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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, July 29, 1999

passing a set of bills implementing IMF-imposed reform measures for this year and 2000. They include banking system and tax reform, and measures to eradicate corruption. Specifically, the IMF urged Russia to achieve a federal budget surplus equal to 2 percent of its gross domestic product (GDP) this year, against 1.3 percent last year. The reform program also targets an inflation rate of 50 percent in 1999, down from 84.5 percent in the previous year. Russia would also be required to increase cash revenues to nearly 3 percent of GDP through higher taxation on consumption and windfall gains earned by exporters in the wake of the ruble's depreciation. The IMF is encouraging Russia to find "orderly and constructive" ways to reschedule its debts. FISCHER said, "Directors expressed strong disapproval of the finding that the channeling by the Central Bank of domestic transactions through Fimaco...meant that the balance sheet of the Central Bank had given a misleading impression of the true state of reserves. Fimaco is an obscure off shore firm, which the Central Bank used to channel funds in 1996. ZADORNOV said that an audit by PriceWaterhouse Coopers had revealed that there was no wrongdoing. There was also no evidence that the July, 1998 funds were misappropriated. Approval of the IMF loan will lead to negotiations with the Paris and London Clubs of creditors and trigger the release of loans from the World Bank and Japan.

Chaika Appointed To Security Council

· Russian acting prosecutor-general Yuri CHAIKA has accepted Russian Presi

Russian Federation


IMF Approves $4.5 Billion Loan To Russia

· The International Monetary Fund (IMF) approved Wednesday a new loan of $4.5 billion over 17 months, but strongly encouraged Russia to make progressive reforms. The new loan helps Russia avoid a confidence-cracking default. A total of $640 million is to be made available immediately. However, the money will never leave Washington and will simply be paid directly to an account at the IMF to service Russia's debts to the Fund, which amounts to $18 billion. Russian President Boris YELTSIN's special envoy to the International Monetary Fund, Mikhail ZADORNOV, worked out the final details with the IMF's first deputy managing director, Stanley FISCHER, and the 24-member executive board during a day-long meeting. This is the first IMF loan to Russia since Moscow devalued the ruble and defaulted on some debts last August, breaking the terms of an emergency cash injection totaling $4.8 billion from July 1998. The IMF said the root of Russia's financial crisis was not only the Asian situation, but "the failure of the authorities to come to grips with long-standing fiscal problems and to implement structural reform." Subsequent installments will be released after quarterly reviews to check the progress of promised economic reforms.

The Russian government has adopted new laws and regulations in an effort to win this latest IMF credit and IMF officials say they are impressed by the government policies. Prime Minister Sergei STEPASHIN said his country realized there was no alternative to the policies agreed with the IMF. The IMF Executive board endorsed the loan because of Russia's commitment to consolidate its fiscal standing and accelerate structural reform. The new loan will be conditional on the Russian State Duma

Today's News Highlights


Rus-Lockheed Martin Deal

GM Sales Down 90 Percent

European Republics

Belarus-Iraq Tade Agreement

Udovenko For President

South Caucasus & Central Asia

Azeri Municipal Elections Set

2010 Econ.Plan Reviewed

Kyrgyz Gov't Reshuffle

Kazakh-China Military Co-op.




July 29, 1999

Intercon's Daily

dent Boris YELTSIN's proposal to appoint him first deputy secretary of the Russian Security Council. In this connection, CHAIKA asked the Federation Council to relieve him of the duties as first deputy prosecutor-general starting August 7th. YELTSIN has also sent a message to the Federation Council, supporting CHAIKA's request to relieve him from the post of first deputy prosecutor general. Under Russian law, deputies to prosecutor-general are appointed and relieved by the Russian Federation Council. Acting prosecutor-general must submit a formal request to be relieved. It is likely that the Federation Council will considered the matter at the house's next meeting scheduled for October.


Ruble = 24.21/$1.00 (NY rate)

Ruble = 24.21/$1.00 (CB rate)

Ruble = 25.8/1 euro (CB rate)

Fuel Shortage Threatens Russia's Harvest

· Russia's best harvest in years with an estimated 60 million tons of grain has been threatened by a fuel shortage. Farmers in the Samara region on the Volga say they only have enough fuel to carry on harvesting for three days, after which they will be forced to stop work. This morning the Agricultural Minister Vladimir SCHCHEBAK was to hold a news briefing, which was canceled without any explanation. In a meeting this afternoon to brief President Boris YELTSIN on his tour of Russia and trip to the US, Prime Minister Sergei STEPASHIN ruled out raising crude oil exports. Both expressed concern over the domestic petrol market. STEPASHIN stated he would not stand by "a position keeping the state from regulating the oil market in the market environment." He added, "We have already drafted resolutions, which will make it possible to stabilize in August the situation in the oil complex and in the petrol supply network." He stressed that he meant not administrative measures for exerting pressure on fuel traders and producers, but purely economic measures, aimed at stabilizing the situation. The Prime Minister believes that regional governors play an important role in bringing the situation back to normal. STEPASHIN, there are two main factors that promote the growth of fuel prices in a number of Russian regions. The first factor is "a large difference between the domestic and world prices, as a result of which some people are tempted to get big profits." The second factor is

connected with the fact that in some regions a major part of gas-filling stations are privately owned. He complained that it is those privately owned stations which are closed. This afternoon STEPASHIN is meeting with heads of the biggest Russian oil companies to discuss the situation on the petrol market. The meeting will be attended by First Deputy Prime Minister Nikolai AKSYONENKO and Fuel and Energy Minister Viktor KALYUZHNY.

Tax Ministry Predicts Tight Budget For 2000

· Russian Tax Minister Alexander POCHINOK said Wednesday that the 2000 budget will be very tight and the Tax Ministry will provide most of its revenue. He said it would be very difficult to implement the revenue part of the budget. Moscow is to give 15 billion rubles ($619 million) in tax each month against 10 billion rubles ($413 million) in 1999. To meet these obligations, changes need to be made to the tax code. Some of the proposed amendments include VAT privileges in capital construction, changes in the income-tax scale, and a revision of contributions to the road fund. The ministry will come up with proposals concerning changes to excise legislation by autumn.


Lockheed To Invest $68M In Russian Rockets

· Russia's Khrunichev Space Center and the US Lockheed Martin Company on Wednesday signed an agreement to jointly develop a family of Angara carrier rockets. Lockheed Martin has committed up to $68 million in financing. The Angara family will include light, medium and heavy rockets to meet every possible need in launching spacecraft of various weights to various orbits, said Anatoly KISELYOV, director general of the center. They will be more powerful than the Proton rocket, which Russia primarily uses for its launches. The Angara boosters will take payloads of between 20 and 30 tons to near-earth orbits, and between 3.5 tons and 5.9 tons to geostationary orbits. Unlike the Proton, the heavy Angara will rely on fuel made of ecologically safe material rather than on heptyl. The recent crash of a Proton rocket in Kazakhstan gave rise to fears of soil poisoning from heptyl and tension between Astana and Moscow. In Russia, Angara rockets will be launched from the Plesetsk cosmodrome in the north. President of the space and strategic missile division of Lockheed Martin Co.

When you need to know it as it happens




July 29, 1999

Intercon's Daily

Thomas CORCORANE said the first launch of a light Angara booster is schedule for the year 2001. It will be followed by launches of heavier Angara boosters. CORCORANE also called for the cancellation of limits on the launches of western satellites by Russia booster rockets, "for the sake of long-term partnership with Russia." According to him, the effect of the quota system runs counter to the principles of a market economy. The quotas were imposed in 1993, when Russia was first entering the world space launch market. In 1996, the quotas for the Russian booster launches were increased to 16 for the period up to the year 2000. This week the quota was increased to 20 per year.

GM Sales Fall More Than 90 Percent

· General Motors Corporation (GM) said its car sales in Russia dropped more than 90 percent in the first half of 1999 from the same period last year. Since the economic crisis last August, sales of new foreign cars dropped dramatically in Russia. The ruble's devaluation has made foreign-made cars have become much more expensive. GM's official dealer network in Russia sold just 242 cars in the six months to June, down from 2,546 cars in the same period last year. GM sold 115 Chevrolet Blazers assembled at its Yelabuga Yelaz joint venture, 81 Opels, 41 assorted Chevrolet cars and four Cadillacs, the Associated Press reported. Next month GM plans to open a new subsidiary in Moscow, General Motors CIS, which will coordinate car sales through its official dealer network.

US To Assist Russian Small Businesses

· Russian Prime Minister Sergei STEPASHIN today said that during his trip to the US an agreement had been reached for considerable support to be rendered by the US to Russian small businesses. According to a preliminary agreement, the US will allocate $500 million to support small business development. He said the US and Russia may consider revising the VANIK-JACKSON amendment, which was believed to be one of the main hindrances to the development of economic cooperation between the two countries.

on a two-day trip to Sarajevo, Bosnia. During the visit, MERI will take part in a summit meeting of the member-states and candidates to the European Union. The meeting is expected to result in signing a Balkan stability pact. According to the presidential press service, MERI will also hold a number of bilateral meetings in the framework of the visit. The Estonian President will share the plane to Sarajevo with Finnish President Martti AHTISAARI and Lithuanian President Valdas ADAMKUS.

Belarus-Iraq Sign Trade Deal

· Deputy Prime Minister Vladimir ZAMETALIN and Iraq's Deputy Prime Minister Tariq AZIZ on Tuesday signed an agreement on trade cooperation. Following the signing ceremony of the agreement, AZIZ said that the two countries would work together to enhance and cement cooperation in all fields. Describing the signing of the agreement as "good and practical," AZIZ said the two countries started with putting some of its parts into effect by signing trade and agricultural contracts. For his part, the Belarus minister described the agreement as very important, saying it is a leap from political talks to serious and real economic action between the two countries. The agreement has taken into considerations of two essential matters, specifically the exchanges of ambassadors and opening two embassies and the formation of an Iraq-Belarus joint committee of economic and trade cooperation whose main task is to establish a joint market between the two countries, ZAMETALIN said.

Udovenko Joins Presidential Contenders

· The Ukrainian Central Electoral Commission on Wednesday registered former foreign minister and head of the centrist Rukh Party Gennady UDOVENKO as the sixth presidential candidate for the election on October 31st. The commission recognized all 1.276 million signatures collected in support of UDOVENKO as valid. Under Ukrainian laws, a candidate seeking presidency must collect at least a million signatures in two-thirds of regions in order to be a registered candidate. The Commission has already registered incumbent President Leonid KUCHMA, parliament speaker Alexander TKACHENKO, former prime minister and now head of the Security Service Yevgeny MARCHUK, former parliament speaker and Socialist leader Alexander MOROZ and Communist leader Pyotr SIMONENKO.

European Republics

Meri Begins Trip To Bosnia

· Estonian President Lennart MERI today leaves

When you need to know it as it happens




July 29, 1999

Intercon's Daily

On Wednesday TKACHENKO, MOROZ, and MARCHUK signed a "fair elections" agreement. They said they would not use "dirty propaganda methods" during the election and promised to prevent any attempts to bring criminal groups into the campaign. The Commission is checking signatures collected by another seven possible contenders. The registration of presidential candidates will end on August 2nd. If none of the candidates collects 50 percent plus one vote, a runoff will be held on November 14th. A candidate who wins a majority of votes will be the winner.

South Caucasus & Central Asia

Azeri Municipal Election Set for Dec. 12th

· According to a presidential decree Azerbaijan's municipal election have been scheduled for December 12th. Azeri President Geidar ALIYEV signed into law a decree on the procedure of the municipal elections, which was passed by the parliament on July 2nd. It will be the first election of municipalities in Azerbaijan. ALIYEV has instructed the Central Electoral Commission and the Foreign Ministry to invite international observers to the country for the election period.

Niyazov Approves Econ. Development To 2010

· Turkmen President Saparmurat NIYAZOV on Tuesday approved a strategy of the socio-economic development through 2010. Turkmenistan will increase the extraction of natural gas to 85 billion cubic meters and enlarge the output of crude oil to 27 million to 30 million tons by 2005 as compared to the 13 billion cubic meters and 6.3 million tons in 1998. By 2005, Turkmenistan is expected to have a population of 6.5 million as compared to the current 5 million. The grain production will rise to 2 million tons, and the output of cotton will grow to 2.5 million tons.

Kyrgyz Government Reshuffles

· The government of Kyrgyzstan, a former Soviet Central Asian republic, saw a major reshuffle on Tuesday. According to a decree by Prime Minister

Amangeldy MURALIYEV, the number of ministerial departments has increased, but the number of officials fell slightly. MURALIYEV said that change would help the government work more efficiently. The reshuffle affected the personnel policy as well because every third department head appointed on Tuesday had not worked in the government before.

Kazakh, Chinese Promote Military

· Kazakh Defense Minister Mukhtar Kapashevich ALTYNBAYEV and Chinese General YUAN Shoufang met in Almaty last Friday to discuss further cooperation between the armies of the two countries. YUAN, deputy director of the General Political Department of the People's Liberation Army, said the meeting further promoted mutual understanding and trust. The friendly relations between the Chinese and Kazakh armies have constantly developed with frequent exchanges of visits between senior military leaders in recent years, YUAN said. ALTYNBAYEV said the meeting is of great significance for the further development of the friendly and cooperative relations between the two countries and their armies. YUAN arrived in Almaty last Thursday for a six-day visit to Kazakhstan.

Tajik To Receive 600,000 Tons Of Alumina

· Tajik Prime Minister Yakhyo AZIMOV and Ukrainian counterpart Valery PUSTOVOITENKO signed an agreement whereby Ukraine's Mykolayivsky Hlynozemny Zavod (NGZ) will supply 600,000 tons of alumina to Tajikistan. Tajikistan owes the Ukrainian plant more than $60 million. Under the deal aimed at resolving debts, Tajikistan would settle part of its arrears with supplies of cotton. Supplies to the Tajik smelter and to Russia's Bratsk plant, NGZ's main clients, were resumed after a week-long stoppage. Mykolayivsky produced 1.06 million tons of alumina in 1998, the plant's highest output in 18 years. The company plans to raise the output to 1.07 to 1.075 million tons in 1999 and more than 1.1 million tons in 2000. The company made a pre-tax profit of 55.07 million gryvnias ($14 million) in 1998. Alumina is the main material in the production of aluminum.

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

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When you need to know it as it happens