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

Friday, March 26, 1999

for the struggle against the kidnapping of people under the North Caucasian regional department for the struggle against organized crime in cooperation with the Russian Interior Ministry. The hostages were kidnapped at various times in North Ossetia, Daghestan, Ingushetia and Azerbaijan either at gun point, by deception or with the help of a sleeping pill put into a drink. One of the hostages was even captured in the Russian naval base of Kronshtadt, in the Baltic Sea, last June. According to the North Caucasian regional department, their officers have liberated 105 people, forcibly kept in Chechnya, since the beginning of 1999. Various methods are being used for the release of the hostages, ranging from talks to special operations.

On Tuesday, Chechen Shariah Security Ministry officials said that an unspecified number of people have been arrested on suspicion of participating in the March 5th abduction of Russian Interior Ministry representative General Gennady SHPIGUN. Russia's Interior Ministry believes that SHPIGUN's kidnappers belong to the Vlasovskaya gang, which kidnapped Russian Presidential envoy Valentin VLASOV last May. The gang has been linked to former vice president Vakha ARSANOV, an ally of field commander Shamil BASAYEV.

Skuratov Investigates Makashov's Activities

· Russian Prosecutor General Yuri SKUR-ATOV reversed a decision of the Rostov regional prosecutor's office and opened an investigation

Russian Federation

Politics

Ignoring, But Not Isolating Russia

· Russian President Boris YELTSIN has tempered initial statements regarding NATO military actions in Kosovo. Russia has decided to "take the moral high road" and not engage with force. YELTSIN has withdrawn the Russian envoy to the NATO alliance in protest. Violent demonstrations were held outside of the British and US embassies in Moscow. Russian State Duma deputies called on the government to close all NATO information centers in Moscow. Many fear that the conflict could escalate in to a broader world war and damage US and Russian ties. Garry KASPAROV said, "MILOSEVIC and YELTSIN behave as if the old Yugoslavia and Soviet Union still existed. The best way to deal with the Russian objections is to ignore them," The Wall Street Journal reported. He added, "Nothing is more dangerous than sparing the Serb military machine by stopping too early. The biggest mistake the West made was in 1991, when President BUSH let Iraq off too easily." With Russia being politically and economically weak, the nation may have no other choice but to maintain contacts with the West. US Secretary of State Madeleine ALBRIGHT said, "In the short, medium and long term, we have lots of interests together and we're not going to let this damage our overall relationship." President of the Russian-American Chamber of Commerce Deborah PALMIERI stressed, "We can't lose the ground we've gained in the last nine years. We've got to understand that the relationship with Russia is at the top of the priority list."

32 Hostages Released From Chechnya

· A special flight chartered by the Russian Interior Ministry will fly 18 military servicemen and four civilians released from captivity in Chechnya to Moscow today. They were freed by the department

Today's News Highlights

Russia

Advertising Tycoon Arrested

IMF-Russia To Negotiate Loans

Maslyukov Predicts GDP Growth

LUKoil-Conoco To Sign Deal

Gazprom-BASF Cooperation

European Republics

Volvo's Ukraine Expansion

Blatic Markets Unshaken

South Caucasus & Central Asia

CIS Defense Mins. Meet

Politics-Economics-Business

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Intercon's Daily

on Russian State Duma deputy Albert MAKASHOV. The regional prosecutor's office said it had found no evidence of MAKASHOV's inciting ethnic hatred in his address to an audience in Novocherkassk. MAKASHOV, a retired general and member of the Communist faction in the Duma, has in the past made anti-Semitic remarks. SKURATOV's investigation is under Article 282 of the Russian criminal code which prosecutes the instigation of ethnic, racial or religious enmity. SKURATOV made the decision after he was briefed by his deputy Alexander ROZANOV on measures of prosecutor's offices against political extremism. SKURATOV ordered "to enhance the surveillance of meticulous fulfillment of requirements of legislation concerning the stopping of any forms of political extremism, including the setting up at enterprises of any structures and strike committees that are not stipulated by norms of law." He instructed prosecutors "to give attention to the activity of radical parties, especially like the Russian National Unity," or swastika-wearing groups led by Alexander BARKASHOV. He said prosecutors must coordinate this work with regional branches of the Federal Security Service (FSB), Interior Ministry, Justice Ministry and Russian Press Committee.

Advertisement Tycoon Charged Again

· Russian publisher and advertising tycoon Sergei LISOVSKY, cleared of criminal charges of gross tax evasion after repaying his dues, has been charged with invasion of privacy. The public relations center of the Russian Prosecutor General's Office today said that a criminal case has been opened against LISOVSKY on charges of unlawful collection of private information on a number of executives of Russian Television, the TV-Center channel, newspapers and famous public figures. Investigators said, "there is evidence that LISOVSKY, using the possibilities of private security businesses and other links, illegally collected information on the private life" of media leaders and public figures. The searches have turned up tapped telephone conversations, analytical profiles, information on bank accounts, private cars, property and other private details. A spokesman at the chief investigation directorate of the Russian Prosecutor's office said investigators are trying to track down LISOVSKY's whereabouts.

In addition, the Prosecutor's office searched the headquarters of Aeroflot Airlines Company in pur

suit of a probe into its foreign contracts. Aeroflot's spokesman neither confirmed nor denied whether the investigators seized any documents.

Economy

Ruble = 24.18/$1.00 (NY rate)

Ruble = 24.19/$1.00 (CB rate)

Ruble = 26.26/1 euro (CB rate)

Oct Nov Dec Jan Feb Mar

IMF-Russia Tough Loan Talks

· Russia and the International Monetary Fund (IMF) will continue negotiations for loans on Saturday, when IMF Managing Director Michel CAMDESSUS is due to arrive in Moscow. CAMDESSUS and Prime Minister Yevgeny PRIMAKOV were scheduled to hold talks in Washington, but PRIMAKOV aborted his visit due to the threat of NATO military strikes in Kosovo. The IMF has said that Russia needs to make significant progress on the technical implementation of a sound economic program and assurances that its loans will not be deposited in offshore accounts, before any funds are released. Russia is desperately seeking $5 billion in IMF loans to pay interest on its foreign debt to the IMF and other international lenders. A release of funds would bolster its cash-strapped treasury and would free up $1.2 billion in assistance from the World Bank and additional aid from other sources. Economists fear Russia will default on its foreign debt within weeks if the IMF fails to approve disbursement of the loan, frozen since last August's financial meltdown. The IMF mission and Russia had agreed on how to reduce the government's deficit, but still must resolve new taxes and how to restructure the banking sector, including

When you need to know it as it happens

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which institutions to close. PRIMAKOV at a government meeting said Russia would focus on market-oriented reforms and avoid isolation. He indicated that the sensitive loan negotiations were on track despite the Kosovo crisis and Russia's strong opposition to Washington's decision to launch air strikes. Both the US and Russia are urgently trying to separate IMF-related economic issues from their disagreement over the Alliance's actions in Kosovo. First Deputy Prime Minister Yuri MASLYUKOV said he hopes, "politics will not affect economics, and we will manage to reach an agreement with Michael CAMDESSUS." US Treasury Secretary Robert RUBIN said Thursday that "the most significant and useful step the international community can take" for Russia is to work out a new reform program with the IMF. He said that the program must have a sound macro-economic policy and that it's deficit should be reduced. "While the international community can do its part, Russia has to also do its part," RUBIN said.

Maslyukov Forecast GDP Growth

· First Deputy Prime Minister Yuri MASLYUKOV said that the growth of the Russian gross domestic product (GDP) will reach 1 percent in 1999. In his words, the drop of the gross domestic product has slowed down. It amounted to 3.7 percent in February, and will not exceed 3 percent in March. He pointed out that some growth was made in the oil, chemical, petrochemical, light and food industries. MASLYUKOV said there are more orders in the industry, and that index exceeded the January level by three times in February. There will be also a drop in the overall budget debt to people and organizations on the state payroll by 2 percent by the end of this year. He said that the government has proposed a two phase plan to improve the nation's economic situations: first, the Cabinet will unblock payments and form a state reserve and second to be implemented in approximately in 2001, the demand will expand and large industrial corporations will be formed on a structural principle. Russia needs a budget positive balance of no less than $17 billion a year to service the foreign debts, MASLYUKOV said. That will require an economic growth of 4 to 6 percent in 2001. He said that the Cabinet will concentrate on the better use of the production capacities instead of their expansion. He also said that tax collection must increase to 12.5 percent of the gross domestic product by 2001, with the lessening of barter deals.

Business

Lukoil-Conoco To Sign Oil Deal

· Archie DUNHAM, Conoco president and chief executive officer, at a US-Russian business trade meeting said the agreement between Conoco and Russian oil produce LUKoil, which was to be signed in connection with Russian Prime Minister Yevgeny PRIMAKOV's visit to Washington, will be signed new week in Moscow. The memorandum of understanding between LUKoil and Conoco is for the export of North Territories oil. DUNHAM said that the "critical" part of the new deal with LUKoil was Russian acceptance of the need for construction of oil export facilities in the North Territories. He pointed out that the passage of a new production sharing agreement law (PSA) by the Russian State Duma earlier this year lifted a major roadblock to foreign investment. He said that Moscow must regulate and "define very specifically the PSA agreement" to protect firms like Conoco. Referring to a joint venture arrangement between Conoco and the Russian government for the Polar Lights oil development, DUNHAM said, "We want tot make sure our returns on our projects are no longer subject to diminished values by tax increases and increased pipeline tariffs."

Gazprom-BASF Expand Relations

· Today, German chemicals group BASF and Russian gas monopoly Gazprom will expand its cooperation and participate in natural gas and oil exploration and extraction in Russia. BASF said on March 31st at its headquarters in Ludwigshafen it will sign with Gazprom an agreement that would, "open a new era of cooperation." Under the agreement BASF's fully owned subsidiary Wintershall will start exploration of natural gas and oil, gaining access to the world's largest deposits of those natural resources. BASF's relations with Gazprom, up until now, had concentrated on deliveries and sales of natural gas in Germany and Eastern Europe through their two joint ventures Wingas GmbH and Wieh.

European Republics

Volvo To Assemble Buses In Ukraine

· Swedish car manufacturer Volvo Penta has received an order for a 1,000 industrial engines, and Volvo Bus Corporation is reviewing plans to starting a local assembly plant for buses in Ukraine, accord

When you need to know it as it happens

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ing to a company press release. The order covers a two-year period and the industrial engines will be used in agricultural machinery for Ukrainian agriculture. The order is a significant breakthrough for Volvo Penta which previously has not made any sales of engines for agricultural machinery in Ukraine. The market for agricultural machines in Ukraine amounts to approximately 10,000 units per year. Volvo's chief executive officer Leif JOHANSSON said, "I see significant potential for business possibilities for us." Volvo Bus Corporation is studying conditions for establishing local assembly plant for buses in the city of Zhitomir. "There is a big need for renewal of the Ukrainian bus fleet and here Volvo has great possibilities to be a part of and to contribute to the development by being able to offer complete transport solutions. In this respect, we look forward with great confidence to presenting a genuinely interesting and competitive alternative," JOHANSSON said.

Baltic Markets Firms, Against Moscow's Fall

· The Baltic markets were largely unaffected by Moscow's fall on Wednesday and Thursday. Renars KARASS, a trader with Talinvest Suprema Securities in Riga told the Financial Times, "In trading there is no reaction at all, because the correlation [of Baltic markets] with the Moscow stock exchange is almost zero. All the bad things happening in Russia have already been priced in." The Tallinn bourse in Estonia fell only 2.23 percent on Wednesday. The Estonian market is the most liquid of the three Baltic exchanges and the most responsive to western markets. The market climbed 1.51 percent on Thursday. Leading shares included Estonian Telecom, Hansabank, and seatbelt maker Norma. The Riga exchange market (RICI) index lost 1.91 percent on Wednesday and 1 percent on Thursday. There was a sale of Latvian Gas shares, which were bought by Ruhrgas of Germany. Investors were awaiting news of the fate of Riga Commerce Bank, Latvia's fourth largest bank, which was declared insolvent on Tuesday. The Vilnius stock exchange has experience a high volume of trading with daily turnover in excess

of $10 million. Investors were interested in shares in Hermis bank, the second biggest bank, a long-time takeover target for rival Vilniaus Bank. The blue chip Liutin index lost 4.33 to 577 on Wednesday and closed up 1.55 at 578.55 on Thursday.

South Caucasus & Central Asia

CIS Defense Mins Meet Over Kosovo Conflict

· The CIS Defense Ministers met on Thursday in Moscow to coordinate military cooperation among the member-states of the Commonwealth of Independent States (CIS) in the present situation. Nine out of the 12 member-states attended the Council meeting: the Defense Ministers of Russia, Azerbaijan, Belarus, Kyrgyzstan and Tajikistan, as well as representatives of the military departments of Georgia, Kazakhstan and Ukraine. Uzbekistan, Turkmenistan and Moldova were not represented. The agenda focused on prospects for the development of military cooperation among the CIS member-states in light of the latest developments in the world. A report on the situation in Kosovo since the NATO air strikes was presented. The Tajikistan Foreign Ministry said in a statement that the intense situation in the Balkan region has severely endangered the peace and stability in Europe and the world. Tajikistan supports Russia's position on NATO military operations and urged that the strikes be stopped to avoid more "meaningless" casualties and damage. Kyrgyzstan Defense Minister Myrzakan SUBANOV also endorsed Russia's position on the Kosovo issue. According to a Turkmenistan's Foreign Ministry statement, that country will follow the UN stand on the issue, appealing for diplomatic and political solutions above all other means. The Defense Ministers discussed joint measures signed in 1992 for the operational and combat training of the CIS Armed Forces. It provides for an accord on the leadership of exercises to be conducted by the peacekeeping forces in the CIS member-states. They also discussed the situation on the state border between Tajikistan and Afghanistan.

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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