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

Thursday, July 8, 1999

Russian Federation

Politics

Russia Not To Flirt With NATO

· Russian President Boris YELTSIN today said that Moscow would follow a middle-of-the-road course when dealing with the West, avoiding both direct confrontation and unquestioning friendship. In an address to military leaders in the Kremlin, YELTSIN said Russia's relations with NATO and the US, "remain delicate and difficult. We will not confront NATO directly, but we will not flirt with them either... We shall closely follow NATO's moves and work out our tactics together." Russia's ties with NATO, already strained because of the military alliance's eastward expansion, were stretched to their limit when NATO staged a 78-day air campaign against Yugoslavia. Only limited contacts have been resumed between NATO and Moscow in areas concerning the peacekeeping operations in Kosovo. YELTSIN also singled out Russia's envoy to NATO, Col. Gen. Viktor ZAVARZIN, to praise him for leading about 200 paratroopers into Pristina on June 12th, ahead of the NATO troops' arrival. "Russian servicemen must be presented with medals for Kosovo," the President said. Russian media reported that Prime Minister Sergei STEPASHIN will go to Yugoslavia later this month to present the paratroopers awards.

Constitutional Court Rules In Yeltsin's Favor

· Russia's Constitutional Court on Wednesday ruled in President Boris YELTSIN's favor, declaring that the president cannot be removed from office if he is temporarily unable to perform his duties due to illness. The court's decision was made after a formal request from the Communist Party. The court ruled that if the president is incapacitated and his duties are temporarily assumed by the prime minister, this does not mean that early presidential elections will be called. Such elections are held only when the

head of state resigns, is impeached, or demonstrates a "lasting inability" due to poor health. While serving as acting president, the court ruled, the prime minister does not have the right to dissolve the Duma, call a referendum, or propose amendments to the constitution. The prime minister would relinquish his powers as acting president once the head of state returns to office or a new president is elected, RFE\RL Newsline reported.

Economy

Ruble = 24.46/$1.00 (NY rate)

Ruble = 24.44/$1.00 (CB rate)

Ruble = 24.88/1 euro (CB rate)

Small Businesses Important To Economy

· At three-day International forum which opened Wednesday in St.Petersburg, Russian Anti-trust Minister Ilya YUZHANOV said small businesses are important to Russia's growing economy and influence and share in the gross domestic product (GDP). The conference will discuss ways of financial and other support to small businesses and entrepreneurial activity in Russia. He said that all constructive and realistic proposals reached during the conference would be included in a federal program of support to small businesses for the years 2000-2001. The event is co-sponsored by the Organization of International Cooperation and the Russian Anti-Trust Ministry (MAP). Small businesses account for 20 percent of the GDP in St.Petersburg which is twice

Today's News Highlights

Russia

CB-Gov't To Sign Econ. Policy

Sakhalin Oil Production Begins

MSNBC Russian News Website

European Republics

New Latvian President

Ericsson-Ukrtelecom Sign Deal

South Caucasus & Central Asia

Reforms Despite External Forces

Kazakh-Westel Sign IT Agmt.

France To Give Uzbek 1B Franc

Politics-Economics-Business

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Thursday

July 8, 1999

Intercon's Daily

above the average national level. Anatoly ALEKSASHIN, chairman of St.Petersburg's economic and industrial policy committee, said that thanks to the small businesses the social and economic situation in St.Petersburg was much better than in other Russian regions and unemployment was three times as low as in Russia on average. "We expect the small business to increase the revenues to the income part of the budget and to resolve the employment issue," he said. ALEKSASHIN stressed it was important to establish mutual interaction of small companies with banks and state foundations.

New Gov't-CB To Sign 1999 Economic Policy

· Central Bank Chairman Viktor GERA-SHCHENKO said that a joint statement on the Russia's financial and economic policy is ready to be signed by the Bank and the Russian government. Changes to the statement were made at a concluding meeting with International Monetary Fund (IMF) and World Bank officials on Wednesday. The document will be taken into consideration by the IMF and World Bank for their decision on financial aid to Russia. The IMF intends to provide a loan of $4.5 billion to Russia within 18 months. The fund may give the first portion of the loan, $630 million, in late July. The total for this year will be $3.7 billion. Since 1992, Russia has received $17.6 billion from the fund, $6.5 billion from World Bank and $253 million from the European Bank for Reconstruction and Development. The total volume of foreign loans provided to Russia from 1992 to 1998 accounted for $70 billion.

Business

Volga Plant Steps Up Production

· The Volga Automobile Plant, one of the most profitable enterprises in Russia, assembled 328,480 cars in the first half of this year, which is 22,000 more than planned. According to the company's press service, the growth of production is achieved through an increase in the assembly of cars of the "tenth" family, which are in high demand on the market. The plant will soon begin a series production of another car of this family, the VAZ 2111 hatchback, with improved dynamic characteristics and sports look. The Volga Plant said the most important achievement in the half of the year was the accurate and timely payment of taxes at all levels. The plant has paid 4.3 billion rubles in taxes this year, or 6.6 billion rubles with VAT and payments to various funds

included. VAZ cars sell very quickly, which enables the plant to settle accounts with its suppliers on time and develop its production capacities, the press service said.

Crude Production Begins At Sakhalin Oil Field

· Commercial production of crude oil has started at an oil field off Russia's Sakhalin Island by a consortium of foreign investors, Sakhalin Energy Investment Co. Ltd. The consortium is owned 37.5 percent by Marathon Oil Co. of the US, 25 percent each by Royal Dutch/Shell and Japan's Mitsui and Co., and 12.5 percent by Mitsubishi Corp. The Piltun-Astokhskoye field east of Sakhalin is estimated to have oil deposits of 6 billion barrels and natural gas reserves of 4.2 trillion cubic meters. Production form the Astokh portion of the Piltun-Astokhskoye field will have an initial total of about 5,000 barrels per day. Production will increase as more wells are completed in July and August, according to a Mitsui statement. Output is expected to reach 90,000 barrels per day by the start of the second production season in 2000. Water off the Sakhalin island freezes from December to June, limiting production to only half of the year. A formal ceremony to mark the launch of production is due to be held at the end of this month.

MSNBC Creates Russian News Website

· The Internet department of the MSNBC company has created a new website [www.msnbc.ru] featuring Russian news. The site provides access to constantly updated foreign and Russian news in the Russian language round the clock. The site will feature the chronicles of main events covered by MSNBC which are grouped into four main categories: the editorial, technologies, business and health. The new website was created by the MSNBC with the assistance of the news agency Algorithm, weeklies, newspapers and other interested structures. MSNBC was established in July, 1996 as a result of joint efforts made by the Microsoft Corporation and the NBC Corporation news department.

Aeroflot Resumes Flights To Belgrade

· A Russian T-154 aircraft from Aeroflot Airlines was the first passenger aircraft to land at Yugoslavia's Belgrade airport on June 25th. Belgrade airport is now officially open to international flights. Yugoslavian carrier, JAT, has also resumed operations to Moscow and is to fly a round-trip Belgrade to Mos

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cow route three times a week, while Aeroflot will be making the journey four times a week. Aeroflot planned to launch the first post-conflict flight on Wednesday, but then called it off because Eurocontrol, a European agency in charge of air traffic control, had not lifted a temporary ban on flights to Yugoslavia. The ban was imposed after NATO began bombing the Balkan state.

telecom and datacom technologies with freedom of mobility for the user. More than 100 operators of wireline networks in over 80 countries operate on transport network systems from Ericsson.

Estonian Prices Rise By 3 Percent

· Since June, 1998, the cost of living in Estonia has increase by 3 percent on average. The Estonian State Statistics Committee said that over this period government regulated prices of goods and services grew by 10.8 percent, and market prices went up by 0.3 percent on average. The Telecom telephone exchange in Estonia accounts for the biggest price hikes over the past year. The Estonian company, which has a monopoly on the market of communications services, since May, 1999 charges extras for a short period immediately after a call is put through, although it slightly reduced tariffs per minute the company charges local callers. As a result, the cost of telephone exchange services provided to the population has gone up by 25.1 percent this year. The cost of housing and public utilities services have increased by 9.5 percent. Medical services and public transport fares have risen by 7.7 percent and 6.2 percent, respectively. The cost of tobacco and alcohol beverages went up by 5.1 percent after a new excise tax was imposed. Nevertheless, foodstuffs and soft drinks belong to group of consumer goods which have become 4.8 percent cheaper.

South Caucasus & Central Asia

Georgia Seeks Reform, Despite External Forces

· Georgian State Minister Vazha LORDKIPANIDZE in a speech at the Central Asian-Caucasus Institute in Washington on Wednesday discussed steps that Georgia has taken since gaining independence to reform the nation, while emphasizing that external forces continue to create new challenges for Georgia. He said that in 1992 and 1993 Georgia had to choose between developing a new society, remaining the same, or perishing. LORDKIPANIDZE said that Georgia chose the path of development by implementing quick reforms. He promised that Georgia would not deviate from this path. He said that Georgia has made bold political reforms by adopting a new constitution and creating a legal basis for further development. He stressed that parliamentary elections in October and presidential elections in April, 2000, will be "free, open, democratic, and

European Republics

Latvian President Sworn Into Office

· Vaira-VIKE-FREINBERGA was sworn into office today as the Latvian president. She is the first the woman in Central and Eastern Europe to be elected head of state. VIKE-FREINBERGA, after being in Montreal for five decade, was elected after long debates and seven ballots by the parliament. She will replace Guntis ULMANIS, whose second and final term ended Wednesday. At the ceremony, she said, "Our aims are pretty clear, we have to reach economic prosperity. Social justice should reign." She pointed out that, "Latvia has to become a partner in talks for EU membership, Latvia has to become a NATO member." The President thanked the parliament for confidence and wished Latvian deputies to reach the level of professionalism, honesty, and nobleness worthy of the Latvian state. The President asked every citizen of the country to remember that their fates are inseparably connected and that they should live, showing respect and understanding for each other, mutually enriching each other so that the generations to come could be proud of them.

Ericsson-Ukrtelecom Sign SDH Contract

· Ericsson and Ukrtelecom has signed a contract for a Synchronous Digital Hierarchy (SDH) transmission backbone network in Ukraine. The contract, valued at $30 million, makes Ericsson the main supplier for backbone network infrastructure in Ukraine. The SDH will cover the southern and eastern parts of Ukraine and will support long distance telecom services, including transit traffic to Russia. According to an Ericsson press release, the first phase of implementation will take place during the Fall. Ukrtelecom is Ukraine's main telecommunications operator, providing 90 percent of local traffic in the country and 30 percent of international traffic. Ericsson is the leading provider in the new telecoms world, with communications solutions that combine

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transparent." He said, "Georgians have a right to express their will freely and openly." The State Minister pointed out that Georgia has made strong economic reforms, despite the background of civil war. He believes that Georgia has successfully passed the most difficult stage of reforming its system to a market economy.

However, he noted that it has been difficult to change the mentality of some men, "to think in new terms," referring to forces which are trying to restore the Soviet empire. LORDKIPANIDZE said that these forces try to punish the leader of the country in an attempt to revert Georgia away from independence by acts of terrorism. "I would say that new conflicts are being planned." He noted, that as other publications have reported, these forces are connected to government circles in Russia, and not President YELTSIN. Suspects, arrested for the thwarted plan to assassinate President Eduard SHEVARDNADZE and other high ranking government officials, have been linked to wanted former security chief Igor GIORGADZE and a series of meetings in Moscow with leading officers of the Russian Military Intelligence (GRU). The State Minister said that these forces are creating a large amount of problems and don't have a basis in Georgia. These forces are doubling their funding and support for organizations and movements in certain parts of Georgia ahead of the elections. He also noted that Georgia is working to form a universal policy for fighting corruption and graft. He said that economic crimes in Georgia are declining.

LORDKIPANIDZE held meeting with International Monetary Fund (IMF) officials on Wednesday and World Bank President James WOLFEHNSON. He said that both lending institutions were satisfied with Georgia's reforms. The IMF board of directors on July 23rd will consider new lending to Georgia. He also noted that GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan, and Moldova) is seeking to develop further economic and political cooperations. The group will search for new ways to work together in the

settlement of conflicts and define steps to institutionalize the organization. He underlined that the, "alliance is not targeted at any country or group of countries." He assured the audience that the group does not threaten anybody and welcomes cooperation from any country. During his visit to Washington, LORDKIPANIDZE will hold high level meetings with Vice President Albert GORE, Secretary of State Madeleine ALBRIGHT, Secretary of the Treasury, Secretary of Commerce, as well as various senators and congressional representatives.

Kazakh-Westel Sign IT Agreement

· Australia-based communications provider Westel Group Ltd. has signed agreements with three Kazakh government organizations for the provision of information technology and telecommunications systems over five years. The non-binding agreement will make Westel, with their requirements for customized information technology and telecommunications systems, a part of the country's major technology projects. The Westel Group will help build necessary technological infrastructure to the capital city of Astana, which currently has a population of 300,000 people and will house a further 150,000 government employees when complete. A number of international companies have been invited to participate in the infrastructure projects.

France To Invest 1 Billion Francs In Uzbekistan

· French Ambassador in Tashkent Jean-Claude RICHARD on Monday announced that France will invest over one billion francs in its projects in Uzbekistan this year. In 1994, French investment stood at 149 million francs and rose to over 800 million francs in 1998. He noted that the major projects in Uzbekistan now are the construction of a southern channel in the Golodnaya steppe, a water-purification plant in Muinak, a chemical plant in Fergana and a power plant in Navoi. The Ambassador said France will start supplying electric train engines and before year's end it will deliver about 20 engines to Uzbekistan. France will also continue its commitment to purchase Uzbek cotton.

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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