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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, May 10, 1999

all the time. A large-scale attack on the government has been on day and night lately." He and First Deputy Prime Minister and Interior Minister Sergei STEPASHIN have been named as possible successors, if PRIMAKOV is removed. Russian opinion polls show that PRIMAKOV is the most trusted politician in the nation and would be a strong presidential candidate. With YELTSIN's popularity at an all time low, he may be jeopardizing his own position if he sacks PRIMAKOV, the Financial Times reported.

Russia Celebrates Victory Day

· The 126th military parade of Moscow garrison troops was held Sunday morning in the Red Square in commemoration of Victory Day. President Boris YELTSIN addressed participants in the military parade in Moscow's Red Square saying, "Russia's strength is in national accord and unity." He called on Russians, "to become a support for each other and to protect reliably security as well as integrity of Russia." Marches and rallies were held and flowers were laid in 2,436 populated localities of Russia by the executive authorities, public organizations, war and labor veterans. Fireworks climaxed the V-Day celebrations in several Russian cities on Sunday. Russia had a minute of silence at 19:00, Moscow time to remember all those who died in the struggle against the Nazi. The Soviet Union had the largest casualties in World War II. The previous figure of 20 million has been recognized as too small by the historians. The new estimate of Soviet casualties is 27 million.

Russian Federation


Russia's Precarious Political Balance

· Russian Prime Minister Yevgeny PRIMAKOV on Tuesday will meet with the leaders of factions and groups of members of the Russian State Duma to discuss matters connected with the need for the House to pass a package of economic bills, which were worked out by the government. They are also expected to discuss the debate the initiating of an impeachment process against the President. The Russian government firmly opposes the idea. The Duma will begin debates on Thursday. Communist Leader Gennady ZYUGANOV has urged all opposition parties to back impeachment proceedings against President Boris YELTSIN, claiming that the left has 259 out of 450 deputies in support of its motion. However, YELTSIN's envoy to the Duma, Alexander KOTENKOV, is confident that the Communists' motion on impeachment proceedings, "will suffer a failure, and they fear that failure." Kremlin aides have threatened that YELTSIN would sack Communist ministers and possibly even PRIMAKOV. If that happens, the Constitution requires the president to dissolve the Duma, if it refuses three times to ratify his candidate for prime minister. But, if the Duma gathers the 300 votes needed to launch impeachment proceedings, the Constitution forbids dissolution for up to three months. If YELTSIN takes the lesser option of firing some Communist ministers, the Duma would almost certainly scrap a package of economic legislation required for $4.5 billion in loans from the International Monetary Fund.

Leader of Our Home Is Russia and presidential envoy to the Yugoslav conflict Viktor CHERNOMYRDIN said, "I am against changes in the government. If we want anything to work in this country, it is impossible to carry on an anti-government campaign

Today's News Highlights


S&P Assign Credit Ratings

Tax Police To Use Info. System

European Republics

Latvia To Receive WB $31 Milion

Belarus Maintains Nuclear Pads

South Caucasus & Central Asia

Georgai-Greece Sign Agrmts.

Aliyev Released From Hospital

Uzbek-Bulgaria Bilateral Trade

Kyrgyz Cabinet Budget Crisis




May 10, 1999

Intercon's Daily

On Friday, propped up by Russian Defense Minister Marshal Igor SERGEYEV and Commander of the Moscow Military District Lieutenant-General Igor PUZANOV, YELTSIN laid a wreath of the Tomb of the Unknown Soldier.


Ruble = 24.04/$1.00 (NY rate)

Ruble = 24.04/$1.00 (CB rate)

Ruble = 25.96/1 euro (CB rate)

S&P Assign Credit Ratings

· Standard & Poor's (S&P) on Friday assigned its CCC long-term and C short-term local currency issuer credit ratings to Russia. Debt amounting to about Russian 148 billion rubles ($6 billion), issued as a result of the recent exchange offer for securities in default since August 1998, is affected. According to an S&P press release, the outlook is stable. The ratings on the Ministry of Finance's (MinFin) dollar-denominated bonds remain at CC, and the ratings on its Eurobonds remain at CCC-minus, while Russia's foreign currency issuer credit rating is SD (selective default), reflecting its ongoing default on Soviet-era debt. Russia's ruble debt ratings are constrained by: uncertainties surrounding Russia's ability to honor its local currency obligations. The maturity profile of the ruble debt market has been improved. S&P also noted that two of the causes of the 1998 default have been addressed. But, it pointed out that Russia's financial institutions are still vulnerable to the risk of new forced debt rollovers if fiscal pressures continue unabated. Difficulties in the Russian State Duma to pass necessary legislation could threaten the International Monetary Fund (IMF) loan agreement. The outlook balances Russia's weak commitment to orthodox debt-management practices, and a precarious fiscal position, with an improved local currency debt profile and the possibility that repayment capacity could be bolstered by restructuring of part of the foreign currency debt.

Tax Police To Build Nationwide Info System

· In an attempt to combat tax evasion, the Russian government and the Federal Service of Tax Police (FSNP) will have the assistance of a massive national information system, developed within the framework of the Russian-French intergovernmental credit agreement of 1994, to share tax information throughout various departments and regions. FSNP Vice

Director Yuri CHICHELOV explained that the project is funded by the French, with equipment and software supplied by Bull. FSNP says the first stage of the information system has cost $50 million. The cost of the second stage, which is planned for implementation by 2001, will constitute $60 million. FSNP says the core of the system is the federal data bank of people who violated tax legislation on a large scale. The first stage of the ISINPOL system will provide access to this data bank for all regional departments of the tax police. FSNP also plans to involve other resources in the data bank, specifically information supplied by the State Customs Committee, the Taxes and Duties Ministry, and the Internal Affairs Ministry, which is needed to identify and prevent tax-related crimes. Officials also underscored the high degree of security within the system. FSNP says the return on investment in the system, in terms of compensating economic losses to the state, will pay for its cost multiple times over.

Inflation And Tax Collection Figures

· According to data from the Russian State Committee for Statistics, the inflation rate in April was 3 percent as against 2.8 percent in March. A price rise on non-foods was the highest at 4 percent. Tariffs on services to the population went up by 3.1 percent, while food prices rose by 2.6 percent. Analysts note that inflation rate growth in Russia in the January-April, 1999 period was 19.5 percent. Alexander POCHINOK, head of the government's finance department, said that the government collected 27 million rubles ($1.12 million) in taxes and 13 million rubles in custom duties in April. This represents a 40 percent increase over March figures. It also is the first time in many months that the government has met its target revenue collection.


Alrosa's Profits Increased In 1998

· Diamond production by the Alrosa joint-stock company in 1998 for the first time exceeded the $1.5 billion, a rise of 10.1 percent compared with 1997. Speakers at an Alrosa Board meeting in Mirny on May 5th to 7th, dealing with last year's results, said that in 1997 Alrosa sold $1.4 million worth of diamonds. Despite the financial crisis in Russia, Alrosa in 1998 on the whole met its commitments to the budgets at all levels, remitting 5.1 billion rubles to them, according to a company report. In 1998, the

When you need to know it as it happens




May 10, 1999

Intercon's Daily

company, at the expense of its own profit, funded the construction of industrial facilities and assigned 824 million rubles for the maintenance of the social welfare sector of the cities and towns of the Western Yakut region. Last year, Alrosa put into operation the third section of Factory 14 of the Aikhal ore dressing mill, the second section of the Anabar diamond mine, and a children's polyclinic in Mirny. Alrosa's expenses on the elimination of the aftermath of last year's floods in Lensk, where a number of large diamond producing subdivisions are located, amounted to 124.2 billion rubles. The Alrosa Supervisory Board has decided to apply to the Russian government in a request to cancel the recently set 5 percent export duty on the precious stones. Diamond producers believe that the government decision is disadvantageous to national producers and may become a force-majeur circumstance in the implementation of the trade agreement with DeBeers corporation. The annual meeting of the Alrosa shareholders and representatives is scheduled to be held in Mirny on June 19th.

location of ZAKHARENKO is not yet clear." Reuters reported that the opposition in Belarus started a 10-day unauthorized presidential election on Friday. The election, originally scheduled for May 16th, was canceled after Belarus President Alexander LUKASHENKO extended his term in office until 2001, based on results of a controversial 1996 referendum. ZAKHARENKO is the second disappearance of a major political figure recently. Former Central Bank chairwoman Tamara VINNIKOVA disappeared from her home in April.

Belarus Maintains Nuclear Facilities

· Even though Belarus has turned over all its atomic warheads to Russia, it has maintained its nuclear missile facilities. Belarus gave up the last of its weapons at the end of 1996. President Alexander LUKASHENKO has lamented the decision to relinquish its nuclear weapons after the 1991 collapse of the Soviet Union. On Saturday in response to a question as to whether Russia would deploy nuclear missiles in Belarus, if the two merged, LUKASHENKO said, "all launch pads have been preserved despite pressure on the part of both NATO and Russia." He added that neither Russia nor Belarus had discussed the issue.

South Caucasus & Central Asia

Georgia-Greece Sign Cooperation Documents

· Georgian President Eduard SHEVARDNADZE and Greek President Constantinos STEPHANOPOULOS met today in Tbilisi. In a joint statement, the two Presidents said that, "the positions of the leadership of Greece and Georgia on matters aimed at settling the conflict in Kosovo are identical. We welcome the decision made by the Foreign Ministers of the Group of Eight (G-8) countries on a settlement of the Kosovo problem." SHEVARDNADZE reiterated his five principles for a settlement of the Kosovo problem released on April 19th. He pointed out that the principles which he had established concur, in the main points, with those decided on by the G-8 Foreign Ministers. STEPHANOPOULOS also met with representatives of the Greek diaspora in Georgia and Georgian parliamentary speaker Zurab ZHVANIA. This is the first visit of the Greek president to Tbilisi after Georgia attained its independence. Earlier SHEVARDNADZE stated that "specially warm" relations

European Republics

WB To Offer Latvia $31 Million Credit

· The World Bank is prepared to offer Latvia the euro equivalent of $31.1 million for developing the education system in the country. The loan will be repayable over 15 years and carries a three-year grace period. The project is aimed at restoring the already existing resources, including school buildings, and improve the quality of educational process. The program will develop and introduce new educational standards. The total sum involved in the project is estimated to reach $39.9 million. Apart from the World Bank's credit other funds from central and local Latvian authorities are expected to be added. Since Latvia entered the World Bank in 1992, it has received $301.1 million worth of credits.

Belarus Opposition Leader Disappears

· Yuri ZAKHARENKO, former interior minister and senior member of Belarus' opposition, has been missing for two days. He has been instrumental in organizing the unauthorized presidential elections. A representative of the department of internal affairs said, "We have statements from the family and we know he definitely has not been held in Minsk. The

When you need to know it as it happens




May 10, 1999

Intercon's Daily

established between Georgia and Greece are called upon to ensure further prosperity of the two countries' peoples.

Meanwhile, Georgian Foreign Minister Irakly MENAGARISHVILI and Greek Deputy Minister of Economics Alexandros BALTAS signed a convention on the prevention of double taxation of incomes and capital. MENAGARISHVILI and Greek Deputy Foreign Minister Gregoreos NIOTIS signed an agreement on legal assistance between Georgia and Greece in civil and criminal cases. SHEVARDNADZE said that the documents were "highly important" for the development of cooperation between the two countries. He noted that Georgia and Greece had previously signed at the state level 20 agreements and treaties on cooperation in various spheres of mutual relations.

Aliyev Released From Cleveland Clinic

· Azeri President Geidar ALIYEV appeared on national television for the first time since heart bypass surgery on April 29th. According to cardiologist Dr. TUZCU, "President Geidar ALIYEV is recovering from open-heart surgery without any problems." ALIYEV's release from the Cleveland Clinic today coincides with the President's 76th birthday. The President's prolonged illness, could cause concerns about the nation's political stability to rise, triggering a strong reaction from Western oil companies, which have reached agreements worth $40 billion to develop Caspian Sea oil. One Western diplomat of the Azeri leader said, "While he's [ALIYEV] gone Azerbaijan is like a rudderless ship...ALIYEV micro-manages the country and takes every decision here—without him the whole system, from the parliament to the ministers, is incapable of doing anything." ALIYEV is expected to return to Azerbaijan sometime this week. On Sunday, he spoke in a live radio broadcast, congratulating Azerbaijan on Victory Day marking the end of World War II in Europe.

Iran Begins Construction On Turkmen Refinery

· National Iranian Oil Company, a subsidiary of

National Iranian Refining and Distribution Company (NIORDC) has started construction on a petrol unit at Turkmenistan's Turkmenbashi Refinery under a $50 million contract. Construction manager at NIORDC Mahmoud EMAMZADEH is building the unit under a license bought from a British firm. He did not name the company. The project is 60 percent completed. NIORDC is also working on a demoisturising project in Turkmenistan, which would boost the capacity of a gas pipeline to 26 million cubic meters a day from 10 million cubic meters.

Uzbek-Bulgaria Aim To Boost Bilateral Trade

· Uzbek President Islam KARIMOV and Bulgarian President Peter STOYANOV on Saturday confirmed that they both stand for the boosting of bilateral ties between their countries. KARIMOV said, "both Uzbekistan and Bulgaria are equally interested in expanding bilateral cooperation." The priority areas of cooperation are communication and transportation. STOYANOV encouraged his nation's business people to enter the Uzbek market and regain what had been lost in the last few years. He said that Bulgaria considers it important to revive ties with former Soviet republics. He sees Uzbekistan as a vital partner that can help to restore these relations. The leaders also focused on restoring the Silk Route by carrying out the Transport Corridor Europe-Caucasus-Asia project. Two agreements were signed during the visit, one on air transportation and the other on cooperation in fighting against organized crime. STOYANOV also met with Erkin KHALILOV, Chairman of the Uzbek Parliament.

Kyrgyz Cabinet Debates Budget Crisis

· Kyrgyz Prime Minister Amangeldi MURALIYEV said the country's financial situation is the most serious ever. RFE\RL Newsline reported the Cabinet is unable to pay $14 million in back payments, including wages, pensions and other allowances. Industrial output declined in 1998 by 39.7 percent, compared with 1997. Agricultural output fell by 12 percent and construction by 48 percent. Revenues from privatizations are also below targeted figures.

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

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When you need to know it as it happens