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

Wednesday, May 19, 1999

dates for posts in the new Cabinet. Several oligarchs have been lobbying STEPASHIN from Washington to appoint their preferred candidates to the new Cabinet. It has been speculated that former Railways Minister and Boris BEREZOVSKY protégé Nikolai AKSYENENKO will be responsible for running the economy; Head of the Duma Budget Committee Alexander ZHUKOV will hold an important economic post; but Foreign and Defense Ministers are not likely to change.

US To Help Russia Protect Nuclear Materials

· In a report requested by Brookhaven National Laboratory, the US National Research Council of the National Academy of Sciences has encouraged the US to continue to work with Russia for at least another decade on improving the protection of nuclear items. The study states that security protecting Russia's nuclear materials is worse than previously estimated and stored at more locations throughout the country than originally identified in a joint US-Russia review in 1997. The Council's chairman Richard MESERVE said, "Although joint efforts by Russian and the US have strengthened at many sites, we believe that terrorist groups or rogue nations have more opportunity to gain access to Russian plutonium and highly enriched uranium than previously estimated." Russia has approximately 75 metric tons of plutonium and 600 metric tons of highly enriched uranium, the building blocks of nuclear weapons. "Controlling these materials should be a very high priority for US national security," he added.

Russian Federation

Politics

Stepashin Easily Wins Duma Approval

· The Russian State Duma today confirmed Sergei STEPASHIN as prime minister in a vote of 293 to 55 with 14 abstentions, passing the necessary 226 votes. No major party factions voiced objections to the new prime minister's confirmation during brief hearings as they feared the threat of dissolution ahead of parliamentary elections in December. STEPASHIN sincerely thanked lawmakers for their support. He said, "This probably means one thing: We're all united by pain for our motherland and our people and the wish to see our country finally become normal, civilized, rich, prosperous and decent. He added that it is time for courageous policies to be passed immediately to boost Russia's battered economy and avoid social unrest. Stepashin said "there is no room for half-measures and compromises" in combating crime and conducting economic reform. STEPASHIN said PRIMAKOV's government had stabilized the situation but not adopted programs desperately needed for the development of Russia. STEPASHIN, Interior Minister and First Deputy Prime Minister, had been named acting prime minister following the dismissal of Yevgeny PRIMAKOV by President Boris Yeltsin on May 12th. He was chosen by YELTSIN for his loyal support as difference arose between the President and PRIMAKOV.

YELTSIN signed a decree on the appointment of Sergei STEPASHIN as Russia's Prime Minister, immediately following the Duma vote. The prime minister said his first steps as head of government will be forming a Cabinet within a week, solving problems with the International Monetary Fund, resolving pressing social tasks, and paying wage and pension arrears, as planned by Yevgeny PRIMAKOV. He declined to discuss specific candi

Today's News Highlights

Russia

Paris, London Club Negotiations

12 Bank Licenses Revoked

External Manager Appointed

European Republics

Paksas Confirmed As PM

Latvian Presidential Contenders

South Caucasus & Central Asia

President On "Hero Of The Day"

Azeri Protests Typhoon Rockets

IMF Kyrgyz Reach Agreement

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The Council recommended that the US Department of Energy continue its current funding level of about $145 million a year, with contingency funds set aside for at least five years. Russia, particularly since the economic collapse in August, 1998, lacks the funding to pay scientists salaries and to acquire modern security measures. According to the report, the Department of Energy last winter provided $600,000 for guards who were unpaid and leaving their posts in search of food.

New Yeltsin Appointees

· Russian President Boris YELTSIN on Monday made some personnel changes in the command of the troops of the Russian Interior Ministry. He appointed Major-General Vyacheslav DADONOV to the post of deputy commander-in-chief of the interior troops for emergency situations and Lieutenant-General PANKOV to the post of first deputy commander-in-chief of the interior troops. The latter was relieved of the duties of deputy commander-in-chief of the interior troops for emergency situations, which he held before his new appointment. Major-General Mikhail TARASIK was discharged from military service by the same decree. YELTSIN Tuesday appointed Russian Deputy Interior Minister Ivan GOLUBEV to act as representative of the Russian president to Karachayevo-Cherkessia on a provisional basis. According to the presidential press service, a decree to this affect was signed "to stabilize the situation having taken shape after the presidential polls in the republic." On Monday, the Federation Council confirmed Magomed MAGOMEDOV as a new Supreme Court Judge. Prior to his confirmation, MAGOMEDOV worked as a Judge of the Supreme Court of Dagestan, Russia's constituent republic in the North Caucasus. He was nominated for this post by Russian Supreme Court chairman Vyacheslav LEBEDEV and received President YELTSIN's support.

Yeltsin Meets With Security Council Secretary

· Russian President Boris YELTSIN was back at work in the Kremlin, after suffering from a bout of a "heavy bronchitis." Today, he held a meeting with Vladimir PUTIN, secretary of the Russian Security Council and director of the Federal Security Service (FSB). The current activity of the FSB and the Security Council were the focus of the meeting. "Some aspects of the political situation in the country

related to the government change and the elections in Karachayevo-Cherkessia were also discussed," PUTIN said. During the meeting, YELTSIN signed the decree drafted by the Security Council, On Extra Measures to Combat Terrorism in the North Caucasian District of the Russian Federation. This security boosting measure sets aside money for police in the Caucasus to buy new military hardware.

Economy

Ruble = 24.79/$1.00 (NY rate)

Ruble = 24.75/$1.00 (CB rate)

Ruble = 26.39/1 euro (CB rate)

Kasyanov To Meet Paris, London Creditor Clubs

· Acting First Deputy Finance Minister Mikhail KASYANOV will travel to Paris and later on to London to discuss debt rescheduling. Russia is trying to negotiate a rescheduling of as much as $100 billion of foreign debt, much of which is already in technical default. Today and Thursday, KASYANOV will meet with the Paris Club. Russia owes the Paris Club about $40 billion, with $6.1 billion in repayments due this year. A spokesperson for the Club reiterated that the talks with Russia on rescheduling its debt will only begin after it reaches an agreement with the International Monetary Fund. He will then meet with commercial bank creditors in the London Club on Monday through Wednesday. Russia owes the London Club creditors approximately $30 billion.

Central Bank Revokes Twelve Banks' Licenses

· The Russian Central Bank has decided to revoke licenses of 12 banks for their non-fulfillment of federal banking laws and normative acts of the Central Bank. The Central Bank will revoke the licenses of Menatep, Uninkombank, Unibest, Derzhavny, Interbusinessbank, Contact, MB, Slavia, Elcom-Bank, Krasnodarbank, Kurgansotsbank, and the Nizhnevartovsk Commercial Innovation Bank. This is done in connection with struggle against illegal export of capital abroad, acting Prime Minister Sergei STEPASHIN said on Sunday. He said licenses would be revoked regardless of whether the Russian State Duma approved his candidacy or not. STEPASHIN pointed out that some banks illegally export money of their customers abroad under the pretext of operations in offshore zones. A total of $1.878 billion worth of foreign currency cash was imported to Russia by its banks in the first quarter of

When you need to know it as it happens

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1999, which is 62 percent smaller than in the first quarter of 1998. The exports of foreign currency cash dropped by 46 percent to $53.9 million. The cash export-import balance dropped by 62.3 percent in January-March 1999 to make $1.824 billion. STEPASHIN said, "We must stop the process of putting money into banks that have failed long ago, and are cheating their clients and are cheating the government."

Business

External Manager named For Sidanko

· A Moscow arbitration court in what has been described as "somewhat unexpected" appointed an external manager for 12 months on Russia's fifth largest oil company, Sidanko. The Court appointed a temporary manager and will decide on a manager for the rest of the period on July 23rd, after another Sidanko creditors meeting is held. The court ruled against a proposal to postpone the decision on appointing the external manager. Sidanko said it will continue restructuring attempts of its debts, estimated at about $400 million. The court's ruling is a blow to foreign investors and puts BP Amoco in jeopardy of losing control of its 10 percent stake, which it paid $571 million for in 1997. The hearings have pitted BP Amoco against Sidanko majority shareholder, Interros and delayed plans to rehabilitate the oil company, the Financial Times reports.

European Security Conf. Opens In Moscow

· An international conference, the European Model at the Turn of the 21st Century, opened in Moscow today to discuss European integration, ways to strengthen European security and cooperation, and the creation of a civilized model on the European continent. The forum has been organized by the Russian Academy of Sciences Institute of Europe and the Friedrich Ebert Foundation. Russian politicians, including leaders of the Communist Party, Our Home is Russia, the Russian Regions group, the Homeland movement and the State Duma, have been invited to participate. Foreign guests include prominent figures from the German Social Democratic Party, representatives of other political parties, as well as French and Australian politicians.

New Commercial Bank

· Kommersant Daily reported on Friday that Andrei KOZLOV, former first deputy chairman of the

Central Bank, Alexander ZURABOV, the chairman of Menatep's board of directors, and owner of Russki Standart Vodka Rustam TARIKO have launched a new commercial bank called Russki Standart. According to the newspaper, the bank's founders announced that they intend to support small and medium-sized businesses. Banking experts estimate that the start-up cost of the new bank will be at least $10 million.

European Republics

Paksas Approved As Lithuanian Prime Minister

· The Lithuanian parliament on Tuesday approved Vilnius Mayor Rolandas PAKSAS as the new prime minister in a vote of 105 to one with 12 abstentions. PAKSAS was appointed by President Valdas ADAMKUS to replace Gediminas VAGNORIUS, who was forced to resign on May 3rd. Right after the parliament approval, PAKSAS was instructed to form a Cabinet. Under the Lithuanian constitution, the Cabinet must be approved by the parliament within 15 days of the appointment of a prime minister. Acting finance minister Algirdas SHEMETA and acting economic minister Vincas BAILIUS will not be part of the new government. PAKSAS has said he will continue the tight fiscal policy of his predecessor. PAKSAS, a career pilot who won aerobatics titles of the former Soviet Union and Lithuanian, is a board member of the ruling Fatherland Union (the Lithuanian Conservatives).

Three Latvians Announce Run For Presidency

· Even though Latvian presidential elections have not been set, three Latvians announced that they will run for the position. The election will be most likely held in the second half of June, before the parliament is adjourned for recess. Deputy Latvian Prime Minister Anatoly GORBUNOV on Tuesday said, "I can no longer shrink away from responsibility," and announced he will be an contender in the next presidential election. He explained his recent reluctance to take part in the election saying that he had nothing to regret, and his conscience was clean but "nobody can retract on his past." GORBUNOV used to hold high-ranking positions in the communist party up to the year 1985, when he was in charge of ideology at the Latvian Communist Party Central Committee. According to opinion polls, GORBUNOV is the most popular member of the working govern

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ment. He is a member of the Latvian Path party. Also running will be deputy of the Latvian parliament Vaira PAEGLE, whose candidacy has been put forward by the People's Party. A year ago, she came back to Latvia from the US, "to offer her experience and extensive foreign ties to promote democracy in Latvia." From 1994 to 1998, PAEGLE headed the World Association of Free Latvians. The final candidate, thus far, is Janis PRIEDKALNS of the For Fatherland and Freedom Party. He is the Ambassador of Latvia to the United Nations Organization and prior to that in 1996 was a deputy of parliament. In compliance with the Constitution, Guntis ULMANIS with his second term in office expiring on July 7th cannot run for the presidency for the third time.

South Caucasus & Central Asia

Georgian NATO Membership To Wait Until 2005

· Georgian President Eduard SHEVARDNADZE appeared Tuesday on NTV's Hero of the Day program. He predicted that Georgia will not join NATO, while he is president, even if he is re-elected in 2000 for a second term. He believes membership will not be likely before 2005. The President admitted that Georgia is unable to meet NATO requirements. He told the television audience, "I am not going to act as NATO's advocate, I am against the use of force." However, according to SHEVARDNADZE, if NATO would not have interfered to prevent an "open ethnic cleansing and genocide of Kosovar Albanians a big war might have been very near." He believes that Yugoslav President Slobodan MILOSEVIC should agree to a compromise. He also welcomed Russia's active efforts for the conflict settlement. SHEVARDNADZE again reiterated his five point settlement program: immediate withdrawal of Yugoslav forces from Kosovo, disarmament of Kosovar Albanians from the so-called Kosovo Liberation Army, introduction of international forces in Kosovo under the UN auspices, the return of refugees, talks on Kosovo status within Yugoslavia. Meanwhile, Georgia has canceled its independence day parade due to lack of funds. The parade has not been held since 1997.

Azeri Protest Arms Shipments to Armenia

· The Azeri Foreign Ministry has handed the Chinese Ambassador in Baku an official document protesting the supply of eight Typhoon multiple rocket systems to Armenia. It demands that the arms shipments be recalled and the training of Armenian on the equipment ceased. Top foreign affairs advisor to Azeri President Geidar ALIYEV, Vafa GULUZADE said China had supplied Typhoon rocket systems, with a range of 60 to 80 kilometers, to Armenia. He said, "In violation of international norms and agreements, China has given Armenia eight Typhoon rocket systems. Right now, Chinese instructors are in Armenia teaching Armenians how to use them." The Chinese Embassy declined to comment on whether there had been an arms shipment and the Armenian Foreign Ministry said it had no information on the matter. Azerbaijan has long complained about Russian arm shipments to Armenia, which has been locked in conflict with Azerbaijan over Nagorno-Karabakh for a decade. GULUZADE said, "Now there is an alliance between Russia and China against the West—Russia is trying to pull China into the Caucasus conflict." He believes that Armenian Defense Minister Vazgen SARGSYAN procured the Typhoon installments during his visit to China last summer with the Russian Defense Minister Igor SERGEYEV.

IMF, Kyrgyz Reach Financing Agreement

· The Kyrgyz government and the International Monetary Fund (IMF) on Tuesday have reached an agreement on conditions for resumption of financing under a three-year Economic Structural Adjustment Facility program. Head of the IMF mission in Bishkek Harry TRINES said that over the next two years, Kyrgyzstan must implement tough monetary and financial policies, keeping inflation below 20 percent in 1999, and increase budget revenues while cutting expenditures, the RFE\RL Newsline reported. The IMF initially allocated $88 million for the three-year program, of which the first $41 million was disbursed in 1998. The IMF increased the total lending sum to $120 million last year.

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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