DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, August 10, 1999

Board of Moslems of European Russia Damir GITZATULLIN said that, "creation of an Islam republic in a separate district of Daghestan is utterly unreal and senseless. It runs counter to the Russian Constitution." He believes its would be wrong to carve up Russia according to religious affiliation. GITZATULLIN fears the clash could lead to further uprising. However, if the Russian troops are unable to fulfill its swift strategy of containment, Russia will be forced into a deeper conflict, which will no doubt weigh heavily on the upcoming elections.

Duma To Debate Putin Nomination Monday

· The Russian State Duma speaker Gennady SELEZNYOV announced that the Duma will discuss President Boris YELTSIN's nomination of Vladimir PUTIN as prime minister on August 16th. SELEZNYOV said PUTIN will have enough time before next Monday to meet with the Duma factions and groups, while the Duma, will also take advantage of the seven-day period for consultations prior to a vote. PUTIN, director of the powerful Federal Security Service (FSB) and secretary of the top advisory Security Council, replaced outgoing prime minister Sergei STEPASHIN in another surprise government shakeup announced by YELTSIN Monday. PUTIN said that YELTSIN wanted to, "change the balance of political forces in the country" and hold "normal elections" of the State Duma and the presidency. It is speculated that YELTSIN dismissed STEPASHIN because he was unable to stop the merging of the All Russia Party and Fatherland move

Russian Federation

Politics

Islam Militants Declare Independent State

· Islamic militant rebels, who have stormed three villages in Daghestan along the border with Chechnya, have declared the republic an independent state and called for a Holy War. The group is unrecognized by the Daghestan officials. Russian troops have been bombarding the terrorist in the area with fighter jets, helicopters and heavy artillery fire, for four straight days in what has been termed the biggest uprising in the regions since the end of the Chechen War. According to the Daghestan Interior Ministry, approximately 40 rebels and 15 government troops have been killed, but casualty figures may be higher. Russia has lost at least three helicopter to enemy fire. Acting Prime Minister Vladimir PUTIN is calling for the introduction of a special regime in Daghestan to swiftly deal with the Islamic militants. PUTIN said, "A package of measures for imposing order and discipline in Daghestan has been prepared and was approved today by the President of Russia and will be implemented." He is expecting results in the next one to two weeks. Russian President Boris YELTSIN met with PUTIN, Defense Minister Igor SERGEYEV, and Russian Army's General Staff chief Anatoly KVASHNIN. YELTSIN opened the meeting by asking PUTIN what his mood was. PUTIN replied tersely, "Combative." At the meeting, he noted, "at present, we are dealing in the Caucasus, in particular in Daghestan, with violation of law and with manifestations of terrorism. We cannot see such a state of affairs in the territory of Russia as tolerable." He said that it was necessary, "to root out conditions and causes engendering the phenomena of this sort." PUTIN added, "There is no danger of the introduction of a state of emergency. There are no objective premises for its introduction." Deputy chairman of the Religious

Today's News Highlights

Russia

US-Russia Arms Talks Continue

Zadornov On Russia's Debt

Media Most Denied Loan

Who Controls Kommersant?

European Republics

Yukos Expands To Lithuania

South Caucasus & Central Asia

Georgian Village Bombed

Nazarbayev Sacks Top Officials

Politics-Economics-Business

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August 10, 1999

Intercon's Daily

ment, which will run in opposition to the Kremlin's wishes in the parliamentary and presidential election. PUTIN as head of the security forces may be better able to prepare for the elections and secure a place for representatives who favor YELTSIN in the Duma. Communist Duma deputy Viktor ILLYUKIN said that sacking showed that YELTSIN's inner circle, known as the family, was trying to protect its interests ahead of presidential elections in 2000. He said, "The main thing being to preserve the very existence of the family."

PUTIN said all the power ministries would remain in power as well as the nation's financial team. He said his government would cooperate with the Kremlin, but stressed that it would assert its independence. "I am set to very closely cooperate with the administration, but that does not mean that the government will be dependent. I can assure you one hundred percent that the government will be an absolutely independent political entity." He also pointed out that he will seek to maintain, "good and businesslike relations," with regional governors.

US-Russian Arms Talks To Continue

· Despite the recent upheaval in the Russian government, the US expressed its commitment to hold a new round of negotiations to reduce their arsenals of long-range nuclear warhead. US Undersecretary of State John HOLUM will head a delegation to Moscow next Monday for two-days of official talks on a START-III Treaty. The talks were planned by US Vice President Al GORE and then prime minister Sergei STEPASHIN at the US-Russian Commission for cooperation in science, economics, and other topics. In 1993, the US and Russia agreed to reduce their long range nuclear warheads so that each side would have more than 3,000 to 3,500. The Russian State Duma has refused to ratify the START II Treaty. STEPASHIN had renewed the Kremlin's resolve to pass the agreement this fall. The CLINTON Administration cited the arms talks as evidence that the shake-up would not impact US-Russian relations. US State Department spokesman James RUBIN said, "Our two governments and two presidents have laid out a clear agenda for our bilateral relations to focus on arms control, economic reform in Russia and nonproliferation, and it will be important for us to follow up on these in the coming weeks." He added, "We have focused our policy on

the policies of Russian reform and the policies of the Russian government, not the personalities." Regarding the replacement of STEPASHIN by head of the Federal Security Service and Security Council Vladimir PUTIN, RUBIN noted that the US has had, "some experience with Mr. PUTIN and have a constructive relationship with him."

Economy

Ruble = 25.29/$1.00 (NY rate)

Ruble = 25.01/$1.00 (CB rate)

Ruble = 26.76/1 euro (CB rate)

Russia's Gold Exchange Fall To 1.9 Percent

· The Central Bank today said gold-exchange reserves of Russia in July dwindled 1.9 percent and on August 1st totaled $11.921 billion. The currency reserve in July fell 4.42 percent to $7.827 billion, its share reduced to 65.7 percent from 67.4 percent, and the gold reserve expanded 3.28 percent to $4.094 billion, its share in the structure of reserves correspondingly grew. In January through to July, the country's reserves in the overall grew less 2.47 percent to $11.921 billion on August 1st from $12.223 billion on January 1, 1999. The currency reserve in the period went up 0.33 percent to $7.827 billion from $7.801 billion, the gold fell 7.42 percent to $4.094 billion from $4.422 billion. The Central Bank earlier explained the considerable cut in the reserves between July 16th and July 23rd by $500 million to $11 billion by payment of $449 million against the principle of the SRF loan released by the International Monetary Fund (IMF) in July, 1998.

Zadornov On Reducing Russia's Debt

· Russia's chief negotiator with international financial organizations Mikhail ZADORNOV said his country will begin to reduce its debt to international lending organizations in 1999. He said, "This year, it is the first time we are giving back to the IMF [International Monetary Fund] more than we are borrowing." According to him, Russia will borrow less than half the sum it is to pay back, thus beginning to reduce its debt. Russia will have to pay back about $10 billion in the year 2000, which is half the expenditures envisaged in the next year's federal budget. Speaking about the IMF mission which is expected to visit Moscow on August 24th to monitor the implementation of Russia's agreement with the fund, ZADORNOV said that the monitoring, "should show

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the IMF how several key parameters of the budget and the monetary program are being implemented." The IMF will analyze, "data on budget revenues as of August 1st, the budget deficit, the country's net international reserves and the sum of credits the Central Bank has given to the federal and the so-called `enlarged' government (including the regions and the Pension Fund)," he said.

Business

Media Most Denied A Loan

· Media Most, a large private media company controlled by oligarch Vladimir GUSSINSKY, says that a state-owned Russian bank canceled an agreed-upon loan under pressure from the Kremlin aides. The President and his inner circle have been disturbed by Media Most's news coverage. Media Most runs a television channel NTV, radio station Ekho Moskvy, Itogi news magazine, and various print-media outlets. Political analysts believe the Kremlin fears the media group will support an expected presidential campaign by Moscow Mayor Yuri LUZHKOV. He has been seen as the greatest potential threat to maintaining YELTSIN-friendly power in the Kremlin. Media Most's offices were also recently raided by the tax police. There were no charges brought against the media group. Head of Media Most's press office Dmitry OSTALSKY claims that the presidential administration linked to rival Boris BEREZOVSKY are threatening to bankrupt Media Most unless its editorial stories fall in line with the Kremlin's policies.

The Battle Over Kommersant Daily

· Russian oil-to-media tycoon Boris BEREZOVSKY on Friday waltzed into the offices of Kommersant Daily newspaper and announced to the assembled journalists that his company LogoVAZ had obtained full control of the newspaper through a purchase of stakes in the Kommersant Publishing House from the American Capital Group. He said he would not interfere with the editorial policy, but added he would occasionally like Kommersant Daily to print his views, particularly his opinions on upcoming elections. Kommersant Daily has been respected for its accurate and usually unbiased coverage. BEREZOVSKY does not hide the fact that he plans to use various media outlets to influence the parliamentary and presidential elections. He has won influence over ORT, in which the state owns 51 percent, acquired

a controlling interest in Television 6, as well as Noviye Izvestia and Nezavisimaya Gazetta. Russia's powerful tycoons played a crucial role in securing a victory for President Boris YELTSIN in the 1996 elections. One journalist pointed out that, "The press might have come together in 1996 to support YELTSIN's re-election, but it was a voluntary unification. If the oligarchs now try to unify the media by force, their gains will be insignificant compared to their losses."

However, president of Amercian Capital Group, Kia JOORABCHIAN is also claiming ownership of the newspaper. He was quoted in The Wall Street Journal that, "We know the facts. There is no question whatsoever that it belongs to me [Mr. BEREZOVSKY] is trying to create more turmoil on the paper, trying to force me out." JOORABCHIAN said he purchased 85 percent of Kommersant Publishing House through an offshore investment vehicle last month. BEREZOVSKY said last month that LogoVAZ had purchased a 15 percent stake and was eager to buy more. The new battle over Kommersant Daily could forever damage the newspaper's independent reputation and force its journalists to look for work elsewhere.

European Republics

Yukos Expands To Lithuania

· Russia's major oil company Yukos is expanding its activity in Lithuania. Yukos Vice President Boris ZOLOTARYOV today submitted a plan to Lithuanian President Valdas ADAMKUS. Under the plan the company intends to export 2.5 million tons of oil to the West per year in the next 18 months through the Butinge oil terminal, which recently became operational. At the end of July, the first tanker was filled with oil provided by Yukos at Butinge, not far from the port city of Klaipeda. According to ZOLOTARYOV, Yukos is planning to engage in wholesale trade in petroleum products in Lithuania. This year, the Yukos Lithuanian company will open operations in Vilnius, the 57th daughter enterprise of Yukos in the Commonwealth of Independent States and Baltic countries. The Yukos vice president met Lithuanian Prime Minister Rolandas PAKSAS and Economics Minister Eugenius MALDEIKIS. The Lithuanian leadership welcomed the advent of one of Russia's largest oil companies to the Lithuanian market.

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South Caucasus & Central Asia

Georgian Village Bombed By Su-25 Fighter Jet

· Three unidentified aircraft, one MiG-29 and two Su-25 fighter jets, violated Georgian airspace on Monday. One of the Su-25 jets dropped cluster bombs over the village of Zemo Omalo, about 35 miles south of the conflict in Russia's Daghestan republic and Chechnya. The cluster bombs are plastic anti-personal mines which explodes over a 40 hour period. Georgian authorities retrieved the cluster bomb canister and documented on film the devices, as well as gathered other evidence. Three Georgians were wounded; one is in critical condition after his leg was amputated. Georgian President Eduard SHEVARDNADZE, who last Tuesday visited Zemo Omalo to attend a Georgian festival dedicated to the shepherd, expressed his indignation over the bombing. Parliamentary speaker Zurab ZHVANIA said that Georgian anti-aircraft forces have been put on alert. Russia denies that the aircraft were theirs, as does Chechen President Aslan MASKHADOV. However, it is clear from the types of weapons and the aircraft that it could only be from Russia. Intercon sources report that the Su-25 fighters crossed Georgian airspace and flew over Zemo Omalo when SHEVARDNADZE was there on Tuesday August 3rd. In a conversation with Georgian State Minister Vazha LORDKIPANIDZE, Russian acting prime minister Vladimir PUTIN said that Russia will take the necessary measures to investigate the incident. SHEVARDNADZE had asked Russian President Boris YELTSIN to, "give his assessment of this alarming fact."

The removal of Sergei STEPASHIN as prime minister to Russia, has been interpreted as a set back to Russian-Georgian relations. STEPASHIN had been instrumental in setting up a meeting between LORDKIPANIDZE and Abkhaz leader Vladislav ARDZINBA and had traveled to Georgia. STEPASHIN had also somewhat cooperated with Georgian authorities on the investigation of the Georgian coup attempt which was linked to high officials in Russia.

The bombing of Zemo Omalo will be interpreted by Georgia as a shift away from STEPASHIN's more positive approach and continuing the aggressive, coercive approach which led to the sorry state of relations between Russia and Georgia. Georgia fears that the conflict in Chechnya and Daghestan will spill over into Georgia, as Russia attempts to seal off Chechnya from the region.

Kazakh President Sacks Power Ministers

· Kazakh President Nursultan NAZARBAYEV on Monday dismissed Defense Minister Mukhtar ALTYNBAYEV and National Security chief Nurtai ABYKAYEV for their involvement in the transfer of six MiG fighter jets from Kazakhstan five months ago. NAZARBAYEV signed an order, dismissing the two men for their, "blatant violation of the rules of selling military equipment." The President also dismissed some senior officials of the Defense Ministry and State Security Council and the top executives of the state-run arms company that was involved in the scandal. On March 19th, Azerbaijan customs officials detained a Russian-made Antonov-124 transport plane that arrived from Kazakhstan, when it made a refueling stop at the Baku airport. The plane was holding six disassembled Soviet-made MiG- 21s aboard, which were believed to be meant for Yugoslavia in violation of a UN arms embargo. After the Kazakh Foreign ministry interfered, the MiGs were returned to their military unit near the Kazakh city of Taldy-Kurgan. NAZARBAYEV ordered the two top officials to thoroughly investigate the deal, to revoke the contract, and punish those guilty for violations of the arms trade rules. However, the national security council ruled that the officials failed to cope with the task. Also admonished for failing to organize proper control over the procedure of sales of military equipment was Prime Minister Nurlan BALGIMBAYEV. Today, the Kazakh President appointed Alnur MUSAYEV as chairman of the National Security Committee. MUSAYEV has been serving with the National Security Agencies since 1980, his previous post being that of First Deputy Chairman of Kazakhstan's National Security Committee.

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

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