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

Tuesday, April 6, 1999

Russian Federation

Politics

Warrants Issued For Berezovsky And Others

· In a move certain to bolster the reputation of the Prosecutor General's Office, it issued warrants for the arrest of oil-to-media business tycoon Boris BEREZVOSKY, former commercial director of Aeroflot Airlines Nikolai GLUSHKOV, and Agro-Bank head SMOLENSKY. The three are charged with financial embezzlement and money laundering. Investigators accuse BEREZOVSKY of setting up a Swiss company to hide hard currency earnings of Russia's largest airlines Aeroflot. Prosecutors also point out that he has ignored several subpoenas issued since March 22nd calling him in for questioning. BEREZOVSKY, who was not granted airspace to return to Russia for the Commonwealth of Independent States (CIS) Summit, in Kiev said that these charges are absolute fabrications. He said that the charges are related to Aeroflot. In a stern voice, BEREZOVSKY said I am not a member of Aeroflot, never operated in the company, and never used Aeroflot's bank in Switzerland. He said that these charges were invented by Russian secret services with Prime Minister Yevgeny PRIMAKOV's blessing. BEREZOVSKY's political influence on the Kremlin's inner circle has been waning since PRIMAKOV was appointed prime minister. It was at PRIMAKOV's suggestion that President Boris YELTSIN recommend BEREZOVSKY's dismissal from his post as CIS executive secretary. The tycoon lashed out at PRIMAKOV in a newspaper interview today accusing him of hatching plans to re-create the Soviet empire. Since leaving Aeroflot, GLUSHKOV has headed the LogoVAZ board of directors, the car company connected to BEREZOVSKY. SMOLENSKY is currently in Austria. Russian television said that the three were put on Russia's most wanted list and that Interpol may become involved in

the search and detention of BEREZOVSKY and GLUSHKOV, who are believed to be hiding abroad. Coincidentally, PRIMAKOV is scheduled to visit Kiev to hold a number of meetings with Ukrainian President Leonid KUCHMA, Prime Minister Sergei PUSTOVOITENKO, leaders of the parliament and the Foreign Affairs Ministry.

Skuratov-Yeltsin Head For A Showdown

· Russian Prosecutor General Yuri SKURATOV has submitted his resignation to the Federation Council for the second time in two months today. Federation Council speaker Yegor STROYEV confirmed that the Council will review the document and pointed out that, "No cause has been indicated so far." The Federation Council is expected to vote on the resignation on April 27th.

SKURATOV's latest move is expected to bring his conflict with President Boris YELTSIN to another break point. On Friday, YELTSIN signed an order suspending SKURATOV from his position, cutting his direct line to the government, and changing his bodyguard team. First Deputy Prosecutor-General Yuri CHAIKA became acting prosecutor-general. YELTSIN said that the suspension was due to the investigation on charges of abuse of power in connection with a blackmail video alledgedly of SKURATOV's sexual activities. SKURATOV's case will be investigated by the Main Military Prosecutor's Office. Federal Security Service (FSB) Director Vladimir PUTIN said on television on Sunday that

Today's News Highlights

Russia

March Tax and Inflation Figures

Rus-Italian Lumber Consortium

Horseman Attacks US Home

European Republics

Latvian Bank Losses

South Caucasus & Central Asia

Assassination Attempt Imminent

Industry Needs Investment

Azeri Budget Shortfalls

Kazakh Tenge Drops

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Tuesday

April 6, 1999

Intercon's Daily

scandal-stirring video footage of SKURATOV was authentic and law enforcers had evidence to suggest that the "functions of that sort" were paid by people under criminal investigation. YELTSIN stressed that SKURATOV's behavior was not the only factor leading to his suspension. Disorganization in the prosecutor's office, ineffective work, and poor cooperation between the prosecutor's office and other law enforcement bodies were also factored into SKURATOV's suspension.

YELTSIN foes called the move was illegal and said it was revenge for the prosecutor's anti-corruption effort, which many feel were gaining momentum. SKURATOV had been investigation possible bride-taking by government officials for contracts involving Swiss construction firm Maybetex, evidence top officials' money laundering activities through Swiss bank accounts, and allegations of the funneling of government funds to offshore accounts owned by companies operated by YELTSIN's family. SKURATOV has called for the creation of an ad hoc governmental commission to recover the Russian money kept abroad. The Federation Council, which has the power to remove the prosecutor general, in March overwhelmingly voted that SKURATOV should remain in his post. The Council encouraged SKURATOV to continue with his corruption inquiry into the Kremlin. It is unclear whether the Council will side with SKURATOV again. If it does, it will serve as a further reminder of YELTSIN's withering influence.

Economy

Ruble = 25.11/$1.00 (NY rate)

Ruble = 25.1/$1.00 (CB rate)

Ruble = 26.92/1 euro (CB rate)

Russian Tax And Inflation Figures For March

· The Russian Ministry For Taxation expects the taxation revenues for March to exceed the planned assignment by 6 percent to 7 percent. Head of the Taxation Department Georgy BOOS declined to give a concrete sum expected to be raised by taxation in March, but promised that the Taxation Ministry intends to fulfill the tax collecting assignment in April. Earlier, Russian Finance Minister Mikhail ZADORNOV declared that at the end of March the government was hoping to receive 32 billion rubles worth of taxation revenues contributed to the state budget. The government is having difficulties col

lecting taxes for the budget. The Journal of Commerce reported that New York City collects more taxes in a day than the Russian government does in a year. Government budget revenues totaled $1.3 billion in March, while expenditures were $1.5 billion, according to the Finance Ministry. The ruble is continuing its slide against the dollar and prices have gone up 16 percent in the first three months of 1999.

First Deputy Prime Minister Yuri MASLYUKOV today said inflation rate was 2.8 percent in March; the lowest level of inflation since the financial crisis in August, 1998. It had been forecast to be 3.5 percent. He explained the reduction of the inflation rate in comparison with the expected figure by the fact that, "provinces did not react to the changing of the ruble exchange rate with regard to the US dollar as strongly as Moscow and St.Petersburg." MASLYUKOV pointed to the fact that despite fluctuations of the ruble exchange rate, a positive trend towards the reduction of the inflation rate is obvious, citing inflation figures for December, 1998 at 11.6 percent compared with only 2.8 percent in March.

Business

Rus-Italian Lumber Consortium Formed

· The government of Buryatia, a Russian republic, has successfully completed in Italy the first stage of the negotiations to set up a Rus-Italian consortium to develop a timber industry complex in the area of the Baikal-Amur Mainline. This is the outcome of the negotiations in Italy between Buryatia's President Leonid POTAPOV and Italy's Minister of Economics and Foreign Trade Minister Bianca Maria BANNANI. Arrangements were reached on the allocation by the Italian side of the credit line for the construction on a turnkey basis of a plant for timber-working in Severobaikalsk. The credit of $26.5 million will be allocated by Credito Italiano Bank, while the Italian insurance company Saccie will be the bank's guarantor. According to the information of the Buryatian government's press service, the agreement on setting up the consortium and the allocation of the credit for it will be signed when the sides coordinate all details of the project.

Tuesday Tid-Bit

Horseman Fires On US Ambassador's Home

· A man, dressed as an ancient Russian warrior,

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fired a single arrow bearing a written warning against NATO airstrikes in Yugoslavia at the US Ambassador's residence in Moscow on Friday. The statement reads, "Those who act against the Slavs by the sword will die by the sword," Reuters reported. It also warns that the war will end on US territory. Police identified the man as actor and director Andrei ANDRONNIKOV. He escaped from police on horseback. The Moscow police have not yet pressed charges over the incident.

SHOSHITAISHVILI said that Georgia needs to attract new investors to reduce its dependence on neighboring former Soviet republics. He said that this, "can help industrial enterprises overcome the deep economic crisis they face now." Georgia's industrial output fell 2.8 percent in 1998 due to a lack of financing, slow pace of rehabilitating enterprises, and low levels of management. He pointed out that the industrial sector has been hit by expensive banking credits high electricity tariffs, and economic crises in nearby countries, specifically Russia. Georgia's State Statistics Department said Russia's financial crisis has cost Georgia about $300 million. SHOSHITAISHVILI explained that the crisis in Russia curtailed Georgia's exports and increased the level of cheap imports. "When the country has to import cheap products, local businessmen have to reduce industrial output and sometimes even completely stop their activities." He said that machinery making and chemical and metallurgical industries were hit the hardest from the economic fallout. Reuters reported that output from chemical industry fell 14.1 percent in 1998 and machinery making dropped 15.2 percent. On Monday, President Eduard SHEVARDNADZE said that a 16 percent rise in industrial output in the first quarter of 1999 is a sign that Georgia is overcoming its crisis.

Azeribaijan Reviews 1998 Budget Shortfalls

· Azerbaijan's Finance Ministry reviewed results of the 1998 budget at a board meeting on March 29th. Chief of the tax policy department of the ministry Salim MUSLUMOV noted that the budgetary shortfall in 1998 was due to the fall in world oil prices. Oil represents the nation's main hard currency earnings. As a result, the budget could only be funded at 75.7 percent through the use of domestic funds. Social obligations in the state budget were met at 69.6 percent of forecasted levels. At the end of the meeting a number of top officials were fired for poor performance. These include, chief of Treasury operations Esira FARAJOVA, chief of treasury registration Abdulla SAFAROV, chief of Baku's financial department Vidadi ZEYNALOV, and chief of the Agdam financial department.

Azeri Pushes For Oil Swap With Kazakhoil

· Azerbaijan has offered an oil swap deal to Kazakhstan's state oil company Kazakhoil, in a bid to boost Kazakh oil transit via Azeri territory. A

European Republics

Latvian Banks Post Huge Losses

· The losses sustained by Latvian Banks in 1998 far exceeded pessimistic forecasts. According to information released by the Latvian Central Bank, Latvian banks, including Riga Commercial Bank which had to suspend activities, lost a total of 120 million lats (approximately $203 million) in 1998, RFE\RL Newsline reported. However, only one of the more than two dozen banks still operating was unable to meet the legal capital and reserves requirement of 2 million lats. President of the Association of Latvian Commercial Banks said that the "panic and rumors about the instability of Latvian banks," in the wake of Russia's financial crisis and problems experienced by Riga Commercial Bank are "groundless."

South Caucasus & Central Asia

Shevardnadze Warns New Attack Imminent

· Intercon sources report that Georgian President Eduard SHEVARDNADZE said a new attempt on his life is imminent. He has instructed Georgian security agencies to take necessary measures to prevent new acts of terrorism in Georgia. Chairman of the Georgian Parliamentary Commission on Defense and Security Revaz ADAMIA believes that an assassination attempt could happen this month. SHEVARDNADZE has survived two earlier attacks in August, 1995 and February, 1998. ADAMIA said that forces operating outside of Georgia reject SHEVARDNADZE's pro-western orientation. He also condemned as an "anti-state movement" charges made by the Georgian media that Defense Minister David TEVZADZE is corrupt.

Georgian Industrial Min. Calls For Investment

· Georgia's Industrial Minister Badri

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government official said Azerbaijan offered to process Kazakh oil at the Baku refinery in exchange for granting a part of its oil export volumes to be delivered via Russia's Black Sea port of Novorossiisk, Bridge News reported. Azerbaijan believes the swap deal is the only way to boost Kazakh oil transit, due to the fact that Azerbaijan's oil transit capacities were limited. Azeri officials have said Kazakh oil transit would become cost-effective only if annual oil transportation reached 10 million metric tons. Joint annual loading capacity of Azeri oil terminals Dyubendi and AliBairamly, to which Kazakh oil from the Tengiz oil field is being delivered by sea, is only 4.5 million metric tons.

Aliyev-Primakov Discuss Economy, CIS, NATO

· Azeri President Geidar ALIYEV and Russian Prime Minister Yevgeny PRIMAKOV on Saturday discussed cooperation between Russia and Azerbaijan in the economic sphere. They also focused on reforming the Commonwealth of Independent States (CIS). ALIYEV said, "Last year, despite attempts to reform the CIS, crisis phenomena inside our Commonwealth was not overcome." He believes that main failure is, "the presence of unsettled armed conflicts on the in CIS members states, which creates an atmosphere of tension and lack of confidence and blocks efficient co-operation and interaction in all the spheres of our relations." PRIMAKOV and ALIYEV exchanged views with regard to NATO's military actions against Yugoslavia. Azerbaijan has said that it wants to participate in any NATO peacekeeping force stationed in Kosovo. It has offered to send a platoon of 30 men as part of the Turkish battalion. Russian Ambassador to Azerbaijan Alexander BLOKHIN said, "Azerbaijan's cooperation with NATO, especially in light of events in Yugoslavia, negatively affects Russian-Azeri relations. But how negatively it is hard to say right now." Another blow to international relations came on Friday when Azerbaijan decided against signing a protocol extending the CIS Collective Security Treaty. Azeri deputy Foreign Minister Khalaf KHALAFOV said, "We've practically left the treaty. The fact that we didn't sign the protocol

on extending it means that we will no longer participate in the pact." The ruling New Azerbaijan Party advocated full NATO membership.

Kazakhs Tenge Drops Sharply

· Kazakhstan's Central Bank chairman Kazdyrzhan DAMITOV today urged people not to panic and buy dollars as the Kazakh currency tenge plunged for the second day against the dollar. The tenge has fallen from 88.30 tenge to the dollar on Friday, to 120 tenge to the dollar on Monday, and 150 tenge to the dollar today. On the blackmarket the exchange rate can be as weak as 200 tenge per dollar. The fallout is due to a government and bank decision to float the tenge. Kazakhstan made the decision to stop intervening with its currency without notifying the International Monetary Fund (IMF). Paul ROSS, the IMF representative to Kazakhstan, said that the Fund broadly supports the move. "We think that this should help restore growth in the economy, to reduce pressures for protectionist policies, and to strengthen the trade balance." The Fund has reservations about the lowering of hard currency requirements and the bank deposits exchange rate of 88.30 tenge to the dollar, if bankers do not withdraw the deposits for nine months. DAMITOV added that a new rule requiring enterprises to surrender half their hard currency export earning to the exchange, effective Monday, will help ease the temporary dollar shortage. Major companies in the key metal and oil sectors praised the decision to stop supporting the currency, because the artificially high tenge rate was hurting competition with companies in neighboring states. Kazakhstan had initially tried to protect its economy from Russia's crisis by slapping 200 percent import duties on key goods from Uzbekistan and Kyrgyzstan and banning some products from Russia. Prime Minister Nurlan BALGIMBAYEV admitted on Monday that the scheme had been a failure and scrapped it. Meanwhile, neighboring Kyrgyzstan has been forced to intervene and support the som currency in the wake of Kazakhstan's devaluation. The Kyrgyzstan Central Bank told Reuters that $660,000 has been spent supporting the som.

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

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