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

Monday, March 15, 1999

Russian Federation

Politics

Russia-Chechen Meeting To Take Place?

· Chechen President's press secretary Mairbek VACHAGAYEV on Sunday stated that the Chechen leadership will, "meet only with President of Russia Boris YELTSIN," concerning the kidnapping of Russian Interior Ministry representative in Chechnya Major General Gennady SHPIGUN. Moscow has been receiving contradictory information regarding the possible meeting. Chechen Foreign Minister Usa IDIGOV on Saturday announced that a meeting may take place between Russian Premier Yevgeny PRIMAKOV and Aslan MASKHADOV on March 14th. VACHAGAYEV noted that Chechnya is readying armed force in response to Russia placing missile troops along the border. Russia has also suspended railway passenger, cargo traffic and airlinks to Chechnya due to its failure to ensure the safety of people traveling by train and plane. Railway Ministry spokesman Valery ZUDIN on Friday said that the Moscow-Baku, Moscow-Tbilisi, Rostov-Baku and Kiev-Baku trains, which prior to recent tensions would go through Chechnya, will be rerouted to Astrakhan and Volgograd.

Primakov Briefs Yeltsin In Hospital

· Russian President Boris YELTSIN today met Prime Minister Yevgeny PRIMAKOV in the Central Clinical Hospital. They discussed the situation with wages and pensions, the Chechnya issue, and Russia's loan talks with the International Monetary Fund (IMF). PRIMAKOV said the government's cooperation with regional administrations in the wage problem improved. YELTSIN expressed concerning over the situation in the coal industry and ordered the prime minister to keep special control of the its grievances. PRIMAKOV said one of negative trends in the coal sector was the activity of in between in coal

shipments. They had a detailed discussion of the situation over Chechnya taking into account the recent abduction of Russian police General Gennady SHPIGUN. The President stressed the need for a more active action to bail out SHPIGUN and other hostages from Chechnya. PRIMAKOV briefed the President on the progress of Russia's consultations with the IMF on reconciliation of the government's economic policies with terms for new loans. YELTSIN ordered the Prime Minister to conduct activate preparations for the Commonwealth of Independent States summit due in Moscow. YELTSIN was readmitted to the Central Clinical Hospital outside Moscow on February 27th with a relapse of his stomach ulcer which first acute bleeding manifestation required his hospitalization on January 17th. Last week, YELTSIN met with a number of high level politicians Yabloko leader Grigor YAVLINSKY and Federation Council speaker Yegor STROYEV, raising speculation that he is preparing for a government reshuffle. Kommersant Daily cited an anonymous Kremlin official as saying that the President wanted to give PRIMAKOV a "little fright" by meeting with politicians who are moving into opposition to PRIMAKOV.

Economy

IMF Mission Resumes Loan Negotiations

· An International Monetary Fund (IMF) Mission, headed by deputy director of the Second European department Gerard BELANGER and comprising less than ten people, resumed loan negotiations with

Today's News Highlights

Russia

Duma Sends Mixed Messages

Gazprom Sets Low Targets

European Republics

Lithuanian PM Visits US

Ukraine Trims Gov't Ministries

South Caucasus & Central Asia

Tbilisi Security Conf. Opens

Turkey-Turkmen Sign Gas Deal

Afghan Talks Reach Agreement Kyrgyz PM Rushed To Hospital

Politics-Economics-Business

Page

Monday

March 15, 1999

Intercon's Daily

Russia on Friday. The mission will focus on the Russian government's economic and monetary and credit policy for 1999, as well as on measures to implement it. Tax collection and the approved decrease in the value-added tax will come under special scrutiny by the IMF. The mission intends to raise the issue of a possible adjustment of the 1999 budget targets as regards cuts in expenditure. BELANGER on Friday met with Russia's Deputy Finance Minister Oleg VYUGIN and Finance Minister Mikhail ZADORNOV. Other IMF demands include a 100 billion ruble increase in budget revenues, a considerable reduction in expenditures, and restructuring of the Russian banking system. Head of the Duma budget committee Alexander ZHUKOV believes, "The IMF and the Russian government would meet each other half-way." The mission will prepare a report on Russia's economic conditions by March 24th, when Prime Minister Yevgeny PRIMAKOV is due to visit Washington. The Prime Minister believes that part of the liabilities may be rescheduled, but this is possible if "we reach accord with the IMF." He stated that Russia will seek ways to meet the just terms set by the organization. "At the same time, we cannot step over ourselves to meet the unacceptable conditions set to us," he said.

Russia Adjust IMF Negotiation Strategy

· Former prime minister Viktor CHERNOMYRDIN today met Finance Minister Mikhail ZADORNOV and other Cabinet members, presumably to recount his consultations with International Monetary Fund leaders during his recent visit to the US. CHERNOMYRDIN met IMF chief Michel CAMDESSUS in New York on March 10th and US Vice President Albert GORE during his visit. CHERNOMYRDIN pointed out that he had no authority to negotiate with the IMF, but was asked to help the talks because of his experience with the IMF and good personal contacts with CAMDESSUS. He predicted that the talks will be successful. CHERNOMYRDIN's aide Valentin SERGEYEV said the former prime minister carries information of crucial importance for the talks on Russia's payment of its inherited Soviet debts and getting new loans. Russia has accumulated about $150 billion in debts to foreign lenders, and is due to pay off $17.5 billion in 1999. The government has already admitted it will not be able to meet all of its obligations, but is hoping that a combination of new loans and restructuring will help Russia to avoid

default. Another former prime minister Sergei KIRIYENKO was recruited by the government to help reach the agreement. The CHERNOMYRDIN and KIRIYENKO team has caused Russian media to speculate that the government is trying a more-reformed minded approach than the previous strategy of PRIMAKOV's government. It also believes that this is one of the reason why official chief debt negotiator and first Deputy Prime Minister Yuri MASLYUKOV is becoming more sidelined. MASLYUKOV, who was blamed by the media for bringing the talks to a stall, will not take part in negotiations this time. He is visiting Indonesia and Japan. Before departing, he said that if Russia accepts the IMF term to set the primary budget surplus at 3.5 percent of the gross domestic product, that would strip the economy of 120 to 130 billion rubles. Such a surplus in crisis-hit Russia seems unrealistic and the economy would be unable "to operate normally," MASLYUKOV said.

Duma Sends Mixed Message To IMF Mission

· The Russian State Duma on Friday failed to pass a bill introducing changes and additions to the law on the Russian Central Bank. Only 218 deputies voted for the with eight against and five abstained; 226 votes were necessary for passage. Most of the law-makers favor the independence of the Bank but within certain limits. The bill was rejected by the Communist Party, Our Home is Russia, and Yabloko. They think that, "an enhanced administering can harm the Bank" and attempts to change its status to the one of a state institution "violate the constitution." Advocates of the new concept, head of the Altai administration Alexander SURIKOV, the liberal-democratic faction, Agrarians, the Popular Rule bloc and independent deputies, failed to push the bill through in the first reading. Central Bank Governor Viktor GERASHCHENKO supports the formation of a conciliatory commission and promises to submit the Bank's variant of the bill to the Federation Council and the State Duma within six weeks. The Duma also approved legislation lowering the value-added tax (VAT) to 15 percent. The International Monetary Fund has opposed lowering the VAT and Prime Minister Yevgeny PRIMAKOV had asked the Duma to postpone the bill until after IMF negotiations were complete. Deputies also approve a bill raising income tax for those in the top wage bracket of 300,000 rubles ($13,000) a year from 35 percent to 45

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

March 15, 1999

Intercon's Daily

percent. The vote in the third reading was 303 to 26 with one abstention.

Ruble = 23.12/$1.00 (NY rate)

Ruble = 23.26/$1.00 (CB rate)

Ruble = 25.38/1 euro (CB rate)

Business

Gazprom Sets Low Output Target

· Deputy chairman of the board of governors Valery REMIZOV Friday said that Russian gas monopoly Gazprom has set its 1999 target out put at 543 billion cubic meters, or 10.7 billion cubic meters below the 1998 figure. He said gas supplies to Russia's customers were predicted to be 20 billion cubic meters deficient this year. The supplies could be cut by another 45 to 50 billion cubic meters by 2001. REMIZOV said Gazprom has export obligations to meet, and this could curtail gas supplies to Russian users to payable demand. He said payments for gas deliveries by Russian users remain a serious problem for Gazprom, with arrears making 109 billion rubles at the start of 1999 and building up by a third over the recent months. REMIZOV said the complicated financial situation forced Gazprom into sizable investment cutbacks. Investment made a total of 27.3 billion rubles in 1998, including 24.8 billion rubles in production construction. Gazprom's experts estimate that the company needs at least 44 billion rubles to maintain the gas output at the present level and with this in mind, Gazprom scales down the output from the last year's figure, REMIZOV said.

Foreign Minister Algirdas SAUDARGAS and parliament speaker Vytautas LANDSBERGIS returned from trips to the US.

Ukraine Trims Government Ministries

· Ukrainian President Leonid KUCHMA on Sunday reduced the existing 21 government ministries to 18 to improve administration and increase efficiency. Some ministries and state commissions will be abolished, down-graded or merged under a presidential decree. The state committee for oil and gas was eliminated and lowered the status of a dozen other state committees. The Information Ministry, Science and Technology Ministry, Youth and Family Affairs Ministry have been downgrade to state committees. The restructuring is an attempt to meet the demand of the International Monetary Fund (IMF) for radical administrative reform in exchange for the resumption of a credit line of $2.2 billion to Ukraine. IMF suspended the credit last November to press for quicker administrative reform. Ukrainian Prime Minister Valery PUSTOVOITENKO said that the IMF board of directors could make a preliminary review on March 24th.

South Caucasus & Central Asia

Regional Security Conference Opens In Tbilisi

· The Regional Security in the Caucasus in the 21st Century Conference opened in Tbilisi on Saturday. On the agenda will be the balance of strategic forces in the Caucasus, military security aspects, economic prospects for the region, ethnic and religious factors and regional cooperation. The conference has been organized by the Tbilisi-based International Center of Conflictology and the Georgian President's State Bureau for Commonwealth of Independent States Affairs and Peaceful Caucasus. The forum is being attended by a group of experts from Azerbaijan, Armenia, Dagestan and southern regions of Russia. Georgia is represented by officials from various government and non-governmental structures and research centers.

Azeri Seeks Iran's Help In Peace Talks

· Azeri Foreign Minister Tofik ZULFUGAROV in Tehran on Saturday called for Iran's support for a peaceful settlement to the Azerbaijan-Armenian dispute over the Nagorno-Karabakh region. ZULFUGAROV made the appeal in talks with Iranian Foreign Minister Kamal KHARRAZI, where a report

European Republics

Vagnorius Visits US Top Officials

· Lithuanian Prime Minister Gediminas VAGNORIUS on Sunday departed for a five-day visit to the US. The Prime Minister is scheduled to meet with Vice President Albert GORE, Secretary of State Madeleine ALBRIGHT and Defense Secretary William COHEN. The main aim of the visit is to discuss prospects for Lithuanian membership in North Atlantic Treaty Organization (NATO) ahead of the summit of the alliance in Washington, relations between Vilnius and Moscow and bilateral ties between Lithuania and the US. Local media points out that it is typical for Lithuanian representatives to visit the US in attempt to lobby for NATO membership. Recently,

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

March 15, 1999

Intercon's Daily

on the current situation in the Nagorno-Karabakh region was presented. Azerbaijan and Armenia have been at odds over the sovereignty of Nagorno-Karabakh, an enclave in Azerbaijan populated mostly by Armenians. Armed clashes erupted in 1994, which claimed about 7,000 lives and produced hundreds of thousands refugees. The two countries reached a cease-fire agreement in 1994 with the mediation of the international community, including Iran. But the bilateral talks on the future of the disputed region have yet to produce any substantial results. KHARRAZI and Iranian President Mohammad KHATAMI said that Iran is ready to continue mediating the Azerbaijan-Armenia dispute over Nagorno-Karabakh. Azeri President Geidar ALIYEV said his country's approach towards the settlement of the conflict with Armenia remains the same and calls for the withdrawal of the Armenian troops from all occupied territories and return of refugees to their homes. The President stressed that his country can consider giving Nagorno-Karabakh autonomy within Azerbaijan after all the above conditions are met. ALIYEV believes that the settlement of the conflict is being impeded by artificial obstacles. He noted that the conflict cannot go on forever and its peaceful resolution would benefit both nations which could effectively cooperate in the future.

Turkey Signs Gas Deal With Turkmenistan

· Turkish Energy and Natural Resources Minister Ziya AKTASH, Turkmen President Saparmurat NIYAZOV, executive director general of Botas Nadir Behik OGLU, Turkmen Deputy Prime Ministers Yely KURBANMURADOV and Batyr SHARJAYREV, and President of the US consortium PSG Edward SMITH signed an agreement on Friday in Ashgabat for 5 billion cubic meters of Turkmen gas to be shipped to Turkey in 2002, once the Trans-Caspian pipeline is completed. By 2009, supplies of gas will increase to 16 billion cubic meters annually. The price of the gas deliveries will be announced when the final agreement is signed on May 30th. Although Turkey's gas demands are rising at a fast rate, fuel experts are concerned that Turkey has over-committed itself.

Turkey also has gas deals with Iran and Russian gas monopoly Gazprom.

Afghan Factions Agree To Share Power

· The warring parties in Afghanistan on Sunday reached a landmark agreement in Turkmenistan's capital Ashgabat on a broad based government with shared executive, legislative, and judiciary, exchange of 20 prisoners of war through the International Committee of the Red Cross, and continuation of peace talks. The next series of talks will be held at the end of March possibly in Afghanistan. The agreement was reached between Wakil Ahmed MOTAWAKKIL, a representatives of the ruling Taliban militia and Muhammad Younas KANUNI, political advisor for the opposition coalition based in northern Afghanistan, during their four-day peace talks which opened Thursday under the auspices of the UN. "A united government, the principles for forming which we discussed in Ashgabat, will have broad representation from various ethnic groups living in Afghanistan," KANUNI said to reporters. The talks did not manage to arrange a cease-fire in the country's 19 year civil war. The heads of the Afghan delegations thanked the Turkmen President for creating favorable conditions for negotiations and observing neutrality in the inter-Afghan conciliation process. Russian Deputy Foreign Minister Grigory KARASIN and the US Assistant Secretary of State Carl INDERFURTH have expressed their country's commitment for a peaceful solution to the Afghan conflict. Both countries urge the Taliban movement and its supporters to ensure that international terrorist Usma bin LADIN be expelled from Afghanistan and brought to trial.

Ibraimov Rushed To Moscow Hospital

· Kyrgyz Prime Minister Zhumabek IBRAIMOV was rushed to Moscow's Central Clinical Hospital over the weekend with an undisclosed illness. Interfax new agency reported he was, "believed to be in the intensive care ward." Russian President Boris YELTSIN has been recovering from a bleeding ulcer in the same hospital for the past two weeks.

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

available for non-profit institutions.

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

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1999, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page