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

Thursday, March 18, 1999

Russian Federation

Politics

Sex, Lies, And Videotapes Russian Style

· Russian President Boris YELTSIN held a meeting with Prime Minister Yevgeny PRIMAKOV and Prosecutor-General Yuri SKURATOV at the Central Clinical Hospital. Prior to the meeting SKURATOV said that he intends to name who is blackmailing him, with video footage of a man resembling him with call girls, in order to defend his good name. The Prosecutor-General stated that he "absolutely" intends to give the President the names of people who stand behind this case. "If he is prepared to hear me and learn the truth, I intend to do this. I think I shall still manage to do this. If not, I will have to give the names through the press." SKURATOV told the Federation Council that he was forced to resign because, "an unhealthy situation had developed around me and the prosecutor's office as a whole...Certain forces had managed to drive a wedge between the president and the prosecutor's general's office." Before submitting his resignation in February , SKURATOV accused several deputies, ministers, former first deputy ministers, and high ranking Central Bank officials of illegally enriching themselves by trading government securities. He also had launched a campaign against economic crimes, particularly investigating businesses connected with tycoon Boris BEREZOVSKY. According to a French newspaper, SKURATOV was close to revealing a scandal involving Swiss construction firm Mabetex, which handled extensive repairs to the Kremlin and the legislature building. During his hearing at the Federation Council on Wednesday, SKURATOV called on senators to support him because such forces will never leave prosecutors office in peace. After the Federation Council voted against accepting SKURATOV's resignation, the President and Prime Minister in a Kremlin statement said, "the fight against crime can

be conducted only by morally unstained people." It added that "moral unscrupulousness and scheming are incompatible with the high post of prosecutor general." YELTSIN has ordered the Russian Security Council to investigate the film and verify the information about behavior detrimental to a prosecutor's honor and dignity. The Security Council commission will also look into the facts relating to the breach of confidentiality in the handling of information about SKURATOV's private life.

CIS Summit Scheduled For April 2nd

· Russian Minister of Commonwealth of Independent State (CIS) Affairs Boris PASTUKHOV, after a meeting with Prime Minister Yevgeny PRIMAKOV Wednesday, said that the Council of the heads of state of CIS member-countries will meet in Moscow on April 2nd. The CIS summit will traditionally be preceded by meetings of the Council of Ministers of Foreign Affairs. The summit will consider the most important questions relating to the formation of free trade zones in the territory of the CIS, CIS reform. He added that a declaration is due to be adopted which would set forth principles of the further development of the CIS. The summit will also appoint a new executive secretary for the CIS; Ivan KOROTCHENYA has been proposed for the post. PASTUKHOV also announced that, "President Boris YELTSIN's proposal to dismiss Boris BEREZOV-SKY from the post of CIS Executive Secretary was so far backed by six states, not counting Russia." He said that the presidents of Armenia, Tajikistan, Kyrgyzstan,

Today's News Highlights

Russia

Fuel Sector Lost $6.2B In 1998

Duma Restricts Foreign Votes

European Republics

New Estonian Parliament

WB Returns To Minsk

South Caucasus & Central Asia

Cooperation of Interior Ministries

Azeri-Georgian On Defense

Armenian-Egyptian Trade

Turkmen To Change Visa

Politics-Economics-Business

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March 18, 1999

Intercon's Daily

Moldova, Kazakhstan, and Belarus had already signed a corresponding document.

Peace Among The Government Branches?

· The Russian State Duma commission for a joint political peace agreement between Russia's branches of power has completed a nine point draft document. The document foresees giving the Cabinet "political guarantees, "setting up a working group to prepare amendments to the Constitution, and ensuring that regional authorities pledge not to engage in destabilizing actions. The most controversial aspect is that beginning in the second half of 2000, the Cabinet would be formed by a parliamentary majority. Changes in government formation must be amended to the Constitution. The power branches also pledged to hold preliminary consultations before raising constitutional questions. The president and the Duma shall use their rights to dismiss the government and voice no-confidence in the cabinet only after consultations with each other and the Federation Council. The document must be approved by the Duma and Federation Council and then finally signed by President Boris YELTSIN. The Duma may consider the documents as early as Friday. It will take no less than 226 votes in the State Duma and 91 votes in the Federation Council to approve of the joint statement. On Tuesday, the document was initialed by first deputy head of the Kremlin staff Oleg SYSUYEV, leader of the Russian regional deputy group Oleg MOROZOV, deputy head of the Federation Council Oleg KOROLYOV, and representatives of four leading factions of the State Duma. Federation Council chairman Yegor STROYEV said, "I am sincerely satisfied with the fact that we voted for consensus between all branches of government, aimed at stabilizing the situation in the country, ensuring a clearer distribution of powers and perfecting legislation." He added that it is dangerous for one branch to begin to think it is superior to another. The commission's report comes at a time of great government uncertainty. With the Duma approving an increase of the value-added tax against Prime Minister Yevgeny PRIMAKOV's request for a delay, the scheduling of an impeachment vote for YELTSIN, the Federation Council defying YELTSIN's wish to approve Prosecutor General Yuri SKURATOV's resignation, rumors of a government shake-up, it is hard to believe that these branches will find a compromise of shared power.

Economy

Ruble = 23.41/$1.00 (NY rate)

Ruble = 23.65/$1.00 (CB rate)

Ruble = 26.09/1 euro (CB rate)

Russian Fuel Sector Lost $6.2 Billion In 19998

· Russian Fuel and Energy Minister Sergei GENERALOV stated on Wednesday that due to price reduction for oil on world markets in 1998 Russia lost $6.2 billion. According to him, the oil price decline has considerably complicated the situation in the fuel and energy complex of Russia. However, despite the financial losses, enterprises of the branch in 1998 transferred to the federal budget as taxes 130 billion rubles. The Minister also noted that the problem of non-payments in the fuel and energy complex has acquired serious scales. GENERALOV said the indebtedness of consumers to the fuel and energy branch amounts to 430 billion rubles.

IMF Negotiations Progressing, No Loans Yet

· The Russian Economics Ministry today said that negotiations between the government and International Monetary Fund (IMF) have made "considerable progress." Russia has been trying to persuade the Fund that the nation's finances are in order to merit the release of multi-billion dollar loans that were frozen last August when the government defaulted on some debts and devalued the ruble. The mission is gathering information for documents to be used during the March 24th meeting between Russian Prime Minister Yevgeny PRIMAKOV and IMF Managing Director Michel CAMDESSUS in Washington. Finance Minister Mikhail ZADORNOV said that talks with the IMF are proceeding, but, "we cannot say that money is in our pockets." He emphasized that the volume of financial aid to Russia on the part of the IMF is not the main subject of the negotiations. Instead, he points out that Russia and the IMF are negotiating an economic program. "This is the main point for us, for it is essential seriously to change the economic situation and approaches." ZADORNOV has been asked to join the Russian delegation accompanying Prime Minister Yevgeny PRIMAKOV to the US next week to in particular hold talks with the IMF leadership.

Meanwhile, Cabinet members and Economic Ministry officials met Wednesday with the World Bank mission to answer remaining questions and reach

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agreement on the moot issues concerning the World Bank's third loan. This loan would enable Russia to carry out economic restructuring. Economics Minister Andrei SHAPOVALYANTS said the meeting focused on only six of the 40 moot issues. The World Bank's third loan, intended to finance the program of Russian economic restructuring, totals $1.5 billion. Russia has already received $300 million in the first loan installment. The second and third tranches will provide $500 million and $700 million respectively.

Business

Duma Bill Limits Foreign Vote In Key Cos.

· The Russian State Duma on Wednesday approved in the first of three readings in a vote of 276 to five with one abstention a bill to limit foreign voting stakes in strategic firms. Specifically, the bill would limit total foreign shareholdings in 1,150 strategic companies to a quarter of capital, a share less than a blocking stake. It would also establish a mechanism to pare voting power of foreigners at companies on the list which already have more than 25 percent foreign ownership. Voting shares would be decreased proportionally so that the total foreign vote would be only 25 percent. Reuters reports that companies on the list include oil producer LUKoil, national power company United Energy Systems of Russia, which already has a limit that is not enforced, oil company Rosneft, pipeline company Transneft, Aeroflot Airlines, and gas monopoly Gazprom, which already has a limit.

Rosvooruzheniye Exports To Increase

· Russia's state-owned arms exporting company Rosvooruzheniye last year earned $2 billion in exports, the company's general director announced on Sunday at the weapons exhibition in Abu Dhabi. Grigory RAPOTA is heading the Rosvooruzheniye delegation to the international arms exhibition Idex-1999. He said this year his company has received orders worth about the same amount, which are expected to increase in the coming years due to reasonable prices for Russian arms, as well as the simplicity and efficiency of Russian-made military hardware. Rosvooryzheniye has contracts with 50 nations. RAPOTA cited the Arab states among one of the most promising arms markets. He stressed that several states of the Persian Gulf have already purchased batches of Russia's state-of-the-art mili

tary hardware. The company is engaged in talks on new purchases with some states of the region, the company director said. At the exhibition Russia is showing for the first the S-300PMU2 long-range surface-to-air system Favorit and the medium-range surface-to-air system Buk-M1-2. Also on display are multiple rocket launchers Smerch and Grad, the Vikhr and Khrizantema systems, and the modernized Igla and Kvadrat systems. The Russian section is featuring more than 50 defense plants, including BMP-3 armored personnel carriers, which are equipped with a modernized fire control system and which are second to none in terms of their firepower.

European Republics

New Estonian Parliament Sworn Into Service

· The newly elected Estonian parliament was sworn by President Lennart MERI in at the first meeting of the session. Under Estonian laws, the previous Cabinet, led by Prime Minister Mart SIIMANN of the Coalition Party, resigned at the first parliamentary meeting. MERI has two week to name a prime minister-designate and instruct him to form a new Cabinet. The likeliest candidate is the leader of Pro-Patria Union Mart LAAR, who held the post in 1992 to 1994. The new majority coalition, with 53 seats of the 101 legislature, comprises the Reform Party, Centrist Moderates, and the Pro-Patria Union. The three parties have pledged to continue pursuing the country's foreign-policy goals of admission to the European Union and North Atlantic Treaty Organization as well as a "stable and reliable" monetary policy. Beginning in January 2000, the 26 percent corporate tax will be abolished and the alliance will aim to increase defense spending to 2 percent of the gross domestic product (GDP).

World Bank To Resume Work In Belarus

· World Bank representative Paul SIEGELBAUM, who is in charge of Belarus and Ukraine regions, in a meeting with Belarus Prime Minister Sergei LING announced that the World Bank has adopted a preliminary decision to reopen its mission in Minsk. He also said that the World Bank will try to resume and expand its activities in Belarus. SIEGELBAUM stressed that this does not mean that the World Bank will immediately extend loans to Belarus. A World Bank mission arrived in the country on March 15th and will leave March 19th.

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South Caucasus & Central Asia

Russia-Caucasus Interior Mins. To Cooperate

· During a visit to Tbilisi, Russian Interior Minister Sergei STEPASHIN said that "the time is ripe" for cooperation between the Russian Interior Ministry and its counterparts in Georgia, Armenia, and Azerbaijan to stabilize the situation in the Caucasus. He denied media reports that former Georgian security service chief Igor GIORGADZE visited Moscow as part of a Syrian government delegation, but did not respond to the question whether GIORGADZE is living or operating out of Moscow. GIORGADZE is accused of organizing an assassination attempt on Georgian President Eduard SHEVARDNADZE's life in August 1995. Georgia has several times called for the extradition of GIORGADZE is currently wanted under an Interpol warrant [A641/121995] issued September 26, 1995. While Russian officials claim he is in Syria, GIORGADZE has been observed in Russia and Belarus, where he is being protected by security officials. Intercon sources report that GIORGADZE also travels to Russian military bases in Armenia to meet his father, Panteleimon. GIORGADZE continues to conduct antiSHEVARD-NADZE propaganda through support found in the Russian media.

Meanwhile, the Chairman of the parliaments of the Caucasus nations Khosrov HARUTIUNIAN, Murtuz ALESQEROV, and Zurab ZHVANIA met in Strasbourg on Monday under the aegis of the Parliamentary Assembly of the Council of Europe. ZHVANIA noted that the acceptance of Armenia and Azerbaijan into the Council of Europe is contingent on the resolution of the Nagorno-Karabakh conflict.

Georgian, Azerbaijan On Defense Cooperation

· Proceeding on the assumption that the Baku-Supsa-Ceyhan route will ultimately be chosen for the Main Export Pipeline, Azeri Defense Minister Safar ABIEV and Georgian Minister of State Vazaha LORDKIPANIDZE discussed in Tbilisi on Wednesday creating a legal basis for cooperation between

their two countries on protecting oil and gas export pipelines, Caucasus Press reported. ABIEV said that Russian military bases in Georgia pose a threat to Azerbaijan. He also expressed displeasure that the Russia army facility in Tbilisi is engaged in repairing tanks for the Armenian Army, RFE\RL Newsline reported. During ABIEV's visit, he met with Georgian counterpart David TEVZADZE and Georgian Parliamentary Speaker Zurab ZHVANIA.

Armenian-Egypt Sign Trade Agreements

· Armenian Minister of Industry and Trade Gaik GEVORKYAN last Friday hailed the signing of a trade agreement as a turning point in his country's trade relations with Egypt. He expressed his appreciation of the trade accord after he and Egyptian Minister of Trade and Supply Ahmed GOWAILI signed it. GEVORKYAN said the pact will provide, "a big opportunity" to lay the groundwork for promoting the bilateral trade. He urged Egyptian commercial banks to open branches or set up joint banks in Armenia to finance the trade exchange. The Armenian official called on Egyptian businessmen to visit Armenia to acquaint themselves with the local market and present Armenian consumers with Egyptian products, which he said have high quality and competitive prices. GOWAILI said that opportunities exist for Egyptian engineering, farming and consumer goods in Armenia, where these products are in great demand. The agreement is aimed at enhancing the bilateral trade volume, which lags at $4 million annually. GEVORKYAN is leading a business delegation to the 32nd Cairo International Fair closing on March 19th.

Turkmenistan Changes CIS Visa Rules

· Turkmenistan plans to withdraw from the agreement between the Commonwealth of Independent States (CIS) on the, "mutual exemption of visas" because of "chaotic" exchanges on its borders with immigrants and other personnel crossing in great numbers. It will require citizens of most CIS states to obtain a visa before visiting that country, except citizens from Uzbekistan and Kazakhstan.

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