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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, May 12, 1999

Russian Federation


Primakov Ousted, Stepashin Appointed

· Russian President Boris YELTSIN in a move that has been rumored for weeks, sacked Prime Minister Yevgeny PRIMAKOV and his entire government of eight months, replacing him with long time YELTSIN ally First Deputy Prime Minister and Interior Minister Sergei STEPASHIN. YELTSIN called on all ministers to continue working in their positions until a new government is formed. STEPASHIN's candidacy has been submitted to the Russian State Duma for approval on May 19th. STEPASHIN claimed that his candidature for premiership was backed by Yevgeny PRIMAKOV. YELTSIN asserted hope that STEPASHIN, "is capable of adding necessary dynamics and energy to the work of the cabinet."

YELTSIN said, "Today, I made a difficult decision—I dismissed Yevgeny PRIMAKOV from his position of the chairman of the government. However, the situation in the economy is not improving." YELTSIN added that Russia must press ahead with free-market reforms, hinting that PRIMAKOV had not fully backed this strategy. The government had moved too slowly and reluctantly on economic reforms and relied too heavily on Western credits without tackling the underlying problems." The President added, "We have no right to put off the decisions needed for an economic recovery for another six months, until the election campaign ends. I believe that delays and procrastination now deal the most serious blow at the stability of the economy and the social area." STEPASHIN told a Cabinet meeting that "the market reforms and their social orientation" remain the chief task of the Russian government. He added I, "realize that the Cabinet's resignation considerably complicates, rather than simplifies, the work that should be done with the State Duma to pass urgent laws that

were discussed with chiefs of the Duma factions the other day."

Sources close to YELTSIN have described the sacking as YELTSIN's jealousy of PRIMAKOV's popularity and for his strong relations with the Communist Party, which is trying to have the President impeached. Other experts assert YELTSIN concluded that the impeachment vote will succeed and PRIMAKOV has done nothing to prevent it. Hence, YELTSIN has decided to eliminate PRIMAKOV for his disloyalty and lack of total commitment. The dismissal is likely to exacerbate the political conflict between the President and leftist forces.

The impeachment and removal of PRIMAKOV has sent the country into a dizzying political crisis and a constitutional debate. It is highly doubtful that the Communist dominated Duma will approve any prime minister nominated by YELTSIN. The President can make three nominations for prime minister. If they are all rejected by the Duma, the President must then call new elections within three months. During that time, YELTSIN would govern by decree with a temporary prime minister. Speaker of the Duma Gennady SELEZNYOV has said that the top priority on the lower house's agenda is the impeachment of the President set for Thursday and not the confirmation of STEPASHIN as prime minister. To remove the president, the impeachment motion must be approved by two-thirds majorities of the Duma, Federation Council and the Supreme Court and Constitutional Court. But

Today's News Highlights


IMF Negotiations Back

Blue Stream Project On Hold

Plane Detained For Payments

European Republics

Ukrainian Tax Breaks

South Caucasus & Central Asia

South Ossetia Holds Elections

Kazakh Businessman Murdered

Joint Space Program Set Up




May 12, 1999

Intercon's Daily

if the impeachment debate gets underway, the president cannot dissolve the Duma. The sacking of PRIMAKOV has led to outrage within the political arena, which had hoped for stability ahead of parliamentary elections later this year. The Communists Party has warned that it might call for a nationwide protest against YELTSIN. Communist Party leader Gennady ZYUGANOV said, "What YELTSIN is doing is a political default which will be followed by an economic default." He did not elaborate on this point. With the third clearing of the government in just over a year [CHERNOMYRDIN (April), KIRIYENKO, (August)], the question remains if ordinary Russians will take to the streets. Comment: Retired KGB General Oleg KALUGIN said, "PRIMAKOV's dismissal has been rumored for weeks. In fact some political observers in Russia predicted the firing would occur between May 10th and 13th. When President YELTSIN appointed him Prime Minister, he aimed at defusing the political tensions in the country in the wake of the August economic and financial meltdown. PRIMAKOV succeed in stabilizing the situation. However, he did not move on the economic front. Stagnation and the lack of any economic initiatives, have become the trademark of PRIMAKOV's government. With the Russian Duma about to start impeachment procedures, it is now clear that PRIMAKOV failed to stop the process of President's removal from power. In fact the political tensions in the country are boiling again and may reach an explosive point. For YELTSIN it is clear now that PRIMAKOV has outlived his usefulness...so why keep him in power." Liberal Party Leader Vladimir ZHIRINOVSKY said President YELTSIN's decision to fire PRIMAKOV is "correct and timely" and the next step, in his words, should be the banning of the Communist Party and the disbandment of the Duma.

Duma Issues Resignation Request To Yeltsin

· The Russian State Duma, in reaction to Russian President Boris YELTSIN's shocking move to sack Prime Minister Yevgeny PRIMAKOV just one day ahead of an impeachment vote, passed a non-binding declaration today urging the President to resign. According to the declaration, "The State Duma of the Russian Federation calls on the President of the Russian Federation, B.N. YELTSIN, who has thrown the country again into a government crisis and an unpredictable development of events, to immediately stop carrying out his official duties

and resign." The measure passed in a vote of 243 to 20. It added that the decision to sack PRIMAKOV, "without any visible reason or basis...signals a new step down the path of creating a crisis of power and the further weakening of federal institutions...The PRIMAKOV government had the support of the majority population of the country and of parliament; its activities were linked to the expectation that the economy would be pulled out of crisis and linked to support for political stability on the eve of parliamentary elections." Deputies also have called on the Russian people to remain calm and on Interior Ministry troops and police to maintain order.

Other Hires And Fires

· Russian President Boris YELTSIN has been busy with Spring cleaning of his Cabinet and administration. Besides dismissing Prime Minister Yevgeny PRIMAKOV and appointing Sergei STEPASHIN as acting premier, YELTSIN appointed Railways Minister Nikolai AKSENENKO First Deputy Chairman of the government of the Russian Federation. First Deputy Chief of Staff of the Presidential administration Oleg SYSUYEV has submitted his resignation to YELTSIN. There is no information as to whether the President has accepted the SYSUYEV's resignation. YELTSIN appointed Sergei ZVEREV as deputy chief of staff of his administration. He is expected to be responsible for liaisons with the State Duma, political parties, public associations, and religious organizations. ZVEREV has his roots in Russia's big business. He was formerly head of the planning and economic bureau of ZIL Automotive, worked as deputy general director and then president of the MOST Group, and was deputy board chairman in charge of public relations for gas monopoly Gazprom. Meanwhile, YELTSIN sacked the Federal Tax Service's First Deputy Director Vasily VOLKOVSKY and Deputy Director Andrei PRZHEZDOMSKY. They are replaced by Alexander AGEYENKOV and Boris DOBRUSHKIN.


Ruble = 24/$1.00 (NY rate)

Ruble = 23.99/$1.00 (CB rate)

Ruble = 25.73/1 euro (CB rate)

IMF Negotiations Back To Step One

· First Deputy Prime Minister Yuri MASLYUKOV has warned that the sacking of Prime Minister Yevg

When you need to know it as it happens




May 12, 1999

Intercon's Daily

eny PRIMAKOV will send negotiations with the International Monetary Fund (IMF) back to step one. He also said, "I will certainly not accept a position in the new government." MASLYUKOV's main responsibility in the outgoing government was economic policy. He led talks with the IMF which resulted in April in a promise of $4.5 billion of new lending for Russia, dependent on the passage of economic measures meant to boost revenues. Responding to questions about IMF negotiations and other international financial institutes, MASLYUKOV said that, "it is now the new government's business. I know that my services are no longer needed, but in many aspects this work will have to be started anew." President Boris YELTSIN had stated that PRIMAKOV relied too much on support from the IMF. "One had the feeling that the government's activity on the economy came down simply to negotiations with the International Monetary Fund, as if curing Russia's economy depended solely on the handing out of Western loans." An IMF spokesman stated, "We had an agreement with the previous government about economic policies which the authorities were in the process of implementing. We do not yet know what the new government will want to do, but we are in contact with the Central Bank and technical experts in the Russian government." The IMF has said that loan payments will depend on the speed with which the government decides and implements its policies. Russia is the IMF's biggest single borrower, but loan agreements have been stalled by the lack of reforms and poor tax collection.

Blue Stream On Hold Until Credit Pkg Finalized

· Gokhan YARDIM, general manager of Turkey's state pipeline firm Botas, said that Turkey, "will not begin the construction of the pipeline [Russia-Turkey Blue Stream pipeline extension] on our soil unless the credit package is clear." The credit packaged between Italy's Sapiem, a unit of ENI, and Russia's gas monopoly Gazprom, signed in a preliminary agreement earlier this year, is expected to be finalized by June. Russia and Turkey signed a deal in 1997 to build a 1,200 kilometer pipeline from Russia's compressor station Izobilnoye, located 100 kilometers east of Krasnodar, to the Turkish capital Ankara, with a 400 kilometer passage under the Black Sea. The pipeline has been estimated to cost up to $3.4 billion, including compressor stations and the Turkish section. A Turkish consortium has been

awarded the contracts to build the Turkish section from Samsun on the Black Sea to Ankara. The pipeline will deliver 16 billion cubic meters of gas annually to Turkey. The demand for gas in Turkey is expected to rise from 12 to 15 billion cubic meters to 54 billion cubic meters of gas. In 1998, Russia was Turkey's main supplier at 8 billion cubic meters. Gazprom and ENI have formed a 50-50 joint venture in the Netherlands called Trustco to build, own and operate the sub-sea section. Both companies will invest $200 million in Trustco, in addition to an $800 million loan from Italian banks Banca Commerciale Italiana and Mediocredito Centrale as well as Germany's West LB. One variant of the Blue Stream project being proposed is for the pipeline to come ashore in the Adjarian province of Georgia, near Batumi. Other than being a political gambit, most experts find this preposterous.


Russian Plane Detained For Payments

· Egyptian authorities have detained a Russian their Il-86 plane belonging to the Vnukovskiye Avialinii company in Al-Ghurdaqah, leaving 350 Russian May Day vacationers stranded. Head of the consular department at the Russian Embassy to Cairo, Bashir MALSAGOV said that the company owes the local Tiger Aviation Service company $310,000 for the on-ground servicing and fuel. Following long and difficult talks with the Russian Embassy, the leadership of the Egyptian company has met the Russian side half way, and released on May 8th and 9th, 11 out of the 12 planes which arrived in Al-Ghurdaqah. One of the planes has been detained until financial problems with the Vnukovskiye Avialinii are settled.

European Republics

Ukrainian Tax Breaks Lead To Budget Shortfall

· Ukrainian Finance Minister Igor MITYUKOV on Tuesday said, "Sixteen laws were passed last year giving additional freedom from taxes with effect from January 1st this year. According to preliminary data, that will cut tax revenues by about 4.7 billion gryvnias ($1.2 billion)." Budget revenues were targeted at 34.25 billion gryvnias, of which 25.34 billion gryvnias are to come from taxes. He told parliament that 116,000 companies and institutions or 28 percent of registered tax payers received tax breaks last year.

When you need to know it as it happens




May 12, 1999

Intercon's Daily

"The tax burden is shifted to other sectors, raising the number of those who have to work in the shadow economy." MITYUKOV accused parliament of undermining efforts to enforce tax discipline by allowing restructuring and write-offs of companies' tax arrears. He previously noted that budget revenues in the first quarter of 1999 were 71 percent of targets, Reuters reported.

South Caucasus & Central Asia

South Ossetia To Hold Illegal Vote

· South Ossetia defied the Georgian government by holding parliamentary elections today, which the Georgian parliament on Tuesday called illegal. South Ossetia's President Lyudvig CHIBIROV said the poll was a demonstration of the region's sovereignty despite its lack of international recognition. The election commission said that nearly half of the 35,000 people eligible to vote had cast ballots as of late afternoon. The armed conflict between Georgia and South Ossetia in 1991 to 1992 killed more than 1,000 people, and continues to keep more than 35,000 ethnic Georgian refugees away from their homes. The conflict erupted after Georgia withdrew South Ossetian autonomy, which it enjoyed during Soviet times. A Georgian parliamentary resolution stated, "The parliament considers that this decision [to hold elections] has no legal basis as it contradicts the Constitution of Georgia and the accepted principles and norms of international law. It considers completely unacceptable the holding of such elections until the return of refugees...The parliament calls on the Ossetian side not to undertake this immoderate step, which may have undesirable consequences." Georgia has made significant progress in resolve issues of conflict, but has not reached full political settlement. Negotiators are hopeful issues will be peacefully resolved. Many speculate that dire economic conditions may force the Ossetian government to seek a compromise with Georgia.

Leading Businessman Murdered In Kazakhstan

· A leading Kazakh businessman has been mur

dered in Kustanai, a major city in northern Kazakhstan with a notorious record in organized crime. Ural AITENOV, vice-president of Turmyz joint stock company, was shot dead near his house. The murder followed an attempt at a terrorist act involving a powerful remote-controlled bomb prevented in Kustanai a few days ago, police said. In the last two years, Kazakhstan has seen over 30 contract murders resulting from the redistribution of property and a stronger competition to control the markets. Only one third of these crimes have been successfully investigated.

Russia, Ukraine, Kazakh Set Up Space Program

· Russia, Ukraine, and Kazakhstan have decided to set up a joint space venture under a draft agreement signed by the three countries. Kazakh presidential defense and space Adviser Tokhtar AUBAKIROV on Monday said that Russia will invest in the joint venture and national space mission support services, while Kazakhstan will reduce Russia's lease of $115 million for using the Baikonur launching pad by the agreed-upon amount. Ukraine will provide Zenith booster rockets. The joint venture, possibly based at Baikonur, may begin operations in 2000. The project requires legislative support from the three national parliaments. In April, Kazakh President Nursultan NAZARBAYEV said his country, Russia and Ukraine will sign an agreement on joint launches of the Energiya booster rocket. He added, "By investing $100 million, Russia, Ukraine and Kazakhstan will become shareholders in one of the largest space programs which will break even in 1.5-2 years and after that will start bringing dividends." He said 20 young Kazakhs will be admitted to the division of the Baikonur Space Institute in 1999 and two Kazakh residents will join the team of cosmonauts. "We are now selecting people. One may be a researcher, another should be a pilot," NAZARBAYEV added. "We are interested in using the unique Baikonur center for the benefit of Kazakhstan. This is why we plan to take the most active part in launches from the cosmodrome in the near future," the President said.

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