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

Friday, April 30, 1999

Russian Federation

Politics

To Impeach or Not Impeach?

· A poll conducted by the Public Opinion Fund of 1,500 respondents, found that 47 percent of Russians favor the idea of an impeachment debate on Russian President Boris YELTSIN, while 40 percent were opposed. After months of hearings by a parliamentary committee and a month delay due to the Yugoslav conflict, the Russian State Duma is scheduled on May 13th to begin debating YELTSIN's possible impeachment. YELTSIN is charged with instigating the 1991 Soviet collapse, improperly using force against hard-liner lawmakers in 1993, launching a was in Chechnya, ruining the national military, and waging genocide against the Russian people, by adopting economic policies that impoverished the country. To remove YELTSIN from office, at least one charge must win a two-thirds majority in both houses of parliament and approval of the Supreme and Constitutional Courts.

Security Meeting To Save and Develop Nukes

· In a highly secretive meeting in Moscow between President Boris YELTSIN and the advisory Security Council, Russia ordered its military to make plans for the development and use of tactical nuclear weapons. The Washington Times reported that tactical nuclear weapons are smaller than strategic weapons and are intended for battlefield use. Defense experts have determined that the Russian army has about 10,000 to 12,000 tactical nuclear weapons, but they are largely in storage. Three documents were signed including on tactical arms during, YELTSIN's Security Council meeting, which was held in such secrecy that even the chief of the Strategic Rocket Forces left the room. YELTSIN said, "Our nuclear forces were and remain a key element in the country's strategy for ensuring na

tional security and military power. Everyone here, including the President, risks his head if something leaks from here." He added, "For half a century, the nuclear forces have been one of decisive factors of stability of the situation in the world as a whole. This is why, maintaining the combat readiness of nuclear potential at a high level is among top priorities in Russia's state interests." With its conventional forces in decline, Russia has become increasingly reliant on its nuclear force as a deterrent. Security Council Secretary and head of the Federal Security Service (FSB) Vladimir PUTIN said the decrees, "covered the development of the nuclear weapons complex and a concept for developing and using non-strategic nuclear weapons." He ruled out any connection between the council's meeting and the alliance's bombing of Yugoslavia.

Economy

Was Russia Discriminated Against?

· Economics Minister Andrei SHAPOVALYANTS addressing a United Nations forum, just one day after reaching a $4.5 billion loan agreement with the International Monetary Fund (IMF), criticized the international community for failing to rescue Russia from the financial crisis in August. He said, "Russia appears to have been a target of discrimination, since it was the only country as far as we know among the crisis-hit countries that did not receive timely international support." He also accused the IMF of not having, "any effective or functioning early

Today's News Highlights

Russia

Gazprom-Pertochemical Group

Sberbank Gold Purchases

European Republics

IMF Reviews Ukraines's Econ.

South Caucasus & Central Asia

British Planes Fly Over Georgia

Council Of Europe Address

Aliyev Recovers From Surgery

Baku-Novorossiisk Line Reopens

Kazakhstan Sentences Spy

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April 30, 1999

Intercon's Daily

warning prevention system for financial crises." IMF Managing Director Michel CAMDESSUS expressed surprise at SHAPOVALYANTS' comments. CAMDESSUS said, "I heard him with a sense of unreality because I had the privilege yesterday to finalize with the Russian delegation a major package. I remember having traveled especially to his country to warn the authorities about the risk." The IMF was criticized last summer when it announced a large rescue package, only to have it suspended in August when Russia effectively devalued the ruble. SHAPOVALYANTS made no mention of the $4.5 billion in principle loan agreement. He said, "The priority task at the present is the restructuring of the banking system. For this substantial resources are required and we are counting on the support of the international institutions and the world community."

Ruble = 24.23/$1.00 (NY rate)

Ruble = 24.16/$1.00 (CB rate)

Ruble = 25.67/1 euro (CB rate)

Nov Dec Jan Feb Mar Apr

Russia Prepares Legislation

· First Deputy Prime Minister Yuri MASLYUKOV said that changes to the Russian government's financial and budgetary policies to meet the loan terms of the International Monetary Fund (IMF), "does not make us slaves to the IMF." The negotiations have yielded Russia's accord with the IMF on a new loan of $4.5 billion. According to Alexander ZHUKOV, head of the Russian State Duma's budget committee, the IMF legal requirements cover five areas: passage of bank restructuring law; improvement of existing laws on bank bankruptcies; increasing the excise tax on alcohol and petrol; raising the

value added tax to 20 percent; and relaxing restrictions on foreign exchange. MASLYUKOV said popularity of the laws to be passed by the Duma under the loan accord or a lack thereof is only a matter of their expediency. He said it would take the Duma a month and a half or two to make necessary changes to legislation. The loans will simply cover Russia's repayments to the Fund. The money will never leave Washington, DC, and will be transferred from one IMF account to another. The Central Bank has conceded that foreign currency reserves, including some IMF money, were held in secret offshore accounts. Russia has agreed to provide a full accounting of those reserves and past IMF disbursements before receiving any new funds.

Business

Gazprom Closer To Petrochemical Group

· Russian gas monopoly Gazprom is conducting negotiations to form a petrochemical holding company, with an annual turnover of $1 billion. The new holding company, according to Reuters, will control two thirds of the country's production of propane and butane at about 750,000 tons per year, and a third of Russia's 680,000 tons per year rubber production. Head of Gazprom's product marketing department Alexander SHURYMOV said, "Gazprom will coordinate the development of the new company, which will be set up on the base of gas and petrochemical company SIBUR and the Tobolsk petrochemical plant." SIBUR's main assets are nine gas processing plants in the Siberian cities of Surgut, Gubkinsky, Nizhnevartovsk, and Krasnoleninsk, 13 gas compressor stations, and 5,000 kilometer of oil and gas pipelines. A controlling stake of SIBUR was bought in December by an unknown group called Gaspetrochemical Company. Tobolsk is Russia's largest petrochemical plant. SHURYMOV added, "Our aim is not to let the petrochemical industry die. It has been so fragmented in recent years that all petrochemical plants have suffered gas shortages, have not been paid for their production, and have been completely unprofitable."

Sberbank Gold Purchases Total Over 20 Tons

· Russia's state savings bank Sberbank has concluded more than 80 contracts for the purchase of more than 20 tons of gold from domestic producers this year. According to a bank press release today, "The bank believes that despite the expected intro

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duction by the government of a 5 percent export duty [on non-ferrous metals effective May 1st], the banking operations on the domestic precious metals markets would still remain attractive." Sberbank Bank's spokesman Alexander GOLOVANOV said the duty's introduction would have no impact on Sberbank's plans for gold purchases this year. "Our plans to buy over 50 tons of gold in bars from domestic producers will remain unaffected by the introduction of the duty," GOLOVANOV said. Sberbank also plans to buy over 100 tons of silver and 10 tons of platinum in bars this year. The press statement reiterated that Sberbank provides the "most favorable" conditions for domestic precious metal producers. Most domestic gold producers are currently unable to finance their production due to lack of funds, and experts expect a fall in gold output this year. The Central Bank of Russia said the country's gold production this year was seen at 95 tons against 114 tons in 1998.

Tbilisi last Sunday, flew over a number of regions in Georgia on Tuesday. They performed the flights aboard a plane fitted out with radio, photo and video equipment, according to the Georgian Defense Ministry. Georgia joined the Open Skies program, which is part of the European security concept, last spring. In the summer of 1998, military pilots and specialists of the US Air Force performed the first observation flights over Georgian territory within the framework of the Open Skies program. Apart from the US and Britain, the participants of the Open Skies program also include Germany, Russia, Ukraine and Belarus.

Excerpts From Address To Council Of Europe

· I came to Strasbourg from Washington DC where the NATO and Euro-Atlantic Partnership Council Summits were held. Documents adopted at these fora will largely determine what Europe and beyond will be like in the years to come. Although in this century we have lived through the two World Wars and the Cold War that lasted nearly 50 years, the future still does not look cloudless. Among other things, it may also be attributed to a serious shift that has occurred in our consciousness and can hardly be explained in rational terms, Our instincts for threats appears to have slackened, and as a result, we forgive indiscriminately, and even regard appeasement as a hallmark of the most civilized behavior. A tepid response to the crimes against humanity perpetrated today is much like blinding one's eyes to the Nazi crimes would have been. The scales may be different, but the nature of the offenses is similar. What are the guarantees then, that our inaction and the excessive forgiveness will not eventually bring about the same tragic results.

As a matter of fact, nor have the crimes committed by Bolsheviks received fair assessments. The ethnic cleansing perpetrated today by criminal regimes can be traced back to those old times when in the vast territory of the Soviet Union, and in the Caucasus in particular, whole villages and cities, even entire nations or religious groups were cleansed overnight. Present-day theorists and practitioners of ethnic cleansing make a good use of peace talks. By endlessly procrastinating them, they try to legitimize the consequences of their crimes and to perpetrate an unfair status quo. Peace talks ought not to turn into an end in itself. Unless they help restore justice, the very concept of the peace process may be

European Republics

IMF Reviews Ukraine's Economy

· The International Monetary Fund (IMF) on Tuesday, after conducting an annual review of the Ukrainian economy, stated that Ukraine needs to accelerate reforms to cope with fiscal and external pressures. It pointed out that government reforms specifically in the agricultural and energy sectors were going more slowly than expected. "They...emphasized the need for the authorities to strengthen their macro-economic policies and to fully implement their program of structural reform in order to preserve economic stability and strengthen the still-fragile market mechanisms in Ukraine." The IMF pointed out the Ukraine has made some progress in privatization, demineralization, and deregulation. The review noted that, "Ukraine will still face a challenge given the magnitude of debt service obligations in relation to the level of foreign reserves." Official reserves held by the National Bank of Ukraine had declined sharply and the 1998 balance of payments deficit had deteriorated.

South Caucasus & Central Asia

British Planes Fly Over Georgia

· As part of the Open Skies Program, sixteen British Royal Airforce specialists and pilots, who arrived in

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discredited. So when there is a credible democratic force which, therefore, has the moral right to defend respective values, not only is it wrong to denounce it for so doing, but it should be considered a duty of such a force to use peace enforcement methods when other means have been exhausted.

I know it is wrong to quote oneself, but where else if not here in the heart of Europe am I obliged to repeat something I have said in Washington, "A complete overhaul in the existing security mechanisms that were formed in a different epoch for different purposes is imperative. The attempts to adopt the changing contemporary world to existing charters, perceptions, and traditions are outright wrong. Rather we should act the other way round that is adjust currently available instruments to the emerging new reality and develop the ability to respond appropriately to new threats. Without strong guarantees of security and diplomacy backed by force, including the actual enforcement of peace, the world will not be healed of the epidemic of conflict which may ultimately lead us to universal chaos. We must respond to these new threats by a kind of partnership whose central tool will be a humanistic, moral high ground approach, rather than considerations of geopolitics and balance of power alone. A partnership wherein the pain experienced by any one state, no matter how large or small, must become a shared concern for the entire Euro-Atlantic family."

Georgian President Eduard SHEVARDNADZE

April 27, 1999

Strasbourg

Aliyev Recovering From Heart Surgery In US

· After attending the NATO summit, Azeri President Geidar ALIYEV underwent a heart bypass operation at the Cleveland Clinic in the US on Thursday. The President's office released a statement today saying, "The operation went smoothly and the President is feeling well." Internationally prominent US heart surgeon Michael DEBAKEY performed the surgery. The Azeri President, who turns 76 years old in May,

suffered a heart attack in 1987. ALIYEV was treated in Turkey in January with acute bronchitis. Reuters reported that aides at the time denied reports that he had a heart problem after speculation that he might be suffering from something more serious. Physicians in Turkey, who examined ALIYEV, revealed that the Azeri President's cardio-vascular system functioned 25 percent of what it should. ALIYEV apparently visited the Cleveland Clinic for a check-up and subsequently the operation was performed two days later. Despite rumors of his poor health, ALIYEV was re-elected for another five-year term last October.

Baku-Novorossiisk Pipeline Re-opens

· A Russian pipeline carrying Azeri crude from Baku to Novorossiisk for a consortium led by BP Amoco Plc is operating again after a three-day closure. An official at the Azerbaijan International Operating Company on Thursday said, "The break was connected with technical problems on the Chechen part of the pipeline," Reuters reported. The pipeline was carrying 115,000 barrels of oil per day. The Baku-Novorossiisk pipeline worked only 23 days in April because of stoppages.

Khadeev Sentenced To 10 Years For Treason

· A Kazakhstan military court has sentenced Rais KHADEEV, former vice chairman of Kazakhstan's State Security Committee and KGB official, to 10 years imprisonment for treason, confiscation of property. KHADEEV was arrested by the security authorities last January on suspicion of spying for foreign agencies. He was charged with attempting to disintegrate and weaken Kazakhstan's security and sovereignty. The case was described as the largest its kind since Kazakhstan became independent from the former Soviet Union. KHADEEV had passed along important secret information on Kazakhstan's politics, economy, military and foreign policies to Turkish and Iranian intelligence agencies in 1995. Even after returning to Kazakhstan, KHADEEV was in contact with foreign agencies under the cover of a fake business set up by foreign agents in Almaty.

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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