN accepted the resignation of Russian Prosecutor General Yuri SKURATOV. The President sent a letter to the Federation Council with a proposal of dismissal. SKURATOV was reported to have been hospitalized Monday, complaining of heart pains. He was appointed Prosecutor General in October 1995. He has been widely criticized for his failure to crack down and solve high profile crimes. SKURATOV was shown on television smiling and admitting that he will go to the hospital for a check-up. Just as in Soviet-days, an illness appears to have been the official excuse for a Kremlin firing. YELTSIN also held a meeting with his chief of staff, Nikolai BORDYUZHA.

Gaidar Re-elected As DVR Chairman

· Yegor GAIDAR was re-elected on Saturday as chairman of the Russia's Democratic Choice party (DVR), with 135 votes in favor and six votes against. The DVR Congress also adopted a resolution called, "For the Freedom and Rights of Individual, Against the Threat of Dictatorship," which stated that constitutional liberties and rights of individual are in danger. The DVR believes that all democratic forces should take energetic and decisive steps to unite and counter, "the threat of communist revenge and dictatorship." GAIDAR's party believes that the fate of each citizen largely depends on the laws to be adopted by the State Duma and therefore on its composition. "We are confident that democratic forces will win in the upcoming elections to the State Duma," the resolution said.

OECD Official Briefed On Economic Situation

· Russian Prime Minister Yevgeny PRIMAKOV and

Secretary General of the Organization for Economic Cooperation and Development (OECD) Donald JOHNSTON met today to discuss problems, connected with further development of their relations. Russia reiterated its intention to join OECD in accordance with the application, submitted by it to OECD in 1996. PRIMAKOV briefed JOHNSTON on the socio-economic situation in Russia and about the measures the Russian government is taking for overcoming financial and economic difficulties. JOHNSTON also met with First Deputy Prime Minister Yuri MASLYUKOV. The official part of the visit will end with a working luncheon with First Deputy Foreign Minister Alexander AVDEYEV. Over the past few years, OECD has being rendering consultative assistance to Russia in reforming its economy in accordance with the declaration on cooperation, signed in 1994. The OECD, an international intergovernmental economic organization, brings together 29 countries which account for 16 percent of the world's population and two-thirds of world production. The principal aim of the OECD is to analyze the economic situation in the member-countries and work out recommendations for them about economic regulation at the macro-economic and sector levels


Ruble = 22.75/$1.00 (NY rate)

Ruble = 22.92/$1.00 (CB rate)

Ruble = 25.97/1 euro (CB rate)

Fourth Draft Budget Reading Postponed

· The Russian State Duma postponed the final

Today's News Highlights


S&P Imposes Default Rating

Alfa Troops Raid Sibneft

Fast Food Chains Increase

European Republics

Ukraine To Hold Financial Talks

South Caucasus & Central Asia

Caspian Cutbacks And Armenia

OSCE Opens Office In Turkmen

US Delegation To Uzbekistan




February 2, 1999

Intercon's Daily

fourth reading of the 1999 draft budget by one day. The Duma Council decided today to discuss the final reading on Friday, February 5th, instead of Thursday. Chairman of the Duma committee on property and privatization Pavel BUNICH said that the decision was taken due to a budget committee request.

S&P Imposes Selective Default Rating

· In a new blow to Russia, the international ratings agency Standard & Poor's (S&P) has effectively given the country a default rating on its foreign currency debt. S&P decided to impose the "selective default" rating Monday after the Russian government halted payments on a number of its financial obligations, United Press International reported. The agency says the new rating will give investors a better indication of the risk involved, after the cash-strapped Russian government appeared to select which obligations it would settle as a priority, at the expense of defaulting on other maturing debts and interest payments. Last week, another ratings agency, Fitch IBCA, downgraded part of Russia's debt to default level. On Friday, Russia's Deputy Finance Minister Mikhail KASYANOV admitted Moscow had delayed repayment of $1.5 billion of foreign debt, and financial analysts remain worried about Russia's ability to meet repayment deadlines of $17.5 billion this debt without the help of the International Monetary Fund.

Russia Hopes For New IMF Funds By Spring

· First Deputy Prime Minister Yuri MASLYUKOV told the Russian State Duma that the government will present its version of an agreement with the International Monetary Fund (IMF) before February 5th. The text of the memorandum is expected to be published on Friday or Saturday. He said the memorandum of understanding is being developed and, "both the structure, and the commitments it binds Russia to, need to be finalized." The document will serve as an economic plan under which Russia hopes to persuade the IMF to disburse new money to repay $4.8 billion Russia owes to the IMF this year. IMF officials have already criticized various government plans and its 1999 draft budget. On Sunday, Prime Minister Yevgeny PRIMAKOV admitted on television that the government could not reach objectives requested by the IMF for the 1999 budget. PRIMAKOV has completed work on a 40-page document detailing budgetary and fiscal measures in

response to questions drafted by the IMF. It is widely believed that this document fails to meet assurances tentatively agreed upon by both sides before Christmas. The IMF demands include, calls for a rise in the planned budget surplus and no reduction in the value added tax (VAT). Even if Russia's meets some of the IMF requirements, MASLYUKOV said that the IMF will not offer Russia funds until the budget has been approved and implemented for a period of three months. MASLYUKOV said, "The talks with the IMF are going on normally and an agreement on rescheduling our debt can be reached, at the worst, in April or May."


Alfa Troops Raid Sibneft

· The Moscow office of the Sibneft Oil Company, Russia's seventh-largest oil producer, was raided today by elite Alfa troops under the direction of Russia's Prosecutor General. Sibneft was launched by Russian financier and businessman Boris BEREZOVSKY, who is the Commonwealth of Independent States' Executive Secretary. Vladimir KAZAKOV, the head of the Main investigation department of the office of the Russian Prosecutor General, said that the, "operation in Sibneft was not directly linked to its activities." He added that the search in the office was carried out in connection with a criminal case involving Atoll Security Company and stressed that, "everything will be done politely and in a civilized manner." Sources report that the troops arrived in camouflage uniforms and black face masks, many armed with short machine guns. KAZAKOV refused to reveal any details of the operation or to say which documents the prosecutors were looking for, if any.

Interfax reported that troops raided Sibneft in connection with an article in Moskovsky Komsomolets which said that someone was eavesdropping on members of President Boris YELTSIN's family. Other reports link the raid to tax collections or Prime Minister Yevgeny PRIMAKOV's pledge to crack down on economic crimes. Government spokesman Igor SCHEGOLEV rejected rumors that the raid on Sibneft may be in any way connected with the situation on the ORT Television, which is said to be influenced by BEREZOVSKY. "I do not see any connections here," he said. The ORT, in which the state has 51 percent of stock, has openly criticized

When you need to know it as it happens




February 2, 1999

Intercon's Daily

PRIMAKOV and on Saturday even alleged that his family was in control of Russian air business. SCHEGOLEV immediately denied the allegations. The Sibneft press service refused to give any comments on the raid.

Court Appoints Manager For ORT TV Company

· Moscow's court of arbitration on Friday appointed an interim manager to Russian public television ORT. Pavel CHERNOVALOV will be overseeing the insolvency proceedings against ORT opened at the request of the "What? Where? When?" TV production company making popular programs following ORT's reportedly huge debts. ORT on Thursday transferred to the claimer the first repayment of the debt, and ORT director-general Igor SHABDURASULOV asked the court to put off the appointment of an administrator. SHABDURASULOV said in his letter to the court that ORT would start repaying its debt from the money it is expected to receive from the government as a loan. CHERNOVALOV's duties include assessing the debtor's financial standing. To do this, he met with the company's top managers.

Russian Fast Food Firms Rally During Crisis

· According to a marketing survey conducted by Russian-Finnish TOI-Opinion marketing company in the five post-crisis months Russian fast food producers in St. Petersburg succeeded in overtaking their western competitors. Since August 17, 1998, attraction to domestic fast food producers boosted their standing from sixth in the market to first place, over suppliers from Spain, Poland, the US, France, Finland and Germany. The share of domestic fast food producers on the St. Petersburg market grew from 11 percent to 34 percent in 1998, while the share of German, Polish and Swiss suppliers decreased more than two-fold. The Russian success was prompted mostly by a post-crisis sharp increase in prices for imported foods as the ruble fell nearly four-fold to the dollar, according to the survey. The fast food market continues to develop in St. Petersburg. The number of fast food shops there increased from 62 percent in 1997 to 68 percent in 1998.

AvtoVAZ Raise Car Prices

· The Russian AvtoVAZ car maker, following business trends which doubt the recovery of Russia's economy, raised prices on its automobiles by an

average of 10 percent. AvtoVAZ Vice President Konstantin SAKHAROV noted that the change was made because of the constant fall of the national currency and further inflation expectations. The wholesale price for the cheapest model is now 52 thousand rubles (slightly over $2,000), while the most expensive 10th model is sold by the factory for 112 thousand rubles. The Niva cross-country jeep is sold for 70 thousand rubles. This is the third price rise in the last 45 days. Early in December the prices went up by 5 thousand to 20 thousand rubles. However, AvtoVAZ cars are selling like hot cakes this winter in contrast to the "dead season" of 1997 when prices for the 10th model fell by five thousand rubles. Russians are investing automobiles in part due to the impending law, in which Russians must declare high price item purchases.

De Beers $550 Million

· De Beer's Moscow office in January announced that a Russian company will sell De Beers, South Africa's diamond monopoly, diamonds worth $550 million in 1999. The raw materials to be sold by Alrosa will add up to 26 percent of De Beers' diamond exports. It was the first time in several years that Russia had fixed quotas at the beginning of the year. In previous years, Moscow delayed quota announcements for three to seven months. The fixed quota is expected to provide a stimulus for more investment into the development of the diamond-producing industry of Yakutia, a region in eastern Siberia and home to Alrosa. The Russian company plans to extract and sell diamonds worth $1.433 billion in 1999, against $1.42 billion in 1998. Russia accounts for about 20 percent of the world production of uncut diamonds and about 5 percent of faceted stones.

European Republics

Ukraine PM, Banker In Washington

· Ukrainian Prime Minister Valery PUSTOVOITENKO, the Central Bank chief, and a government delegation have left for two-day working visit to Washington. During the visit, PUSTOVOITENKO and the banking chief will have talks with World Bank President James WOLFENSOHN, and International Monetary Fund (IMF) managing director Michel CAMDESSUS. Talks will focus on a new trading band for the gryvnia currency. The Central Bank planned to announce a

When you need to know it as it happens




February 2, 1999

Intercon's Daily

higher margin for the currency. The gryvnia has been stable at 3.43 gryvnia to the dollar for the past three months. The announcement was postponed, after the IMF delegation left Kiev last week without resuming payments on the $2.2 billion loan, needed to meet Ukraine's 1999 foreign debt obligations. The Central Bank has only $1 billion in reserves, or about half of what is owed to foreign lenders this year. In September and October 1998, Kiev received $336 million. However, in November 1998 the IMF stopped providing credits because of the slow pace of reforms in Ukraine and its failure to comply with a number of loan requirements. A high-ranking official said in the Ukrainian government said that loans are likely to resume in March after the World Economic Forum in Davos which recognized Ukraine as a country which, "is carrying out reforms and creating an investment climate." The Prime Minister will visit the Congress, the National Security Council, the Chamber of Commerce, the Treasury Department, leading US businessmen, journalists, and the leaders of Ukrainian public organizations in the US.

South Caucasus & Central Asia

Caspian Oil Cutbacks And Armenia

· Caspian International Petroleum Co. (CIPCO) has decided to withdraw from a consortium led by Pennzoil Co., after discovering an off shore field was uneconomic. Azerbaijan International Operating Co. (AIOC) is cutting personnel and oil development in Caspian Sea. The AIOC has delayed its decision on a main export route since October, 1998. The consortium's main concern is that the Baku-Ceyhan route is too expensive, too long, and not economically viable with respect to the volume of proved oil reserves. With indecision and inaction blocking the adoption of the Baku-Ceyhan route as the Main Export Pipeline route for Caspian oil to reach western markets, the Armenian lobby is beginning efforts to strengthen its position as a transit nation. In a letter to the White House, US House Representative Frank PALLONE called on the CLINTON administration to review its support for the Baku-Ceyhan route.

He said, "I would advocate a broader-based approach to the Caucasus region that places a higher premium on such priorities...fostering economic integration that benefits all the nations of the region." He added that it is time for the administration to consider alternative approaches. PALLONE states that the Baku-Ceyhan route has a number of detractions. He stated that a number of oil companies have expressed, "support for shorter routes that would cost as little as half as much as Baku-Ceyhan." However, instead of offering what that shorter route is, PALLONE implied that if the Baku-Ceyhan route went across Armenia territory it would cost less and would be a preferred route. PALLONE said, "The increased mileage of bypassing Armenia also needlessly increases the price tag of the pipeline." Comment: PALLONE fails to offer the alternative shorter route which is under consideration and has received support from many oil companies. That alternative is a larger Baku-Supsa pipeline. This route is shorter, cost effective, and offers an already developed path.

OSCE Opens Office In Turkmenistan

· The organization for Security and Cooperation in Europe (OSCE) opened a representative office in Turkmenistan on Friday. A Turkmen Foreign Ministry spokesman said Turkmen President Saparmurat NIYAZOV received the head of the representation Paul ULLMANN. The government and the OSCE's human rights department are due to sign a memorandum of understanding. Human rights activists have criticized NIYAZOV's rule of the impoverish state, saying that he fails to protect basic human rights.

US Delegation To Arrive In Uzbekistan

· A US State Department delegation led by Deputy Special Adviser to the US Secretary of State for the New Independent State Ross WILSON is scheduled to arrive in Tashkent, Uzbekistan today. The delegation will be consulting with officials from the Foreign Ministry, the Ministry of Foreign Economic Relations, the Finance Ministry and the presidential administration. Their visit, aiming to strengthen US-Uzbek relations, will last through Thursday.

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