DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, May 5, 1999

Soviet-era debts. Debates to impeach President YELTSIN are set for May 13th, as extremism grows and political parties maneuver themselves into position for upcoming parliamentary elections. Rumors still loom of a possible government reshuffle. In addition, Russia is trying to establish itself in the post-Cold War era as a peacemaker, negotiating between Yugoslav President Slobodan MILOSEVIC and NATO countries. With all these aspects churning political influence in Russia, now more than ever it is important for the Kremlin to take active, positive steps toward defining itself as a strong democratic nation and a responsible international partner.

Skuratov Loses Support of Law Enforcement

· Russian Justice Minister Pavel KRASHENINNIKOV said in a live program of the Echo of Moscow radio station on Tuesday that law-enforcement bodies, including the Russian Prosecutor General's Office, have expressed no confidence in Yuri SKURATOV, the suspended Prosecutor General. The situation when the country has two Prosecutors General, "is bad for the Prosecutor General's Office, the law-enforcement bodies and society. The sooner it is settled the better for everyone," he said. There must be one Prosecutor General trusted by the authorities and the Prosecutor General's Office which is, "a rather complex system with its own corroborative interests," KRASHENI-NNIKOV said. "It is important that the man is acknowledged by the system." On the whole, the situation with Yuri SKURATOV and the impeachment

Russian Federation

Politics

Yeltsin Bumbles Through A Kremlin Meeting

· Russian President Boris YELTSIN bumbled his way through a meeting in the Kremlin today meant to show the strength of the President and his resolve to build a more tolerant and democratic Russia. YELTSIN, who last week boasted about his good health to visiting South African President Nelson MANDELA, moved stiffly into the Kremlin Hall. He was about to sit in the wrong seat, when aides rushed to guide him to his correct position in between Prime Minister Yevgeny PRIMAKOV and Patriarch Alexy, head of the Russian Orthodox Church. Part way through the meeting, meant to draw up plans to welcome the third millennium and celebrate the bimillennium of Christianity, YELTSIN stopped the meeting and demanded that newly appointed First Deputy Prime Minister and Interior Minister Sergei STEPASHIN sit closer to him, just next to PRIMAKOV. He then continued the meeting saying, "The history of the 20th century must be a lesson for us. We must rid ourselves of the ideology of political extremism and build a democratic society based on civilized values." The President's health and the government's inability to implement economic reforms has damaged YELTSIN's authority. Following the meeting, YELTSIN met with Defense Minister Igor SERGEYEV and presidential envoy to Yugoslavia Viktor CHERNOMYRDIN to discuss the results of talks with US President Bill CLINTON.

Comment: YELTSIN's deteriorating health is not the only reason for the international community to look toward Russia with concern. The PRIMAKOV government has failed to implement major reforms to pull the Russian economy out of the crisis. The banking system still has not been reformed. The Finance Ministry has declared that it will default on

Today's News Highlights

Russia

Inflations, GDP Figures

Kirinsky Added To PSA Oilfields

European Republics

Latvia Issues Eurobonds

Lith. President Against Elections

South Caucasus & Central Asia

PSG Seeks Financing

Kazakhstan Census Results

Uzbekistan Strengthens Security

Japan-Uzbek Relations

Politics-Economics-Business

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May 5, 1999

Intercon's Daily

plans are "a pressure on the President" and a part of the election campaign, the minister remarked.

Economy

Ruble = 24.16/$1.00 (NY rate)

Ruble = 24.09/$1.00 (CB rate)

Ruble = 25.63/1 euro (CB rate)

Primakov Says Crisis Is Far From Over

· Russian Prime Minister Yevgeny PRIMAKOV in an interview published by the newspaper Komsomolskaya Pravda today said that although the worst of the financial crisis has passed, there is more work needed to turn Russia's economy around. He said, "In my opinion, Russia has passed the most acute phase...it may zigzag yet, but at the same we succeeded in keeping inflation from escalating to hyperinflation." PRIMAKOV said the crisis, "is far from being over, because it requires a reconstruction of many institutions and a re- targeting of many programs." He noted that many regional leaders tell him that the economic situation has not worsened, and that certain economic upturn has become visible. "It's too early to talk about it as victory, but, in any case, there is headway in this direction," PRIMAKOV said. He defended a policy of heavy governmental intervention in the economy, saying that it was necessary to guide Russia out of its crisis. He advocates a mixture of socialism and capitalism. "We were assured that socialism did not accept market relations, and capitalism did not accept regulating measures of the state—planning at a certain level, if you like, But that is absolutely not so." In his opinion, one should not "measure anything with the socialism/capitalism categories now."

PRIMAKOV reiterated that he has no intention to run for president in 2000. He said he does not refuse support from any forces which, call for stability, a stronger Russia, the strengthening of statehood while developing market relations, socially oriented economy and democracy. The Prime Minister stressed his positive stance toward the union between the all-Russia political organization Fatherland and the All Russia election bloc. "I see a positive sign in it," he said.

Inflation and GDP Figures

· Acting chairman of the State Statistics Committee Vladimir SOKOLIN announced that Russia's infla

tion in April reached 8 to 3 percent, while in the first four months of the year it has amounted to 19.5 percent. It is expected that 1999 inflation will make up to 50 percent. Chairman of the Central Bank Viktor GERASHCHENKO pointed out that, "summer months are rather calm, although a lot will depend on a political balance." Russia's gross domestic product (GDP) in the first quarter of 1999 accounted for 96 percent of the country's GDP as of the first quarter of 1998. SOKOLIN said that despite GDP's decline this result is encouraging for the current state of affairs in the national economy, hit by the severe economic and financial crises in August.

Business

Kirinsky Added To PSA Development Fields

· Russian President Boris YELTSIN has singed a law adding the Kirinsky offshore oil block to the list of fields which can be developed under a Production Sharing Agreement (PSA). Both houses of parliament passed the bill in April. Kirinsky, located offshore of the island of Sakhalin, is shared by Sakhalinmorneftegaz, a subsidiary of Russian company Rosneft, and US companies Mobil and Texaco. Each partner has a 33.3 percent stake. Kirinsky has estimated reserves of 687 million tons (about 5 billion barrels) of oil and 873 billion cubic meters of gas. Under PSAs investors share proceeds form developing natural resources with local and federal authorities, because they are cover by special tax regimes, PSAs have to be approved by parliament and signed into law by the President.

Diamond Monitoring Committee Meets

· The joint observation committee set up by Russia's diamond-mining company Alrosa and the DeBeers diamond cartel from South Africa, opened the meeting Friday over the implementation of a trade agreement. The meeting was timed to coincide with state visit to Russia by South African President Nelson MANDELA. The Russian delegation was headed by Alrosa president Vyacheslav SHTYROV, while the DeBeers delegation was led by managing director of the transnational South African corporation Gary RALFE. The committee meets four times a years in Moscow and London. According to SHTYROV, the parties discussed the present situation on world market of uncut diamonds, situation prognoses for the next two years and the problem of

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diamond prices. Alrosa and DeBeers also specified the amount of sales through DeBeers of Russian diamonds intended for exports until the end of 1999, and exchanged views on the 5 percent export duty on diamonds, introduced by the Russian government. In line with the trade agreement, which was extended by three years in November 1998, Alrosa annually sells to DeBeers at least $550 million of Russian diamonds intended for exports.

least desirable measure to solve the current situation," according to a presidential statement. The next parliamentary elections are due in 18 months. ADAMKUS has appointed Social Welfare and Labor Minister Irena DEGUTIENE, of VAGNORIUS' Conservative Party, as acting prime minister. She has said that she does not expect to remain in the post permanently. "I took the prime minister's post temporarily...I still lack the skills to take on such duties [permanently]." The Conservative Party, with 68 of parliament's 138 seats, have said that they do not want to head the next Cabinet. However, ADAMKUS has asked the party to supply a list of possible candidates.

South Caucasus & Central Asia

Georgian Borderguards Leave For Sweden

· A delegation of the Department for the Protection of the State Border of Georgia, led by Lieutenant-General Georgy KUKHIANIDZE, has left for a working visit to Sweden. The delegation members are to familiarize themselves with the functioning of Sweden's Coast Guard Service. During the visit, which will continue until May 10th, the Georgian borderguards and their Swedish counterparts will discuss sea navigation matters, the ensurance of environmental safety at sea, study the work of the rescue service and Swedish Coast Guard structures, and consider matters connected with the training of personnel and border monitoring.

OSCE Minsk Group And Armenia Discuss NK

· German representative in the OSCE Minsk Group for Nagorno-Karabakh, Ambassador Frank LAMBAH held talks with Armenian Foreign Minister Vartan OSKANYAN on Saturday to discuss the resumption of talks on the settlement in Nagorno-Karabakh. LAMBAH stressed the need to make the talks within the Minsk Group more effective. He reviewed Armenia's position on the Nagorno-Karabakh settlement. OSKANYAN briefed LAMBAH about the results of negotiations between the Armenian and Azeri Presidents held in Washington under the patronage of the US Secretary of State Madeleine ALBRIGHT. LAMBAH also conferred with Armenian President Robert KOCHARYAN to discuss the Minsk Group's latest proposals on the settlement of the conflict. They also exchanged on the situation in the Balkans. Before arriving in Yerevan, the German

European Republics

Latvia Issues Eurobonds

· Latvia issued eurobonds worth 150 million euros ($160,000) on Tuesday. The bonds have an annual interest rate of 6.25 percent. Credit Suisse First Boston organized the issue. Head of the Currencies Department at the Bank of Latvia Robert GRAVA said, "It is less risky and more profitable to take out loans abroad than within the Latvian domestic market at the current time."

Latvia's Five-Year Euro Bond Rated

· Standard & Poor's (S&P) on Tuesday assigned its BBB foreign currency senior unsecured debt rating to Latvia's debut euro-denominated bond, a five-year 150 million euro bond. According to an S&P press release, the rating is based on market-based economic reforms, private sector development, reorienting trade toward the European Union, and strong economic growth averaging 5.2 percent per year, over the past three years. It added that the outlook is stable, reflecting Latvia's strong economic fundamentals and fiscal flexibility. The rating agency said Latvia should be able to weather Russian-related losses by banks and other economic players. Policymakers' ongoing commitment to the reform process and their prudent policy stance in response to current turmoil in the international capital markets should help Latvia to effectively address its key near-term challenges.

Lith. President Opposes Early Elections

· Lithuanian President Valdas ADAMKUS said that he is opposed to holding early parliamentary elections as a way of resolving the situation left in the wake of Prime Minister Gediminas VAGNORIUS' resignation on Monday. The President and opposition Social Democrats agreed that, "early Seimas [parliamentary] elections would be extreme and the

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Ambassador visited Tbilisi to discuss the settlement of conflicts in the region. He also traveled in Stepanakert and Baku for talks with Nagorno-Karabakh and Azeri leaders.

PSG Seeks Financing For Turkmen Pipeline

· President of the PSG International Consortium, comprising Bechtel Enterprises and General Electric Capital Structure Finance Group, Edward SMITH is seeking financing to build a gas pipeline from Turkmenistan to Turkey via the Caspian Sea. He hopes to have financing for the project in place by July 15th. Turkmen President Saparmurat NIYAZOV underlined the importance of the project saying, "We will pray that this project becomes a reality quickly. We are very keen that the formation of the consortium is not delayed," Reuters reported. PSG won an international tender to build the pipeline in February. It plans to construct a 2,000 kilometer line crossing the Caspian Sea to Turkey. Bankers foresee complications in financing the Turkmenistan-Turkey route because Turkmenistan has debt arrears with commercial creditors due to its economic situation. NIYAZOV added that Turkmenistan would seek other gas export routes if the Trans-Caspian pipeline was delayed. Options to Turkey via Iran and to Pakistan via Afghanistan have been discussed. The pipeline planned by Russia's Gazprom called the Blue Stream is in direct competition with the PSG project.

Kazakhstan Census Results

· Kazakhstan has summed up the first results of the population census made in late February-early March 1999. The population has dropped by 1,249,000 over the past decade. The republic has slightly more than 14,950,000 nationals. A reason is the negative balance of the migration. Over 2,200,000 people left Kazakhstan for Russia and Germany in 1991-1998, and 600,000 people came to Kazakhstan for permanent residence. The emigration peak was registered in 1994. A total of 410,000 left the country that year. Almaty has a population of 1,120,000 people. The population of Astana, the new capital of the republic, is only 319,000.

Uzbek To Strengthen National Security

· President of the Republic of Uzbekistan Islam KARIMOV pledged Thursday that he will be committed to safeguarding and strengthening national security and stability. At a news conference in Tashkent following his visit to the US, KARIMOV said national security and stability is a pressing and realistic problem. He said that Uzbekistan will cooperate with all countries and organizations of the world in this field. KARIMOV said that the conflicts of Afghanistan is one of the most disturbing external threats to Uzbekistan, while the nuclear tests in Southern Asia is the major threat to the region.

Japan-Uzbek Develop Bilateral Relations

· Japanese Foreign Minister Masahiko KOMURA and Uzbek Foreign Minister Abdulaziz KAMILOV agreed Tuesday to work together toward a political solution to the civil war in neighboring Afghanistan. KAMILOV also expressed hope that humanitarian aid being planned by Japan to assist strife-torn Afghanistan will help bring peace to the country. In December, Japan pledged $3.5 million to assist refugees in Afghanistan. The two ministers also discussed bilateral relations during a meeting in the Uzbek capital, Tashkent. KOMURA pledged to strengthen political and economic ties between the two countries. He noted that Uzbekistan is important to stability in Central Asia. KAMILOV thanked KOMURA for the 2.87 billion yen ($23.9 million) in loans extended by Japan to Uzbekistan to help finance the construction of airport facilities in Samarkand, Buhara and Urgench, as well as 60 million yen ($500,000) in grants to help pay for the excavation of Buddhist cultural relics. KOMURA also met with President Islam KARIMOV and Prime Minister Utkir SULTANOV during the visit. He also attended the opening of the first Japanese International Cooperation Agency office in Central Asia, which provides technical assistance in the transition to a market economy, environmental protection, and the development of transport, communications, and public health facilities.

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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