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

Monday, May 17, 1999

Russian Federation

Politics

Yeltsin Survives Impeachment, Vote Fails

· On Saturday, Russian State Duma deputies were unable earn enough support to impeach President Boris YELTSIN. All five impeachment charges, formulated over a year of investigations and debates, failed to garner the necessary 300 vote to begin the formal impeachment process. The charge for launching the 1994-1996 Chechen War came the closest to passing the 300 threshold, falling only 17 votes short. This charge was supported by the liberal Yabloko Party, the Communist Party, and its left-wing allies. The turn out of deputies was low with 348 out of the 450 seat Duma appearing, but only 333 voting. There were also a number of invalid votes. Members of the Liberal Democratic Party and Our Home is Russia Party did not vote. Even though the Duma was fueled by its anger over the ousting of prime minister Yevgeny PRIMAKOV, they did not united to remove the President. This come as a major blow to the Communist Party, which has spearheaded this effort. Communist Party leader Gennady ZYUGANOV said, "Many legislators in the Duma betrayed their country today." Prior to the vote, he said YELTSIN was "absolute evil for Russia" and that all those legislators who vote in support of the President, "will be voting for a new Chechnya, and more shame for Russia." Yabloko leader Grigory YAVLINSKY, disappointed in the results said, "90 percent voted en bloc for the charges related to Chechnya. We considered it our political, civil, moral and human duty...we did not reach the result. We were doing this seriously and we knew what we were doing." He added that, "even if no result was reached, this is also a democratic fact in the life of the country." YELTSIN's spokesman Dmitry YAKUSHKIN said the President reacted "calmly" to the news of the Duma's failure to impeach him, after he visited the

Central Clinical Hospital for a medical check-up. "This whole impeachment business is over. YELTSIN expects that the State Duma will be able to...start considering a number of laws that are necessary today." As the voting took place, hundreds of Communist supporters gathered outside the Duma, waving red flags and holding banners such as "Yeltsin equals evil." One demonstrator outside the parliament said, "They [deputies] have made fools of all of us. The President has the support of just 2 percent of the people. How are we going to get rid of him now?" There was little overall public reaction to the impeachment results which were broadcast on television interrupting their prime time Saturday evening shows. The question remains whether the Duma will hit back at the President by refusing to approve his candidate for prime minister, Sergei STEPASHIN, on Wednesday.

Stepashin's New Cabinet, Policies

· Russian acting prime minister Sergei STEPASHIN is continuing to meet with the speakers of the Russian State Duma and Federation Council, parliamentary and party leaders in an effort to win support ahead of his confirmation vote on Wednesday and form a new cabinet. He appears to be trying to entice several center-right politicians into the Cabinet. STEPASHIN noted that he favors, "a coalition government where the coalition is formed of professionals, regardless of their political leanings." He added that he wants a course which ensures stability for society. STEPASHIN has not yet described the out

Today's News Highlights

Russia

More Bombs In Vladikavkaz

Yukos Offers Seats To Banks

European Republics

Ukrainian Presid.Candidates

Lith. New Bank Merger Rules

South Caucasus & Central Asia

Assassination Case Filed

Georgian Defense Min. On Tour

US Defense Delegation In Uzbek

CIS Discusses Trade Zones

Politics-Economics-Business

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May 17, 1999

Intercon's Daily

look of his new government, but that he wants to guarantee a smooth transition to the next presidency. He said, "There will be no reshuffles in the government. Naturally, no odious figures, as many have been saying recently, will be allowed in," referring to speculation that liberal market reformers would return. He has been called for a more technocratic government. After meeting with speaker of the Federation Council Yegor STROYEV, STEPASHIN said he was convinced that "stability in society and in power largely depends" on center-regions rapport. The new Cabinet will have a vice-premier supervising macro-economic issues, and that post may be offered to a deputy of the State Duma. Such a proposal has been made to Chairman of the Duma Budget Committee Alexander ZHUKOV and has been accepted. He also appointed Vladimir ENGELSBERG as head of the prime minister's directorate replacing Robert MARKARYAN, who had been appointed by Yevgeny PRIMAKOV. Under Russian constitution, President YELTSIN can dissolve the State Duma if it fails to approve the candidacy after three voting sessions. Already, a top aide to YELTSIN told the ORT Public Television that the president would stick to his choice of STEPASHIN as premier. If STEPASHIN is rejected for a third time, it would be necessary to hold parliamentary elections in three months. This is unlikely since elections are already set for December. Moscow Mayor Yuri LUZHKOV said that, "Prospects would be gloomy," if the Duma did not approve STEPASHIN. STEPASHIN's chances were boosted by reports that the three largest groups in the Duma were ready to endorsed his appointment. STEPASHIN on Friday sacked Yuri ZUBAKOV as chief of government staff and appointed Mstislav AFANASYEV as acting chief.

Five Charges Against Yeltsin

Votes Cast/ For the Charge/ Against the Charge

Breaking up the Soviet Union: 331/ 239/ 79 votes

Using force against parliament: 331/ 263/ 60 votes

Launching Chechnya War: 330/ 283/ 43 votes

Ruining the armed forces: 332/ 240/ 77 votes

Genocide against the Russians : 333/ 238/ 88 votes

More Blasts in Vladikavkaz Kill Five

· Three bombs exploded early Sunday morning in the North Ossetia capital of Vladikavkaz, killing at least five people and injuring close to thirty. The bombs were placed in the basements of three build

ings in the Sputnik military compound, where servicemen of the 58th army of the North-Caucasian Military District and their families live. Commander of the military district Viktor KAZANTSEV described the explosions as a terrorist act. A total of 18 apartments were destroyed in simultaneous blasts and local authorities were looking for shelters for the residents left homeless. Russian Duma deputy speaker in charge of the Northern Caucasus and southern Russia Mikhail GUTSERIYEV said this is further proof of regional destabilization. He said the blasts, "are the indisputable outgrowth of the previous terrorist acts and the acts of sabotage, including the blast at the Vladikavkaz central market which claimed the lives of over 50 people." He concluded that it is necessary to take emergency measures. GUTSERIYEV said that destabilization in the Northern Caucasus, "is absolutely inadmissible." Acting prime minister and Interior Ministry Sergei STEPASHIN has called for a thorough investigation.

Meanwhile, a representative of the International Committee for the Red Cross, New Zealander Cruz RIBERO, was kidnapped on Saturday in Nalchik, the capital of Kabardino-Balkaria in the northern Caucasus. Three armed persons seized RIBERO in the street. They pushed him into a car, threatening with weapons, and drove him in an unknown direction. The republic's law enforcement bodies have launched an investigation, trying to trace the criminals.

Economy

Ruble = 24.92/$1.00 (NY rate)

Ruble = 24.86/$1.00 (CB rate)

Ruble = 26.49/1 euro (CB rate)

WB Directors On Russia's Loan

· The World Bank has granted Russia a $30 million loan to develop the state statistics system. According to its press release, the project will help to improve the operation of the Russian State Statistics Committee and other organizations, engaged in collecting statistical information. Improvement of the statistics committee's operation under the project will be conducted in several main areas. These include, optimization of the organizational structure, introduction of internationally recognized standards and methods, consolidation of statistical infrastructure, reorganization of collection processes, processing and circulation of information. The second part of the

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project is aimed at raising the quality of government financial statistics and accountability—from the system of government accounts to the balance of payments—in the interests of administering financial and budgetary processes and macro-economic analysis. Russian Finance Minister Mikhail ZADORNOV said that national financial and economic accountability already meets the strictest international criteria. The project also is concerned with the improvement of economic forecasting and the use of forecasts by government structures. The World Bank loan will help supply registry offices with computers and software, which are necessary to collect initial information for subsequent electronic summation and examination at the State Statistics Committee. The total cost of the project at the initial stage is estimated at $38.55 million. The Russian government will fund the remaining $8.55 million. The World Bank credit is granted on standard terms for 17 years with a five-year grace period. The Russian executive director at the World Bank, Andrei BUGROV, reiterated the Bank's acknowledgment, "of how important it is for Russia to continue the development of a market economy and to strengthen its social orientation."

Business

Yukos To Offer Banks Eight Board Seats

· Speaking at the Center for Strategic and International Studies on Friday, Yukos Oil Company Chairman Mikhail KHODORKOVSKY said the company will offer eight seats on its board of directors to members of Daiwa Europe Limited Bank, West Merchant Bank and Standard Bank in June. These banks acquired shares in Yukos as a part of repurchasing agreement made with St. Petersburg-based Menatep Bank, which offered Yukos shares as collateral for loans. KHODORKOVSKY was forced to turn over this collateral after Menatep Bank, which he also owns, defaulted on several repurchase agreements worth $236 million. The three banks have a combined shareholding in Russia's second largest oil company of a total of 31.9 percent: Japan's Daiwa with 13.9 percent, Germany's West Merchant Bank with 16.5 percent, and South Africa's Standard Bank with 1.5 percent. KHODORKOVSKY said that the three banks will have full access to all information on Yukos' activities and will participate directly in decisions on the company's strategic development.

KHODORKOVSKY is in the US to attend a conference in New York City on investment opportunities in Russia.

European Republics

Ukraine Presidential Hopefuls

· On Saturday, several Ukrainian political parties announced their candidates for the presidential elections scheduled for October 31st. The Popular Democratic Party, the Liberal Party, and the Social Democratic Party (United) nominated incumbent President Leonid KUCHMA. Alexander MOROZ was nominated by the Socialist Party, which he leads. His candidacy was also supported by the Social Democratic Party. The Communist Party nominated its leader Petro SYMONENKO. Nataliya VITRENKO was also nominated by her Progressive Socialist Party. Former Premier Yevhen MARCHUK was proposed by the Social Democratic Union, the Rural Democratic Party, the Republican Party, and the Christian Popular Union. Each wing of the split party Rukh nominated its own hopefuls: Gennady UDOVENKO and Yuri KOSTENKO, RFE\RL Newsline reported.

New Lithuanian Bank Merger Rules

· On Thursday, the Lithuanian Central Bank issued new rules on bank mergers. It ruled out mergers resulting in more than 40 percent market share, or increasing the top four banks' market share by more than 7.5 percentage points if they control 80 percent of the market. Central Bank policy department head Gitana NAUSEDA said, "The big four banks make more than 80 percent [now] and if there will be new mergers this limit will be exceed." This opens the door for foreign banks to enter the market. Nomura International emerging bank analyst Andrei ILYIN said, "It is obvious now the sector will be dominated by the foreigners and there will be no locally controlled banks." The country's top four banks are: Savings Bank, with 33 percent market share of assets, Vilniaus Bank with 26 percent, Hermis Bank and Agricultural Bank both with about 15 percent, Reuters reported. Vilniaus launched a hostile bid for Hermis in 1998, but withdrew it in March after a cold reception form its rival and almost a one-year delay by the Central Bank in ruling on its application to buy 43 percent of Hermis. With the new ruling, Hermis will have time to seek a foreign partner, a goal it has been pursing with no results for almost a year.

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South Caucasus & Central Asia

Assassination Charges Filed

· Georgian Prosecutor General has filed criminal charges on Friday against the alleged organizer of the assassination attempt against President Eduard SHEVARDNADZE on February 9, 1998, and his 12 other accomplices. SHEVARDNADZE's motorcade was attacked with grenades and automatic weapons, as it moved through the capital of Tbilisi, killing a bodyguard and destroying the President's protective vehicle. Head of the investigation bureau Gigla AGULASHIVI said 13 people are implicated the case. Twelve participants and alleged organizer Guram ABSANDZE, a former finance minister, have been charged with treason, attempted murder of the President, and forming an anti-government military organization. SHEVARDNADZE has publicly blamed followers of Zavid GAMSAKHURDIA, the former Georgian leader, and outside forces. ABSANDZE admitted during questioning that he had been at the base where the attackers had trained in Chechnya. However, he said his aim was not to organize an assassination attempt, but rather the liberation of the rebel province of Abkhazia. The assassination case and its 71-volumes of supporting evidence was filed with the Georgian Supreme Court.

Georgian Defense Min. Tours Three Countries

· Georgian Defense Minister Lieutenant General David TEVZADZE left on a three-country tour Saturday. He will visit Ukraine, the Czech Republic and Germany. In Kiev, TEVZADZE hold talks with his counterpart and other officials of the Ukrainian defense ministry. In the Czech Republic, the Georgian Defense Minister will sign the treaty on cooperation of the Georgian and Czech defense ministries in the military sphere. Finally, in Germany, TEVZADZE will participate in exercises of communications troops on May 19th and 20th. The games will be held within the frame of the Partnership for Peace program. Georgia will send there a special service car and a communications troops regiment.

US Military Delegation Visits Uzbekistan

· A delegation of the US Defense Department arrived in Uzbekistan on Sunday for a four-day visit. The delegation is led by General Anthony ZINNIE, head of the US Central Command, the information service of the US Embassy in Uzbekistan stated. This is ZINNIE's second visit to Uzbekistan. He visited Tashkent last autumn to take part in the international peacekeeping exercise Centrazbat-98. The General held substantive discussion with Uzbek President Islam KARIMOV during his last visit, and they are expected to meet again.

CIS Reviews Reforms With Asian Leaders

· Commonwealth of Independent States (CIS) Executive Secretary Yuri YAROV and Kazakh President Nursultan NAZARBAYEV met Tuesday in Astana to discuss the creation of free trade zones and reforms within the CIS. The sides focused on the issue of coordinating the structures, budgets, and the amount of personnel in the CIS interstate bodies. YAROV and NAZARBAYEV also reviewed plans for coordination between the CIS bodies and the executive bodies of integration entities existing within the commonwealth. Following talks with NAZARBAYEV, YAROV met with Kyrgyzstan's President Askar AKAYEV in Bishkek to discuss the planned CIS free trade zone and reform of the CIS executive bodies. Then YAROV flew to Tashkent and Dushanbe for similar discussions with Uzbek President Isalm KARIMOV and Tajik President Emomali RAKHMONOV. KARIMOV stressed that economic integration should take priority over any attempt at closer political integration. In Turkmenistan, Turkmen President Saparmurat NIYAZOV said his country was not interested in CIS free trade zones, unless there were guarantees of the equal and mutually beneficial partnership. He said that Turkmenistan stands to lose approximately $500 million annually by acceding to the agreement. From Turkmenistan, YAROV will leave for Moldova, Ukraine, Armenia, Georgia and Azerbaijan, before returning to Russia on May 20th. YAROV is gathering information for the CIS heads of government meeting on June 4th.

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

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