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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, June 18, 1999

Russian Federation


Chechen Border Clashes Kill Seven Russians

· Chechen rebels attacked three Russian border guard outposts late Thursday, forcing several Russian Mig-24 helicopters to retaliate along the border of Daghestan. This is the worst skirmish in the last three years, killing seven Russian servicemen and wounding 14. There is no report on the Chechen casualties. Daghestani Interior Minister Adilgerei MAGOMEDTAGIROV said, "one can say that one truck of the militants was hit and burned down. The helicopters fired on the militants' motor convoy, which included at least 15 trucks, in darkness with the aid of illuminating flares." According to a report by the headquarters of the Interior Ministry troops, the servicemen returned fire with various weapons. The attack comes at a time when Russia and Chechnya are working to improve relations. Russian President Boris YELTSIN and Chechen President Aslan MASKHADOV had been preparing for a summit meeting sometime this summer on stabilizing relations. MASKHADOV blamed the attack on forces aimed at undermining this summit meeting. Chechnya claims it gained independence in the 1994-96 Chechen War, while Moscow still insists that it is part of Russia. He has instructed the united headquarters of the police and security departments to set up a special commission to investigate the incidents. There has been no immediate reaction from Prime Minister Sergei STEPASHIN, who has been characterized as being trigger-happy, was intricately responsible for many attacks during the Chechen War.

Representatives of the notorious warlord Khattab have not rejected responsibility for all that is going on the border between the two southern Russian regions. They say the attacks on Russian troops and policemen are part of a jihad, a holy war, waged on

behalf of Islam to purge the Caucasus of the unfaithful. Tensions have been rising along the border in recent weeks. Daghestan Security Council has tightened security at outposts in border areas. Security has also increased at administrative buildings of the interior and at vital sites and facilities.


CB Reveals New Ruble Trading Rules

· Russia's Central Bank today reveals new details on the conditions set out for investors to purchase and sell rubles under the new single trading session that will begin on June 29th. Russian commercial banks will be able to trade both on their own behalf and on behalf of their clients. Regional banks will now be fully integrated into the ruble trading single session. The Central Bank did not state how many regional banks will be involved in the ruble market. "The new system will create equal conditions for all participants in the local foreign currency market," the Bank said. General director of the Moscow Interbank Currency Exchange (MICEX) Alexander ZAKHAROV said the new system will make the ruble exchange rate more representative of market forces. The Central Bank rules requiring Russian exporters to sell 75 percent of their hard currency revenues on local currency exchanges will remain in place.

Russian To pay $159.4 Million Eurobond Coupon

· The Russian government announced that it will make a $159.38 million semi-annual coupon payment on its $2.5 billion

Today's News Highlights


New NE Transport Corridor

European Republics

New Latvian President

S&P Rates Latvian Currencies

Chase To Arrange $700M Loan

South Caucasus & Central Asia

Georgia Increases NATO Links

Azeri Oil Shipped By Rail?

New Armenian Econ. Policy

CIS Free Trade Zones Timeline




June 18, 1999

Intercon's Daily

Eurobond on June 24th as scheduled. The 30-year Eurobond matures in June 2028 and carries a 12.75 percent annual coupon, the Dow Jones Newswire reported. Russia has defaulted on all categories of its traded debts and Soviet-era debts, with the exception of its Eurobonds. The government has vowed to stay current on all of its Russian-era debt, including Eurobonds.

Ruble = 24.23/$1.00 (NY rate)

Ruble = 24.23/$1.00 (CB rate)

Ruble = 25/1 euro (CB rate)

Jan Feb Mar Apr May Jun


Rus, US, China Agree On Transport Corridor

· Russia, the US, and China will make an international transport corridor between the north-eastern provinces of China and Asia Pacific countries via ports of the Russian Primorye territory. A protocol to the effect was signed at the East-West tripartite conference in Vladivostok today by the delegations of Primorye, the US Washington state, and the Chinese provinces of Jilin and Heilongjiang. The use of the Primorye transport infrastructure will make cheaper the transit of cargo in the trade of the US and China and encourage the development of export-import zones in the north-eastern provinces of China bordering the Primorye territory. The corridor will go via the China and the ports of Vladivostok, Nakhodka and Zarubino to third countries.

Kosmotras And SSTL Sign Contract

· The Russian-Ukrainian space company Kosmotras, which is attending the 43rd international

air show in LeBourget, France, today signed a contract for the launching of two satellites of Britain's SSTL company. Under the contract, Kosmotras and SSTL will continue their cooperation in launches of small satellites on booster rockets Dnepr-1. Two to three launches are planned for 2000 to 2001 from Kazakhstan's Baikonur cosmodrome. SSTL will continue the study of further possibilities of commissioning launches of its satellites. Dnepr-1 is a conversion of the intercontinental ballistic missile RS-20 which has ten separable individual sighting warheads and is known in the West as SS-18 Satan. Russia's Missile Strategic Troops are to decommission these missiles by the end of 2007. Some 150 missiles can be converted into light booster rockets for commercial satellite launches. Deputy general director of the Kosmotras company Vladimir MIKHAILOV said the decision to use the Satan combat missile for peaceful purposes had been made in connection with the Russian-American treaty on limiting strategic offensive weapons.

Tor Defense System To Be Exported To Greece

· Russia's contract to export to Greece 21 anti-aircraft missile systems Tor-M1 is on schedule. Under the contract, Russia is to deliver in August the first missile battery complete with four missile trucks and several auxiliary trucks, according to the director of Izhevsk's electrical engineering plant Kupol, Boris NESTEROV. The last batch of the Tor-M1 systems will be delivered in 15 months after the first advance payment. With the payment having been remitted in May, the contact, worth $526 million, will be completed in late August of 2000. The Tor-M1 anti-aircraft systems will be shipped to Greece by An-124 Ruslan planes. Russia's contractor is Antei concern, a maker of Tor-M1s; Kupol plant is affiliated.

European Republics

First Female Latvian President Elected

· After many rounds of voting during which the first group of contenders either were eliminated or withdrew, the Latvian parliament finally elected its first female president, Vaiga VIKE-FREIBERGA. Of the 100-seat parliament VIKE-FREIBERGA earned 53 votes, two more than necessary. She was only nominated when the first five candidates failed to win enough votes. In the winning vote, she was pitted against Foreign Minister Valdis BIRKAVS and Eco

When you need to know it as it happens




June 18, 1999

Intercon's Daily

nomics Minister Ingrida UDRE. Fatherland and Freedom, People's Party, and Social Democrats all announced support of her candidacy prior to the secret vote. She is not affiliated with any political party. VIKE-FREIBERGA, the former president of the Canadian society of psychologists, professor of psychology of Montreal University, gave up her Canadian citizenship last year after being away from Latvia for 54 years. She advocates European Union and NATO memberships, but also stated, "Russia is our big neighbor, and Latvia has been doing all in its power to have friendly relations with Russia."

The Latvian president is mostly a ceremonial head, not involved in the day-to-day running of the country, but helps to form the government and can refuse to confirm new legislation. VIKE-FREIBERGA will be sworn in as president on July 8th, replacing President Guntis ULMANIS. On the same day, parliament intends to endorse the law on the official language, which prompts objections of European experts, among them supreme commissioner of the Organization for Security and Cooperation in Europe Max VAN DER STOEL. The president-elect, in addition to speaking Latvian, speaks French, English, German, Spanish, and Portuguese. She does not have a command of Russian, which is the native tongue of less than half of the Latvian population.

S&P Affirms New Latvian Ratings

· Standard & Poor's (S&P) on Thursday affirmed its A- local currency long-term sovereign credit and senior unsecured debt ratings on Latvia. S&P affirmed its BBB foreign currency long-term sovereign credit and senior unsecured debt ratings on the republic. According to its press release the rating agency also affirmed its A-2 local currency and A-3 foreign currency short-term credit rating on Latvia. S&P declared Latvia's outlook as stable, reflecting the consensus-based political environment, conservative financial policies, and the sustained restructuring and modernization of the economy. Continuation of these market-based policies is expected to increase low income levels, improve economic structures and facilitate Latvia's ultimate integration into the European Union. Pressure in the banking sector, due to the Russian financial crisis, has abated and there is less risk of a systemic crisis. Key economic challenges for Latvia include reducing the unsustainable current account deficit, accelerating

output growth, and completing the privatization program. High current account deficits reflect the large capital imports accompanying corporate restructuring and the adjustment to reduce exports to Russia. S&P said that substantial slippage in the government's fiscal stance and its privatization schedule could impair Latvia's credit standing, but is unlikely given the government's commitment to conservative fiscal policies, economic reform, and improved growth.

Chase To Arrange $700M Loans For Refinery

· Chase Manhattan Corporation Thursday announced that it has been appointed to arrange $700 million in loans to boost production at the privatized Lithuanian oil refinery Mazeikiu Nafta. Chase will assist the company to secure a $550 million loan from the European Bank for Reconstruction and Development (EBRD) and other multilateral lending agencies. Chase is also planning $150 million in short-term loans for the company among other international banks. Earlier this month, Lithuania's parliament granted its permission for the government to sell an initial 33 percent stake in Mazeikiu Nafta to the US Williams International. At its first Cabinet meeting Thursday, Lithuania's new government set up a working group, headed by Economics Minister Eugenijus MALDEIKIS, to continue talks with Williams. William's spokesman in Lithuania Darius SHILAS said Williams International cannot afford to delay signing the deal on its investment into Lithuania's Mazeikiu Nafta oil complex beyond the end of July. Williams has developed business plans to restore the refinery's output to 15 million metric tons of oil per year, compared with the six million tons it has processed annually since 1997.

South Caucasus & Central Asia

Georgia Increases Cooperation With NATO

· NATO has approve a program of compatibility of a Georgian peacekeeping battalion. The Party of National Independence-Merab Kostava Society on the same day called for the introduction of NATO troops into Abkhazia and the withdrawal of all Russian forces without delay. Intercon sources report that the Georgian government has offered to provide one peacekeeping battalion for Kosovo. There is no word yet as to whether it has been accepted or not. This week, Georgia is participating in NATO's fifth Maneuver in the Cooperative Partner series hosted

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June 18, 1999

Intercon's Daily

by Bulgaria. France, Greece, Turkey, the US, Romania, and Bulgaria are also participating.

Meanwhile, Azeri Defense Minister Safar ABIYEV on Wednesday requested that NATO play a positive role in resolving the Nagorno-Karabakh. However, presidential foreign advisor Vafa GULUZADE said that ABIYEV was ahead of official Azeri thinking, RFE\RL Newsline reported. On Monday, Armenian gunmen attacked Azerbaijan for four hours, breaking a cease-fire agreement in place since May, 1994.

Azeri Oil To Be Shipped By Russian Rail?

· Because of the indefinite shut down of the Baku-Novorossiisk due to an explosion, Russian oil transport company Transneft is working on an alternative route for the Azeri oil by Russian railroad, bypassing Chechnya. Transneft is preparing an official answer to the inquiry by Azerbaijan's State Oil Company (Socar) regarding the recent statement by Russian officials about the possible termination of operation of the Baku-Grozny-Tikhoretsk-Novorossiisk oil pipeline. The company still has not revealed the volume of oil losses due to the explosion. Transneft stressed that its main objective is to ensure the stability of transportation mechanisms as fixed in its agreement with Socar. Transneft officials said however that, "It is unlikely that the alternative route will be ready before July."

Meanwhile, newly-appointed US representative to the Council of Europe Richard MORNINGSTAR is scheduled to arrive in Baku for a two-day visit on June 24th. MORNINGSTAR, former US Administration special adviser on the energy policy in the Caspian region, will be accompanied with his successor John WOLF and will introduce him to Azeri leaders. The US diplomats and Azeri President Geidar ALIYEV will discuss the construction of the main export pipeline to Ceyhan from Baku and a trans-Caspian gas pipeline from Turkmenistan via Azerbaijan and Georgia to Turkey. The costs of these project amount to $2.4 billion and to almost $4 billion respectively.

Sarkisyan Outlines Armenia's Economic Policy

· Armenian Prime Minister Vazgen SARKISYAN today said, "Our main task is to establish a society of social and economic cooperation with the prevalence of spiritual and moral values without which serious progress in the economic sphere is impossible." He supports an open economic policy, which excludes protectionism and the leveling of investment and tax space. The state must become a member of the country's social and economic life, at the same time remaining a guarantor of compliance with the rules of the game, SARKISYAN said. A foreign investor and an Armenian citizen must feel that it is the state, not a certain person which supports him in any good deed he initiates, he added. He stressed that becoming a government official does not entitle people to become rich and lazy. SARKISYAN stated that the economic program submitted to the parliament is a summary of the basic problems which the government inherited from its predecessors. If they are solved before the end of 1999, it will guarantee successful drafting and implementation of programs for the year 2000 and the following years, he said.

Forming CIS Free Trade Zone Needs Five Years

· Speaking at a round-table meeting at the third St. Petersburg Economic Forum, the head of the Integration Committee of Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan, Nigmatzhan ISINGARIN said it will take at least four to five years to establish a free trade zone in the Commonwealth of Independent States (CIS) and then two more years for its member's economies to adjust to the free trade regime. According to him, railway transportation tariffs are the biggest stumbling block to the forming of the free trade zone in the CIS. Tariffs for internal railway shipments in Russia are twice or three times as high as those for transit. The cost for the shipment of one ton of wheat from Kazakhstan to Belarus amounts to $40, which is half the sum this wheat costs. The CIS countries have established transportation tariffs for each other at the world level, and this hinders integration processes, ISINGARIN added.

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

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