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 17, 1999


the prime minister naturally lost." He emphasized that, "it is now essential to coordinate appropriate hard-and-fast, firm, and organized work."

Primakov To Head Our Fatherland Is All Russia

· Former prime minister Yevgeny PRIMAKOV today has accepted an invitation to head the coordinating council of Our Fatherland is All Russia electoral bloc and will lead its election list, posing the greatest challenge to the Kremlin in the upcoming elections. PRIMAKOV said, "This is a union of healthy centrist forces, open for those interested in the good of Russia and who want it to progress." However, PRIMAKOV said he would not join the parties, but did not give any reasons. The leadership of Our Fatherland is All Russia must still formally confirm PRIMAKOV at a congress on August 28th. PRIMAKOV has retained his popularity and is credited with returning calm to the country, maintaining political stability, and keeping Russia away from economic disaster. With PRIMAKOV at the helm of the centrist anti-Kremlin party it is more likely that other parties and movements, both from the liberal and left, will join the bloc, such as the Agrarian Party of Russia and Women of Russia that already have offered a merger. Boards of Our Fatherland, All Russia and the Agrarian Party, which planned a joint meeting over a merger, have put off the meeting for the second time until Wednesday. The meeting was postponed from last Friday because Oleg MOROZOV, coordinator of All Russia, fell ill. Moscow Mayor Yuri LUZHKOV said, "We have felt a powerful pressure aimed at

Russian Federation

Politics

Putin Forms New Cabinet

· On his first official day of work as Russia's Prime Minister, Vladimir PUTIN met with Russian President Boris YELTSIN to begin forming his Cabinet. Under the Constitution, PUTIN has to form a new Cabinet within a week of his approval . It is expected that most ministers from the previous Cabinet will retain their posts. Already, YELTSIN has reappointed Foreign Minister Igor IVANOV, Defense Minister Igor SERGEYEV, Interior Minister Vladimir RUSHAILO, and Emergency Minister Sergei SHOIGU. PUTIN made no mention of key financial posts in the Cabinet, which include acting Finance Minister Mikhail KASYANOV and Moscow's representative to international financial organizations Mikhail ZADORNOV. The new Prime Minister decided to appoint the former head of the prosecutor's office Yuri CHAIKA as the new Justice Minister, replacing Pavel KRASHENENNIKOV. KRASHENENNIKOV had been expected to be removed after YELTSIN severely criticized him for not aggressively investigating the Communist Party's activities. The head of the Federal Security Service (FSB) Nikolai PATRUSHEV was named as career security officer.

YELTSIN also stressed to PUTIN that his government and the Kremlin should work together. He said, "It is better to work together, respecting one another, taking counsel on important questions when necessary, including me. At the same time I give it [the government] independence, agreeing all details with me is not necessary." The President also reminded PUTIN what happened to prime ministers who did not cooperate with him. "We will not put splits between the presidential administration and that of the government. This is a single team. When we had some kind of split, nothing good came of it. In the end,

Today's News Highlights

Russia

NDR To Run Independently

One Year After Economic Crisis

SBS-Agro Threatens To Close

European Republics

Baltic Military College Opens

New Russian Ambassador

South Caucasus & Central Asia

Rus-Georgia Set Withdrawal

BP Reverses Stakes Decision

Uzbek Planes Bomb Tajikistan

Politics-Economics-Business

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Tuesday

August 17, 1999

Intercon's Daily

hindering the creation of our bloc. We aren't afraid, because we are strong." The new bloc is sure to have a dominant influence in the parliamentary elections, and will use its new standing as a springboard for presidential elections in 2000.

PRIMAKOV's acceptance also sets up a power-play relationship between PRIMAKOV and LUZHKOV, who founded Our Fatherland. LUZHKOV, who has stated he will run for president, if there is no acceptable candidate. LUZHKOV has also said he will take a back seat to PRIMAKOV within the party, but that remains to be seen. PRIMAKOV, despite being 69 years old, is seen as a potentially strong candidate for President. Newly Prime Minister Vladimir PUTIN, who last week announced he would run for president after President Boris YELTSIN anointed him his heir, has avoided criticizing PRIMAKOV. When asked about his reaction if PRIMAKOV were elected president, PUTIN said, "What's wrong with a clever man winning? I can only wish him good health."

Our Home Is Russia To Run Independently

· Our Home Is Russia (NDR) on Monday announced that it has not adopted any decision for alliances with other parties in the upcoming parliamentary elections slated for December 1999. Instead, the movement's leader, Viktor CHERNOMYRDIN, said the party will run independently. Asked about cooperation with former prime minister Sergei STEPASHIN, CHERNOMYRDIN said the movement's presidium discussed this possibility at its meeting on Monday. "We understand him. He is an acceptable politician to us and we will cooperate with him in any form." Vladimir RYZHKOV, head of the party's Duma faction, explained that a coalition can be created not with real right-wingers, but with usual groups of liberal politicians and their supporters, including Boris FYODOROV, Irina KHAKAMADA and several other right-wing politicians. RYZHKOV said Our Home is Russia is not afraid of running alone. He believes that it can win without forging any alliances.

Economy

Ruble = 24.98/$1.00 (NY rate)

Ruble = 24.76/$1.00 (CB rate)

Ruble = 26.17/1 euro (CB rate)

Russia's Economy Helped By The Crisis?

· One year ago today, the Russia government officially defaulted on its domestic debt and devalued the ruble, skyrocketing the ruble exchange rate from 6 rubles to the dollar to around 25 rubles to the dollar. Many analysts say that the economy is in better shape than expected due to the devaluation which made foreign imports expensive and forced domestic competition. The State Statistics Service on Monday released a report showing that Russia's foreign trade in the first six months of this year shrank by 25 percent against the same period last year. Total foreign trade during the period was $46.7 billion, but if unorganized trade was included, the figure would reach $52 billion. From January to June of this year, Russia exported $31.8 billion worth of goods, 11.7 percent less than for the same period last year. Imports during the period decreased by 43.6 percent to reach $14.9 billion. With the steeper drop in imports partly because of the devaluation of the ruble, Russia's trade surplus surged to $16.2 billion, up from the $9.6 billion of the same period last year. However, the forced domestic competition boosted industrial output. Russia's industrial output in January to July 1999 grew 4.5 percent compared with the same period in 1998. Production increase was registered in 12 out of the 15 basic industries under the agency's observation. The biggest rise of 26.3 percent was registered in the micro-biology industry. The chemical and petrochemical industries grew 15.5 percent and the timber industry complex 12 percent. This growth can only be sustained if structural reforms are fully implemented and work efficiently. Russia must solve its problem of $140 billion of foreign debt. It must find away to stop the immense capital flight from Russia. It is estimated that Russia exported up to $136 billion of capital between 1993 and 1998, equivalent to 50 percent of gross domestic product in 1998. Most economists believe that reforms will have to wait until a new political landscape emerges after parliamentary elections in December and Presidential elections in June, ending the era of President Boris YELTSIN.

Business

SBS-Agro Threatens To Close

· Alexander SMOLENSKY, member of the board of directors of the Soyuz banking group and of the SBS-Agro Bank threatened today to shut down the bank's

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Tuesday

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operations if the government does not outline a clear plan of actions. He said, "If we do not hear coherent proposals of the government, we shall put our license on the table and stop our work unilaterally." A provisional management group was appointed to the bank to examine the condition of the financial institution's books. After the examination is over, the management and the board of directors of the Agency for Restructuring of Crediting Institutions is expected to decide whether or not the bank will be put under its control. According to SMOLENSKY, if a decision is taken on putting into effect an ordinary bankruptcy procedure of SBS-Agro, it will take several years. SBS-Agro Bank operates some 2,000 branches in Russia, with offices in Kazakhstan and Georgia, as well as in Macedonia and Holland. SMOLENSKY believes the only way out is, "to let the bank do some concrete business," specifically, to handle bank accounts of the natural monopolies, including the Ministry of Railways, Gazprom and Unified Energy Systems of Russia (UES). On Monday, the Central Bank granted SBS-Agro Bank a 30-day moratorium on the payment of claims to creditors of the bank. According to a Central Bank press release, the moratorium is being imposed to preserve SBS-Agro's assets and, "prevent instances where the claims of some creditors of the lending institution are met at the expense of others." As of 1 July, seven of Russia's top 25 banks had lost their licenses, while another five had managed to hold onto their licenses but could not meet their obligations to clients.

Tuesday Tid-Bits

FSB Destroys Suspicious Toy

· The fierce and intelligent Federal Security Service (FSB) showed their might on Friday in Moscow by destroying a suspicious box, located about a hundred meters from the Kremlin, on Bolshaya Nikitskaya Street. FSB officers shut down the surrounding roads to traffic and pedestrian blocking the area with ambulances and fire engines. The FSB destroyed the box with a robotic water cannon, only to discover that the contents was a child's toy. The suspect object was found near building no. 3 which houses the Moscow regional directorate of the Russian Interior Ministry. One officer said the security service acted on the assumption that, "in this case, one had better be over vigilant."

European Republics

Rus, Ukraine, Italy, Germany Meet Over An-70

· On the side sidelines of the international aerospace show MAKS-99 which opened today in Zhukovsky, Moscow Region, Ukraine, Russia, Italy, and Germany will hold another round of talks under the An-70 program. The An-140 airliner and the new An-70 military transport plane will be on display. The amalgamation believes that the An-70, "has a chance to win an international tender and to become the basic model which will be appealing to several countries to create the so-called plane of the future Flying qualities will be demonstrated in Zhukovsky by the fire-fighting An-32P aircraft, the updated agricultural An-3 plane and the An-38 airliner which has been manufactured by an aircraft factory in Novosibirsk for the second year running under a license of the Antonov company." Approximately, 12 leading Ukrainian aircraft factories will display their products.

Baltic Defense College Opens

· The Baltic Defense College, located in Tartu, Estonia, opened its doors on Monday. A total of 32 cadets from the three Baltic States, Denmark, Germany, Hungary, Sweden, and the US make up the initial entering student body. The curriculum meets NATO standards, and most instructors are from NATO member states. The three Baltic States are sharing maintenance costs, while material assistance is supplied by Belgium, Denmark, Finland, France, Germany, Great Britain, the Netherlands, Norway, Poland, Sweden, Switzerland, and the US.

New Russian Ambassador Appointed To Ukraine

· Russian President Boris YELTSIN has replaced Russia's ambassadors to Ukraine. In accordance with the presidential decree Ivan ABOIMOV was appointed head of the diplomatic mission of Russia in Ukraine. Former ambassador Yuri DUBININ has been retired. ABOIMOV until recently occupied the post of ambassador to Finland. Earlier he headed Russia's diplomatic representation in Hungary, as well was Russian deputy foreign minister.

South Caucasus & Central Asia

Georgia-Russia Set Deadline For Withdrawal

· Georgia's border chief, Valery CHKHEIDZE met with Russian deputy border guard commander Lieu

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Tuesday

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tenant-General Alexander MANILOV to address border-protection co-operation and the completion of Russia's transfer to Georgia of the protection of its border. CHKHEIDZE said he was satisfied with the talks, which were held, "in a constructive atmosphere." The two sides discussed the process of passing functions of guarding the border to Georgia. In compliance with the intergovernmental agreement, Georgian border guards should guard the state border until September 1, 1999. The schedule for the pullout was finalized during the talks. For the last year the Georgian department exercised control over the maritime border of the country and practically all section of the Georgian-Turkish land border. MANILOV agreed that the remaining Russian border guards deployed in Abkhazia and Adjaria will leave Georgian territory by November 1st. Russia will leave half of their weapons to their Georgian counterparts. Today, Russia offered to turn over to Georgia all of their arms, if it could leave 30 to 50 men in the area as an operational support group. Russia will still maintain peacekeeping troops to separate Georgian and Abkhazian forces. The Abkhazian leadership has opposed the Russian pullout, saying the move would strengthen Georgian control over the region and could intensify the conflict with Georgia. The Abkhaz authorities refused admission to CHKHEIDZE's deputy, Gela KHUTSISHVILI, and to Georgian journalists accompanying MANILOV to Abkhazia for talks with Abkhaz leader Vladislav ARDZINBA.

BP Reverses Decision On Kazakh Stakes

· BP Amoco has reversed its decision to sell its 9.5 percent stake in the Offshore Kazakhstan International Operating Company (OKIOC) for an asking price of $440 million. BP had announced in July that it planned to sell its share in the consortium, regardless of whether the first test well yielded hydrocarbons. On Friday, Kazakhstan's Prime Minister Nurlan BALGIMBAYEV had set in motion the drilling machine to bore OKIOC's first offshore test well. He said that the choice of a second Caspian export pipeline, in addition to the one from Tengiz to Novorossiisk,

which is scheduled to go into operation in mid- 2001, will be contingent on the results of the test well. These results will be available in three to four months. He hinted that the Turkmen- Iran route is the likely option, noting that the feasibility study for the alternative pipeline to China will not be completed for another two months, RFE\RL Newsline reported.

Unidentified Planes Bomb Tajikistan

· Four unidentified aircraft, believed to be from the Su-29 class, dropped eight bombs on Tajik territory in a deserted area of summer pastures and a mineral water spring, a Tajik government source said. No casualties were reported, but damages include 111 dead cattle, several hectares of burned crops, and destruction of several buildings. Tajik officials have determined that the aircraft were from Uzbekistan. Foreign Ministry spokesman Igor SATTAROV said, "On August 15th...four planes with Uzbek Airforce marking, have proceeded across the Osh region of Kyrgyzstan, subjected the territory of Tajikistan to a bomb attack." Tajik Foreign Minister Talbak NAZAROV summoned Uzbek Ambassador Bakhtiyar URDASHEV to protest the attack and demand assurances that it would not happen again. NAZAROV expressed perplexity over, "the absolutely unjustified action of the Uzbek Airforce." It has not been ruled out that the bombing was a mistake and may have been intended for Kyrgyzstan, where Uzbek gunmen had been holding four Kyrgyz officials. Dushanbe has accused Uzbekistan of wanting to invade Tajikistan. President Emomali RAKHMONOV said an uprising in northern Tajikistan led by ethnic Uzbeks in 1998 was, "a thoroughly planned military aggression" supported by Uzbek leader Islam KARIMOV. The Uzbek President has denied this and so far has denied any knowledge or involvement in the latest bombing. The Uzbek Foreign Ministry on Monday said it had, "no knowledge of any facts of alleged air strikes by Uzbek air force planes on the territory of the Republic of Tajikistan near the village of Khait, Garm district, and the settlement of Maidonterak." Tajik Authorities are still investigation the incident.

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

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