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 3, 1999

Low Turn-out For May Day Demonstrations

· Thousands of Russian representing the trade unionist and Communists party marched in Moscow to mark Labor Day or May Day, once a Soviet celebration of socialism attended by millions. The marchers denounced NATO's bombing campaign in Yugoslavia and demanded better living conditions. Addressing a rally in the theater square, Communist Party leader Gennady ZYUGANOV voiced Russia's firm support for the Yugoslav people's just struggle against NATO's aggression. Moscow mayor Yuri LUZHKOV also demanded that NATO immediately halt its military action in Yugoslavia, saying the alliance would run risks, if it takes action on Russia's tankers shipping oil to Yugoslavia. Turn-out was low and mostly elderly. Many packed up their red flags as the rain fell, soaking signs which read, "NATO hands Off!" and "Yeltsin the enemy of the people — impeachment!," Reuters reported. One 17 year-old as she shopped in the GUM department store off of Red Square said, "Oh look at them, they look like a sorry bunch." In St. Petersburg only 8,000 of an expected 30,000 took part in May Day marches.

In the Ukrainian city Kiev, 3,000 elderly gathered for a rally, holding portraits of LENIN and STALIN. In the Crimean capital Simferopol, police determined that 8,000 people attended a Communist organized rally, one of the largest since Soviet times. In Minsk, police detained Social Democrat leader Nikolai STAT-KEVICH and other party members at a 500-strong opposition demonstration.

Russian Federation

Politics

2 Blasts Rock Downtown Moscow

· Two home-made bombs exploded almost simultaneously in downtown Moscow on Saturday, blowing out nearby windows, but causing only minor damage. The first explosion took place on the Bolshoi Spaso-Glinishevsky by-street, with an impact of 150 grams of TNT, while the later blast, with a more powerful impact of 450 grams of TNT, occurred on the 2nd Vysheslavtsev by-street. There were no casualties and no one has claimed responsibility. First Deputy Prime Minister, Interior Minister Sergei STEPASHIN said, "A joint investigation team has been formed of personnel of the Prosecutor's Office, the Interior Ministry and the Federal Security Service (FSB)."

The target of the attacks is not exactly clear. Both explosions were near police medical facilities and synagogues. The Choral Synagogue guards reported that the explosion, about 100 yards from the building, was very powerful, but that the synagogue building was not damaged. STEPASHIN does not exclude that the blasts are related to some anti-Semitic extremist activities of certain organizations. He added that this may be a reaction to the serious crackdown on the activity of the Russian National Unity and other pro-Nazi organizations over the past two or three months by the Justice Ministry, the law-enforcement bodies and the Moscow government. Russian Jewish Congress Executive Vice President Alexander OSOVTSOV claimed that communist extremists were to blame for the bombings, which he linked to May Day protests. According to him, the only reasons the bombs didn't inflict major damage on the synagogues was because of better internal security following the periodic attacks on Jewish places of worship.

Today's News Highlights

Russia

CB Spent $5.5B On Debts

Cellular Network To Be Installed

European Republics

Lithuanian Premier Resigns

Laar On EU Accession

South Caucasus & Central Asia

Georgia To Join NATO?

Russia Weary of GUUAM

BSEC Meets In Tbilisi

Pipeline Talks in Islamabad

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Economy

Ruble = 24.01/$1.00 (NY rate)

Ruble = 24.16/$1.00 (CB rate)

Ruble = 26.07/1 euro (CB rate)

CB Spent $5.5B On Debts Since August

· Central Bank first deputy chairwoman Tatyana PARAMONOVA said the Russian Central Bank has spent $5.5 billion to service the government's debts since August 17th. She said the Central Bank's short-term objective is, "to seek keeping up the already achieved inflation rate, fairly low for the present-day conditions, and avoid very sharp fluctuations of the currency rate in the market." She added it is crucial not to decrease hard currency reserves. PARAMONOVA stressed the need to restructure the banking sector with an, "introduction of effective methods of surveillance of banks." She said there are no obstacles for foreign banks in their operations in the Russian market. However, there are "certain demands" that Russians banks are to meet, and their readiness to comply with them "depends on banks themselves." She said she could not cite any foreign bank operating in Russia with private savings, adding that Western banks believe the obstacles outweighs the benefits of such operations. "Russia's steps in the monetary-credit policy, the policy in the field of the currency rate are positively assessed in the world," she said. PARAMONOVA was a member of the Russian delegation to the joint session of International Monetary Fund and World Bank directors in Washington.

Germany Not To Forgive Russia's Debts

· State Secretary at the German Finance Ministry Caio-Koch WEZER has confirmed that Bonn will not write off Russia's debts. He said, "we do not discuss the possibility of remitting debts, either Russian or Soviet ones. Rescheduling them is quite a different matter." Finance official Michael RESKAU added that, "rescheduling is the only big concession which we may agree to. You must take it into consideration that when we last time rescheduled (Russia) debts, it was supposed that was a final way out of the situation and that Russia would never re-apply to us on that score. On the strength of this supposition, Russia was admitted to the Paris Club as a creditor, not a debtor. You must realize how complex the issue is both economically and even politically." Earlier, German Finance Minister Hans EICHEL stated in

Washington that the Bonn government ruled out the possibility of writing off Russian debts. Russian Finance Minister Mikhail ZADORNOV believes that the Resumption of International Monetary Fund (IMF) lending gives way for Moscow to establish rescheduling terms with partners for the Paris and London Clubs for 1999 and 2000 repayments.

Business

Cellular Network To Be Installed In Khabarovsk

· Ericsson and Dal Telecom International (DTI), a communication operator at Khabarovsk city, in the Far East of Russia, have teamed to build a modern digital cellular communications network based on the TDMA (time division multiple access) IS-136 standard. The companies say the project will allow DTI to broaden its services and increase quality. The system will provide automatic roaming with Moscow and other cities in Russia and Commonwealth of Independent States (CIS) countries. The TDMA IS-136 technology is characterized by high quality voice communications and low power consumption. It also offers call redirection, voice-mail, data and fax communications, as well as protection against unauthorized access. The system to be shipped to Khabarovsk by Ericsson includes a mobile communications switch and nine base stations, which will replace the Lucent Technologies' system currently operated by DTI. Ericsson and DTI plan to eventually expand the network to the neighboring regions of Komsomolsk-on-Amur and Vladivostok, the two other major cities in the Russian Far East.

European Republics

Lithuanian Prime Minister Resigns

· After an escalating dispute between Lithuanian Prime Minister, leader of the ruling Union of Fatherland (the Lithuanian Conservatives) Gediminas VAGNORIUS and President Valdas ADAMKUS, VAGNORIUS announced his resignation in a national television address on Friday. The official resignation statement was submitted to the President today. He said, "My resignation is the best way out of this difficult situation. This conflict harmed the speed of economic reforms and also the image of Lithuania." Under the Lithuanian constitution, the Prime Minister's resignation automatically signifies the resignation of the whole Cabinet. ADAMKUS,

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who voiced the political non-confidence in the Prime Minister on April 19, 1999, signed decrees accepting VAGNORIUS' resignation and instruct the Cabinet to continue temporarily in their positions. He appointed Labor and Social Welfare Minister Irena DEGUTIENE as acting prime minister. Within 15 days after the decrees are signed the President must offer a new prime minister candidate to the parliament. ADAMKUS said he could no longer trust VAGNORIUS because of his authoritarian style of handling a series of privatizations.

In VAGNORIUS' words, the Cabinet has aimed to work honestly for the benefit of Lithuania and its people despite a certain number of mistakes. VAGNORIUS views as the main achievement of his Cabinet the prevention of major negative consequences of the Russian financial crisis for the Lithuanian economy. He apologized for some "tough" resolutions of the government which minimized its popularity. The real reason for the resignation was briefly mentioned by the premier—that is the extensive differences with President Valdas ADAMKUS. Last week, the parliament decided to back VAGNORIUS in a non-binding vote. However, a poll commissioned by the government showed 60 percent of the respondents wanted VAGNORIUS to resign and the President's approval rating has soared to nearly 90 percent.

Laar Seeks Helsinki Support On EU Accession

· Estonian Prime Minister Mart LAAR visited Helsinki on Thursday to discuss accession to the European Union (EU). He said that as a candidate for EU membership, Estonia would like talks to also be held on the accession of Latvia and Lithuania. LAAR said that he was able to win Finnish President Martti AHTISAARI's and Prime Minister Pavo LIPPONEN's support for the EU membership. Beginning July 1st, Finland will preside over the EU. When the European Commission recognized that only Estonia corresponds to the criteria for EU membership, Helsinki backed its decision. LIPPONEN touched upon Finland's property in Estonia. He spoke about the dispute between Finnish entrepreneurs, who invested over $2 million to the hotel business in Estonia, and their local partners. Estonian Foreign Minister Toomas Hendrik ILVES visited Helsinki in the beginning of April to discuss this same issue. Nothing has been resolved as yet.

South Caucasus & Central Asia

Georgia Seeks NATO Membership

· Georgian President Eduard SHEVARDNADZE on Thursday said that Georgia is now openly seeking membership in NATO. He asked alliance chief Javier SOLANA to speed up the membership process. He said, "When I met with Javier SOLANA, I asked him, `When will you finally admit Georgia to NATO?' He whispered in my ear, but I can't reveal what he told me." He added that time is needed, "but possibly this will happen sooner than we assume." He said, "We consider necessary deepened cooperation with NATO, but before we enter this organization we have a long road to travel." Just Georgia's request to be considered a NATO member is sure to infuriate its powerful neighbor Russia. SHEVARDNADZE hopes that the alliance might assist in resolving the Abkhaz conflict and protecting Georgia's sovereignty. The Abkhaz has refused to accept autonomy within Georgia, and refused to let 150,000 refugees return to the region. SHEVARDNADZE supports NATO's' bombing of Yugoslavia saying that ethnic cleansing can not be tolerated. He said, "How can we condemn the Holocaust, how can we condemn Bolshevism, and not stand up to this? Ethnic cleansing is the worst feature of our time, the greatest danger. Now it is little dictators who do this. But if we don't stop it, soon it will be big dictators," The Washington Post reported. He admits however, that it would have been better if NATO could have avoided the use of force. Georgia has participated in NATO Partnership for Peace programs.

Russia Suspicious Of GUUAM Group

· When Georgia, Ukraine, Azerbaijan and Moldova accepted its newest member, Uzbekistan, to form GUUAM on the fringes of the NATO summit in Washington, Russia took notice. The group formed to boost economic and security will be working closely with the Western alliance and that relationship may be too close for Russia's comfort. Russian Foreign Minister Igor IVANOV said he treated the GUUAM group with suspicion. Interfax news agency quoted IVANOV saying, "How should we understand the fact that the new regional organization GUUAM has been created in Washington, during the NATO summit." He said that Russia will analyze the stand of Commonwealth of Independent States (CIS) member-countries and "make adequate conclusions." He

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added that, "Russia is also a sovereign country. Russia also has its national interests." When building its relations, "it will be guided by the national interest and bear all these facts in mind," IVANOV noted. Georgian President Eduard SHEVARDNADZE in an interview with Fred HIATT of The Washington Post said, "All these countries—Azerbaijan, Uzbekistan, Ukraine—the main problem they have is retaining their independence. It's quite clear that [Moscow] will try to make them walk the path that Belarus has walked," toward reintegration with Russia. The Georgian President encouraged the West to support the group, even if many of its leaders fall short of democratic ideals. Georgia, Azerbaijan and Uzbekistan have said they will quit a tighter security union within the CIS. Ukraine has never been a member of the security union. GUUAM had been initially drafted as an instrument of restoring the ancient trade route between Asia and Europe as an alternative to routes running through Russia.

BSEC Meets As Int'l Economic Organization

· Foreign ministers of 11 member countries of the Black Sea Economic Cooperation (BSEC) opened their regular 13th meeting in Tbilisi Friday by holding an inauguration ceremony of this organization which transformed into an economic international regional organization from the organization of economic cooperation of Black Sea countries. Following the inauguration ceremony, Georgian Foreign Minister Irakly MENAGARISHVILI who chaired the meeting, handed over to secretary-general of the permanent secretariat of the organization Vasily BAICHEV the Charter of the organization, which was ratified by all member countries. The Charter comes into force May 1st. Later, the heads of the Georgian, Armenian and Romanian foreign ministries as well as deputy foreign ministers of Albania, Azerbaijan, Bulgaria, Greece, Russia, Turkey, Moldova and Ukraine signed an additional protocol in Tbilisi on diplomatic privileges and immunity of the personnel of the organization's secretariat. Officials of the Foreign Ministries of Austria and Italy, as BSEC observers, and representatives from the European Commis

sion, the Organization on Security and Cooperation in Europe and other international organizations attended the meeting. In compliance with the Charter, a ceremony was held to transfer the presidential functions of the organization from Georgia to Greece. Georgia had presided over the organization for the past six months. The participants in the meeting will consider issues for strengthening the platform of cooperation between the BSEC and the EC.

Turkmen, Afghan, Pakistan Discuss Pipeline

· Energy ministers of Turkmenistan, Afghanistan and Pakistan confirmed their adherence to the tripartite gas pipeline project at a two-day meeting in Islamabad on Thursday. The meeting was attended by Turkmen Deputy Prime Minister Batyr SARDZHAYEV, Turkmen Minister of Oil, Gas and Mineral Resources Redzhenbai ARAZOV, Pakistani Minister of Oil and Mineral Resources Nisar Ali KHAN and Afghan Minister of Industry and Mineral Resources Alhaj Moulawi AHMEJAN. The sides signed a joint declaration on active preparations for and fulfillment of the pipeline project. The pipeline is from Turkmenistan's Dauletabad gas fields to Multan in Pakistan, 1,400 kilometers with a capacity of 15-20 billion cubic meters of gas, at a cost of $1.9 billion. They agreed to speed up work on the stalled gas pipeline and asked the Centgas consortium to find a project leader to replace US oil firm Unocal, which withdrew from the project in November. Unocal originally held a 54.11 percent. Turkmenistan's government holds 7 percent. Saudia Arabia's Delta Oil holds 15 percent, Japan's Itochu Corp. and Inpex with 7.22 percent each, South Korea's Hyundai Engineering and Construction Co. with 5.54 percent, and Pakistan's Crescent Group with 3.89 percent. KHAN said, "We strongly feel that it [pipeline] will serves as a window through which South Asia will get connected to Central Asia." The joint declaration said, "This project will definitely have long-lasting positive effects, not only for the participating countries, but also for the people of the entire region." The next meeting of the three countries will be held in Turkmenistan's capital Ashgabat in July.

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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