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, April 23, 1999


Russian Federation

Politics

Security Council Discusses Chechnya

· The Russian Security Council has ended its meeting chaired by Prime Minister Yevgeny PRIMAKOV to discuss the situation in Yugoslavia and Chechnya. Duma Chairman Gennady SELEZNYOV said that, "the situation in the Chechen Republic and the Caucasus in general" in the setting of the forthcoming meeting of President Boris YELTSIN and Chechen president Aslan MASKHADOV. He noted that the location and time has not been determined, but that preparations are underway. According to a Security Council press release, the meeting's participants agreed that the, "complex socio-political situation and the crime situation in the North Caucasus, especially in the Chechen Republic and territories adjacent to its borders, a threat to stability in the region from extremist, separatist forces is cause for serious concern." The Security Council discussed security measures for the volatile region, in particular a permanent commission was proposed for settlement of the relations between the federal center and Chechnya. Federal Security Service (FSB) Director Vladimir PUTIN said the negotiation should rest on the principle of refusing confrontation and transition to cooperation in economic, information and humanitarian fields, and Russia' seeking stabilization in the North Caucasus should proceed from priority of securing indispensable human rights and civil liberties. Regarding the Federation Council's vote to keep Prosecutor General Yuri SKURATOV in office, the Security Council was told that no secret information had been released at the closed door session on April 21st. Federation Council chairman Yegor STROYEV said that the Council is ready to submit all materials to the media. SELEZNYOV said that the Security Council had not discussed Viktor CHERNOMYRDIN's trip to

Belgrade, nor the forthcoming discussion in the Duma of the impeachment of YELTSIN.

Yeltsin's Health Ready For Third Term

· Despite plans by the Russian State Duma to hold three plenary sessions on May 13th to 15th to discuss the impeachment of President Boris YELTSIN and his almost nonexistent popularity, it is hard to believe that anyone would be proposing a third presidential term for YELTSIN. Today, the President's main doctor Sergei MIRONOV said that YELTSIN is strong enough to seek a third term. The Constitutional Court in November ruled that YELTSIN cannot seek a third term in 2000, because he already has been elected twice. YELTSIN has insisted that he does not intend to seek re-election. MIRONOV warned the President's political rivals against "prematurely writing off" YELTSIN. He even suggested that the President may be faking his illnesses to mislead his opponents. MIRONOV's remarks suggest that Communists and other hard-liners who argue that YELTSIN is too sick to lead Russia are wrong. The doctor expressed concern that YELTSIN does not get enough sleep which can, "sometimes [create] an inability to concentrate." Intercon sources who spoke with doctors, familiar with YELTSIN's quintuple bypass surgery in 1996 and involved in his care, agree that the President is healthy, but that the real problem is not physical, it is related to YELTSIN's abuse of alcohol. MIRONOV stated, "I haven't seen any alcohol abuse, and... Boris...has had no alcohol-related health problems."

Today's News Highlights

Russia

IMF Agreement Imminent

BPAmoco To Take Over Sidanko

European Republics

Baltic Presidents Meet Albright

Kuchma Fires Energy Official

Utel Reports 1998 Profits

South Caucasus & Central Asia

Shevardnadze Speaks At Rice

Rus-Azeri Econ. Com. Meets

Azeri Tax Chief Sacked

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Economy

Ruble = 24.67/$1.00 (NY rate)

Ruble = 24.62/$1.00 (CB rate)

Ruble = 26.22/1 euro (CB rate)

Nov Dec Jan Feb Mar Apr

Rus-IMF Agreement To Be Signed Soon

· International Monetary Fund (IMF) Managing Director Michel CAMDESSUS gave the most positive hint so far that an agreement would be reached soon with Russia. He said, "Russia is at this very moment probably the most difficult problem we must tackle— everything is difficult. We believe that it is still possible for us to agree with them soon...The next few days will probably bring good news." However, he added, if there is no progress, the IMF will continue cooperation with Russia to help it in this complex period. The US former Deputy Treasury Secretary David LIPTON said the IMF's loan for Russia this year is expected to be "moderate," adding that a major proportion of the IMF's disbursement would go into Russia's servicing its debts to the West. He forecast that the IMF would defer part of the debt so that its servicing does not prove a destructive factor for Russia's economy at its hard times. He said decision on new loans for Russia would be made on the basis of assessment of the progress of reform in the Russian economy and of how effectively IMF funds are used by Russia. The IMF primarily insists on a quicker reform of the country's banking system and on Russia's submitting a report on the use of the previous IMF loans. Prosecutor General Yuri SKURATOV revealed that millions in hard currency funds were transferred to Fimaco, an offshore tax haven in Britain's Channel Islands. The IMF sus


pended funding Russia last summer by freezing a loan package worth $22.6 billion. Since then Russia and the Fund have been negotiating to release new credits. Following the deal the IMF will resume funding the Russian economy. CAMDESSUS said that his optimism is based on the recent personal many-hour conversations with Russian Prime Minister Yevgeny PRIMAKOV.

Indicators: Inflation, Industrial Output, Reserves

· The Russian State Statistics Committee release a report citing officials inflation figures from April 1st through 12th which stood at 1.6 percent, including 0.8 percent from April 6th through 12th. The daily mean price increase went up to 0.131 percent this month, compared to 0.089 percent in March, where the monthly inflation amounted to 2.8 percent.

Russia's industrial output grew by 2.8 percent in March 1999 in comparison with February and by 1.4 percent in comparison with March 1998, according to the Center for Macro-economics Analysis and Short-Term Forecasting under the Russian Academy of Sciences. Specialists determined that industrial output increased in March. In January and February, the slowing down of the production recession, as against the 1998 level, was less than 2 percent, while the figure for March was 5.1 percent, which is a record for the period since last October.

Russia's gold and currency reserves have remained an unchanged $10.8 billion between April 9th and April 16th, according to a press release from the Central Bank. The reserves are down 11.5 percent from $12.2 billion at the start of this year. Currency assets of the Central Bank of Russia and the Finance Ministry are computed in US dollars on the basis of cross rates to official rates of the ruble to foreign currencies set by the Central Bank as of a date of account. Monetary gold costs $300 for a troy ounce.

Business

BP Amoco To Take Over Sidanko?

· BP Amoco is trying to salvage its $571 million investment into Russia today by joining forces with other foreign investors to take control of Sidanko, one of Russia's largest oil companies, The Wall Street Journal reported. Group chief executive for BP Amoco Sir John BROWNE declined to confirm that his company is planning to take over the board

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of Sidanko. BP Amoco has written off $200 million in its investments in Sidanko. Industry analysts believe that BP Amoco is in danger of losing more, if it doesn't assert more control over the company, which entered bankruptcy proceedings this year. BROWNE appealed to Prime Minister Yevgeny PRIMAKOV to ensure that BP Amoco's interests are protected in these proceedings against Sidanko. He said, `We are very keen to see that the treatment of this company in bankruptcy is of the standard that would be regarded as appropriate in Europe. BP Amoco has also attempted to install an external bankruptcy manager, which infuriated Sidanko's largest shareholder, Interros. Headed by Russian tycoon Vladimir POTANIN, Interros holds a 47 percent stake in Sidanko and 11 board seats. BP Amoco holds a 10 percent stake in Sidanko. Howard CHASE, a spokesman for BP Amoco, said elections will be held today for board seats and board chairman.

Michinoku Bank Branch Obtains License

· Russia's Central Bank governor Viktor GERASHCHENKO has approved a banking license for the Moscow-based affiliate of Michinoku Bank, establishing it as a private company. He handed over the license to Michinoku Bank president K. MASUTA at a ceremony on Monday. The Bank will begin operations in early July. The subsidiary is the first wholly owned unit of a Japanese bank established in Russia. The Moscow subsidiary has charter capital of $12 million. "The number of competitors is considerably smaller," GERASHCHENKO noted, due to liquidation of dysfunctional bankrupt banks. He said that the Bank will have all opportunities for developing successful business. The opening of the affiliate may have positive influence on exports in the development of traditional business relations between Russia and Japan. It also offers new opportunities, for example, in servicing sea food operations. GERASHCHENKO also noted that Russia producers can receive funding to purchase Japanese equipment which Russian firms traditionally buy. The principal fields of activities by Michinoku Bank in Moscow will be banking services, funding of trade, project funding and crediting of Russian clients. Operations on the stock market and consulting services are possible. According to the Central Bank's public relations department, the Michinoku Bank is one of Japan's leading regional banks. Established in 1927, it has 111 branches in Japan,

three missions abroad, an affiliate and correspondence relations with more than 110 banks from 51 countries. The Banker magazine said Michinoku was 440th in world ranking in terms of authorized capital and 71st in Japan.

European Republics

Baltic Presidents Meet With Albright

· Ahead of the celebration marking NATO's 50th anniversary, Estonian President Lennart MERI, Latvian President Guntis ULMANIS, and Lithuanian Valdas ADAMKUS met with US Secretary of State Madeleine ALBRIGHT in Washington on Thursday. They reaffirmed their qualifications and desire to joint NATO. MERI, said after the meeting with ALBRIGHT, said she assured all three countries that they will be mentioned in the summit's final declaration. ULMANIS said she stressed that the Kosovo crisis will not interfere with the Baltic nations' quest to join the alliance, RFE\RL Newsline reported. ALBRIGHT thanked the three nations for their support in NATO's actions and assisting Albanian refugees. She also encouraged them to continue providing such assistance.

Kuchma Fires Energy Officials

· Ukrainian President Leonid KUCHMA on April 16th fired Deputy Energy Ministers Yuri ULITYCH and Sergei KUZMENKO for "abuse of authority." Zinoviy BUSYO, head of the national Commission for Energy Regulation was also fired for "serious negligence" in his work. KUCHMA also instructed the Energy Minister to dismiss directors of two energy companies. The President made the personnel decisions after reading preliminary findings of an investigation into alleged abuses in the energy sector, RFE\RL Newsline reported.

Utel Telecom Reports Increased Profits

· Ukraine's largest international and intercity telecom operator, Utel, announced net profits for 1998 of 185.5 million gryvnias ($38.2 million), a rise from profits of 156 million gryvnias in 1997. Utel director Alexei MARINCHUK said that international telephone traffic totaled 372 million minutes in 1997, an increase of 14 percent in 1997. He said that Utel served over 40 percent of Ukraine's intercity traffic and around 100 percent of international calls. The telecom company are planning to invest $16.5 million to develop its business and another $18 million to

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upgrade local telephone network over 1999. Utel was founded in 1992 by Ukraine's telecom monopoly Ukrtelekom, which holds a 51 percent share, AT&T and Deutsche Telekom with 19.5 percent each and Dutch PTTE Telecom with 10 percent.

South Caucasus & Central Asia

Georgian Pres. Addresses Baker Institute

· Georgian President Eduard SHEVARDNADZE kicked off his visit to the US to mark the 50th anniversary of NATO by first visiting Houston, Texas. The President attended a special luncheon of the Houston Business Council, hosted by Frontera Reosurces. Frontera is the largest US employer in Georgia. They are involved in oil exploration in Georgia and Azerbaijan and will soon be developing oil in Georgia. In a major address at the Baker Institute at Rice University, SHEVARDNADZE outlined the failures of the international system, especially by implicating the UN, in the post Cold War years. The transition from a bi-polar world to an a-polar world has been much more difficult than he and former US Secretary of State James BAKER had expected. A large contributing factor to this failure has been the UN's inability to enforce its own UN Security Council resolutions. President SHEVARDNADZE believes the failure to implement these resolutions has lead to great suffering and fueled the flames of aggressive separatism. He cited Abkhazia as an example of the failure of UN resolutions to be implemented and enforced, which has led to the displacement of 300,000 ethnic Georgian refugees. President SHEVARDNADZE pointed to emerging new regional security mechanism as building blocks which can possibly address this failure. He noted that Georgia, Ukraine, Azerbaijan, and Moldova (GUAM) had recently concluded joint military exercises in Georgia. He stated that the challenge remains on how to leave behind the bi-polar balance of power of the Cold War and enter a new era ruled by universal humanitarian values. After SHEVARD-NADZE's speech at Rice University, which was enthusiastically received, BAKER and the Georgian

President engaged in a unique and insightful exchange of views concerning events, which they participated in during the BUSH administration. These insights were sprinkled with humor and candor which the audience found fascinating and enjoyable. These great statesmen revealed their personal thoughts on the common events in their respective former positions as Soviet Foreign Minister and US Secretary of State, during the peaceful transition from the Cold War. SHEVARDNADZE was then awarded with the Enron prize for diplomacy and humanitarian contributions to the world. Before departing for Washington, the Georgian President visited Dr. DEBAKEY and signed a protocol for the establishment of a Cardiac Care Hospital in Tblisi. He also visited the port of Houston and its port authority, signing a protocol between the port of Houston and Georgia's Black Sea port of Poti.

Rus-Azeri Trade And Economic Comm. Meets

· A meeting of the intergovernmental Russian-Azeri Commission for Trade and Economic Cooperation opened today in Baku. The last such meeting of leaders of ministries and departments of the two countries within the framework of the joint commission was held in Moscow about two years ago. The sides plan to discuss a package of economic issues and consider a number of agreements aimed at intensifying bilateral relations, and raising the turnover between the two countries.

Azeri Tax Chief Sacked

· Azeri President Geidar ALIYEV on Monday sacked the head of the state tax inspection service, Shokhret VEKILOV. No reason was given for his removal and no successor was named. VEKILOV was criticized for poor tax collection in 1998, which resulted in revenues being 40 percent under the target. ALIYEV has sharply criticized some of his ministers in recent meetings and analysts believe he may be preparing to sack several members of his Cabinet, Reuters reported. The sackings could be an attempt to deflect concerns that the government has not diversified the oil-dependent economy.


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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