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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

Tuesday, June 29, 1999

Russia's economic program, on which a $4.5 billion loan is contingent. The two sides also plan to adjust the joint memorandum on the economic policy of the government and the Central Bank to take into account the rejections of the gas station tax by the Russian State Duma. The question of increasing excise duties on alcohol and gasoline will also be discussed. VYUGIN said, "From our point of view, despite the rejection of some bills, we have a sufficient safety margin for the program to be effective even without these bills." The Fund will make a decision on whether to release the loan at a board of directors meeting before July 18th. Russia plans to use the loan to pay off old debts due to the Fund this year. Without new loans, Russia could be forced to print money and possibly impose currency controls.

Russia's chief negotiator with the IMF, Mikhail ZADORNOV, said the Russian government by early June had met parameters of the economic and monetary and credit program that were agreed upon in loan talks with the IMF. He also noted that the government is to intensify efforts in banking system restructuring, rehabilitation of the currency market and to carry our measures to speed up settlements, increase the amount of cash in settlements with natural monopolies and activate the bankruptcy procedure. He said the ruble versus the US dollar should remain stable, if the IMF disbursed its loan to Russia. He said the ruble fluctuation would be in line with inflation, which would also depend on the IMF board's decision. ZA-DORNOV said he expected no

Russian Federation

Politics

Russia's Situation Complicated, But Stabilized

· Russian Prime Minister Sergei STEPASHIN today meet with the Federal Security Service (FSB) bodies to examine the country's security ahead of parliamentary elections in December. Taking part in the meeting were Russia's acting prosecutor-general Yuri CHAIKA, Interior Minister Vladimir RUSHAILO, chairman of the Central Electoral Commission Alexander VESHNYAKOV. The secretary of the Russian Security Council and FSB Director, Vladimir PUTIN, is presiding over the meeting. STEPASHIN said political parties and associations that are likely to resort to violence for their purposes are becoming more active as the parliamentary elections draw near. He was quick to add that power-wielding structures, "are in a normal working regime, know what they should do, and know how to do it." STEPASHIN said that the socio-economic situation in Russia is complicated, but it has stabilized in the past few weeks. He said the growth of Russia's industrial output was 1.5 percent in June, while the inflation rate did not exceed one percent. STEPASHIN also said that the International Monetary Fund (IMF) may decide on the allocation of another tranche of credit to Russia in July. "Investments in our country are already being made." He noted that on Saturday he will meet with a large group of investors. Investment in Russia will also be raised at the international economic forum in Salzburg, Austria.

Russia And IMF Resume Negotiations

· Russian Finance Minister Mikhail KASYANOV and First Deputy Finance Minister Oleg VYUGIN will meet with Gerard BELANGER, head of the mission of the International Monetary Fund (IMF) in Moscow, deputy director of the IMF Second European Department tonight. They will discuss the implementation of

Today's News Highlights

Russia

Voloshin Elected To UES Board

EBRD Meets With KamAZ

European Republics

Rus-Belarus Union Conference

Lith. Rus Bilateral Talks

South Caucasus & Central Asia

IMF Satisfied With Reforms

Tevzadze Visits Ukraine

Turkey-Turkmen To Sign Agmt

Silk Road To Be Preserved

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Tuesday

June 29, 1999

Intercon's Daily

sharp changes in the Central Bank's foreign exchange policy. He said slow liberalization of the Central Bank's foreign exchange policy would continue, but did not elaborate.

Bomb Explodes In Vladikavkaz

· On Monday, a bomb exploded in the village of Vladikavkaz outside a railway storage facility, injuring 11 people, four of them seriously. Another three mines were discovered in the area and defused. North Ossetian President Alexander DZASOKHOV said the explosion is an attempt to destabilize the situation in his republic. In an interview with the Ekho Moskvy radio station broadcast live, DZASOKHOV said those who stand behind this crime wanted to, "destabilize the situation and sow the seeds of doubt about Russian authorities' ability to ensure the security of people." He said the terrorist act, "should not be considered separately from others." At the same time, he noted that "this explosion would not...shovel aside the probe into the March 19th blast at the Vladikavkaz marketplace." DZASOKHOV noted that Prime Minister Sergei STEPASHIN has issued strict orders to law enforcement agencies to solve terrorist acts in the North Caucasus.

Economy

Ruble = 24.33/$1.00 (NY rate)

Ruble = 24.22/$1.00 (CB rate)

Ruble = 25.07/1 euro (CB rate)

CB Cancels Special Dollar Sessions

· The Central Bank of Russia today canceled special dollar trading sessions at the Moscow Interbank Currency Exchange, or MICEX. All traders with the right to currency exchange operations will be allowed to morning sessions. The Central Bank's official exchange rate will be announced daily after the morning session, about 11.30 a.m. The Central Bank has set a limit of the ruble rate's fluctuation in MICEX trading at 15 percent relative the previous day's close. A MICEX official said trading would be suspended for consultations with the Central Bank if the ruble rate goes above and below 15 percent of its previous closing figure. He added that the practice of limiting the ruble rate is not different from that adopted at MICEX special sessions.

Business

Voloshin Elected UES Board Chairman

· Presidential chief of staff Alexander VOLOSHIN on

Monday was elected chairman of the board of directors of the United Energy System of Russia (UES) and First Deputy Finance Minister Alexei KUDRIN was elected his deputy. Company spokesman Andrei TRAPEZNIKOV said VOLOSHIN's election as chairman of the board of directors will considerably raise the status of the Russia's second-largest company and strengthen its positions. VOLOSHIN and KUDRIN were recommended by Prime Minister Sergei STEPASHIN. Anatoly CHUBAIS, chairman of the board of UES of Russia predicted that the company will need $60 billion in new investments over the next 10 years.

EBRD Meets With KamAZ Over Debts

· First vice-president of the European Bank for Reconstruction and Development (EBRD), Charles FRANK, is expected to arrive in Russia today to discuss the restructuring of debts of the KamAZ truck maker. The talks will involve Tatar President Mintimer SHAIMIYEV and the KamAZ management, Economics Minister Andrei SHAPOVALYANTS said. If the talks prove successful, the EBRD intends to agree to the restructuring of KamAZ's debt by issuing securities and attracting investments from the Japanese government and several US commercial firms against the guarantees of the Russian government, SHAPOVALYANTS explained. This will allow the plant to launch the production of modern engines to make its automobiles competitive, the Minister added.

Gazprom Increased Exports To Europe

· Russian gas monopoly Gazprom increased exports to 19 European countries by 3.2 percent to 120.5 billion cubic meters in 1998. Its exports to Commonwealth of Independent States and Baltic countries reached 52.4 billion cubic meters. These statistics and other figures will be discussed at Gazprom's general shareholders meeting in Moscow on Wednesday. The company's gas exports in 1998 were affected by unfavorable natural gas prices. In 1998, however, Gazprom signed a long-term contract with the Czech company, Transgaz, envisaging the continuation of Gazprom's transit gas supplies through the Czech Republic until the year 2021. This contract guarantees supplies of Russian gas to West European countries, improvement of commercial terms of transit, as well as the possibility to shift capacities into the Yamal-Europe gas pipeline. Gazprom also signed a long-term contract with

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	Tuesday		June 29, 1999
	Intercon's Daily
	the Bulgargas company, which guarantees transit gas supplies through Bulgaria to Turkey, Greece, Macedonia and Yugoslavia until the year 2010. According to company predictions demand in Europe for natural gas will rise. Gazprom is the world's largest gas producer and exporter. The company produced 553.7 billion cubic meters last year, which is 23 percent of the world's total gas production. The general shareholders meeting will also elect members for Gazprom's board of directors. Among the candidates on the list are Viktor CHERNOMYRDIN, former Gazprom chief and former prime minister, Boris FYODOROV, leader of the Forward Russia movement, Deputy Finance Minister Andrei PETROV and the president of Stroitransgaz company, Arngolt BEKKER. Absent on the list are current members the board of directors Sergei GENERALOV, former fuel and energy minister, Alexander LIVSHITS, president of Economic Policy Foundation and envoy to the Group of Eight countries, and Aleksei KUDRIN, first deputy finance minister. Tuesday Tid-Bits His Face Rings A Bell · Residents in the Latvian town of Liepaja no longer have to ask for whom the bell tolls, but from whom. Municipal officials in the town, located 220 kilometers east of Riga, have melted down a Soviet-Era bronze monument of Vladimir LENIN and forged 1,000 tiny bells bearing the face of the founder of the Soviet Union and the Liepaja town emblem, Reuters reported. The bells are being sold as collectables and the proceeds go to local charities, where's LENIN's name may not be as familiar as it once was. But at least his face rings a bell.	7th. These include the implementation of the provisions of the agreement between the Republic of Belarus and Russia on equal rights of their citizens and the agreement between the two countries on the creation of equal conditions for the economic entities of the two republics. Other items deal with implementation of steps towards the introduction of a single currency and the formation of a single emission center in the Rus-Belarus Union. Participants in the conference will examine cases of violation of the intergovernmental agreement of July 20, 1992 on principles of cooperation and conditions of interrelation in the field of transport, particularly as regards the levying of duties in the course of international transportation by motor vehicles. Lith.-Russian Discuss Bilateral Issues · Lithuania's new Prime Minister Rolandas PAKSAS is leading a Lithuanian delegation to Russia for a one-day working visit. He believes his trip will boost Lithuania-Russia ties, maintaining that relations with, "the great Russia is one of priority directions of Lithuania's foreign policy." He noted that relations between the two nations are running smoothly and the if differences appear they will be resolved on the basis of the inter-state agreement signed in 1991. PAKSAS and his counterpart Sergei STEPASHIN are expected to sign inter-governmental agreements on avoiding double taxation, mutual encouragement and protection of investments, further liberalization of trade, and cooperation between Lithuania and Russia's enclave Kaliningrad region. He said, "they will finalize the creation of a legal base for a normal economic cooperation." PAKSAS pointed out that Russia remains Lithuania's main trade partner, despite a slump in turnover this year by almost three times. During the visit, Lithuanian Interior Minister Ceslovas BLAZIS will meet with his Russian counterpart to discuss bilateral cooperation and sign a protocol on cooperation between the two ministries for the years 2000-2001 South Caucasus & Central Asia IMF Satisfied With Georgian Reforms · Georgian President Eduard SHEVARDNADZE on Monday said the International Monetary Fund (IMF) expressed satisfaction with the steps Georgia has taken to secure a $45 million IMF loan package. The Georgian government has said the Fund de

	European Republics Conference On Rus-Belarus Union Opens · A conference to discuss integration problems of the Rus-Belarus Union opened today in Moscow. The conference with representatives of the ministries and departments of the two states will be chaired by deputy chairman of the Union Executive Committee and Russia's First Deputy Prime Minister Nikolai AKSYONENKO and the First Deputy Prime Minister of Belarus Vassily DOLGOLEV. The conference agenda comprises items to considered at the Executive Committee meeting in Moscow on July

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manded amendments to the tax code and a cut in 1999 spending to unlock the loan. SHEVARDNADZE noted, "There were additional demands on tax code amendments. These amendments have been made and only one issue is left, and it will also be solved at a parliament meeting. So, all problems are resolved." The 1999 budget calls for spending of 1.23 billion lari ($840 million), while revenues are projected at 922.5 million lari. The $45 million package consists of an Enhanced Structural Adjustment Facility of $37 million. The disbursement has been delayed twice due to concerns surrounding the former policy of supporting the lari and low tax collection. The second part of the package is an $8 million special credit to help Georgia cope with the fall out from the economic crisis in Russia. Georgia's Finance Minister David ONOPRISHIVILI said the disbursal of a planned $65 million World Bank credit depends on the Fund's decisions.

Georgian-Ukrainian Defense Min. Hold Talks

· Georgian Defense Minister David TEVZADZE today left for a two-day working visit in Kiev. He will meet leaders of the Ukrainian Defense Ministry for talks on bilateral military cooperation. On Wednesday, TEVZADZE will attend a graduation ceremony of 15 Georgian officers from the Ukrainian Academy of the General staff. They studied in the academy under a Georgian-Ukrainian accord on personnel training. Ukrainian President Leonid KUCHMA will attend the ceremony and award a gold medal for graduating with honors to Vakhtang KAPANADZE, who earlier held senior posts in the Georgian Defense Ministry. About 400 Georgian officers are trained in the military colleges of Russia, Ukraine, the US, the UK, Greece, Turkey, and Germany. In the near future, Georgia also will send officers to Romania and the Czech Republic for training. According to the Georgian Defense Ministry, the training of each officer in Russia's college costs $1,500, and Georgia plans to gradually reduce the number of its trainees in Russia, since training in other countries is given free under programs of assistance to Georgia. Meanwhile, Ukrainian Foreign Minister Boris TARASYUK

will be received by President Eduard SHEVARDNADZE, Foreign Minister Irakly MENAGARISHVILI, members of the parliament and the leader of the Georgian International Oil Company (GIOC) Gia CHANTURIA. The talks and discussions will focus on a wide range of political, economic and cultural bilateral relations, regional issues and the integration of the two countries into European structures.

Turkey-Turkmen To Sign Gas Agreement

· Turkey and Turkmenistan are expected to sign the Project Development Agreement for a $2 billion natural gas pipeline linking the two nations on July 15th, according to a spokesman for the Turkmen Ministry of Oil and Gas Industry and Mineral Resources. He added, "The heads of state of Azerbaijan, Georgia, Turkmenistan, and Turkey are expected to guarantee their participation in this project of the century and confirm their interest in its speedy realization." Approximately 750 kilometers of the pipeline is planned to run through Turkmenistan, 300 kilometers will be laid under the Caspian Sea, 600 kilometers will pass through Azerbaijan and Georgia, with the length of the Turkish portion expected to reach 320 kilometers. The new pipeline would allow Turkmenistan to export gas directly to hard currency markets in Turkey and Europe. It would also reduce the Central Asian nation's dependence on Russian pipelines. In 1998, Russia cut off Turkmenistan's access to these pipelines. The Turkmen government and the US consortium PSG have set the pipeline's completion target for 2002. The project is hoping to be funded by the US Export-Import Bank, French, Japanese, German, and Italian credit organizations, as well as the World Bank.

Japan To Help Preserve Silk Road Remains

· The Japanese government has decided to donate $5 million for the preservation of remains along the ancient Silk Road in China and Central Asia. Half the money will be used to preserve remains in China and the other half will be allocated for the upkeep of Silk Road remains in countries such as Uzbekistan and Afghanistan.

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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