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 31, 1999

misused IMF credits. He said, "the impression is that a campaign has been launched for the purpose of undermining relations between investors and Russia." A previous audit found that the Central Bank had not misused $4.8 billion it received from the IMF in July of 1998. IMF managing director Michel CAMDESSUS said he sees no reason for blocking the next installment from the $4.5 billion loan to Russia, despite allegations of embezzlement.

Rus-Swiss Prosecutors Meet Over Mabetex

· Russian investigator Nikolai VOLKOV who is probing several criminal cases in which money was deposited in Swiss bank accounts, met with Switzerland's federal prosecutor Carla DEL PONTE, continuing the second day of talks. DEL PONTE's spokesman Dominique RAYMOND said talks will touch on cooperation between the two offices and then the requests for legal assistance. Russia has asked for data regarding the banking activity of Andava, Forus Service, and Mabetex. The request for legal assistance was based on the fact that some documents had been seized in the Aeroflot Airlines' office on February 4th. It is believed that 80 percent of Aeroflot's hard currency receipts were remitted via the accounts of Andava. The Russian investigators say nearly $400 million were involved. In addition, Moscow expected Switzerland to come up with an answer to the question about whether or not business tycoon Boris BEREZOV-SKY was a co-owner of Andava. Another investigation encompasses allegations that several Kremlin officials may have en

Russian Federation

Politics

Bomb Explodes Outside Kremlin

· This evening a bomb exploded in an upscale underground mall near the Manezh Square just outside of the northwest Kremlin wall, injuring up to 30 people, Interfax news reported. Three people were taken to the hospital as a result of the blast. The Federal Security Service (FSB) could not confirm reports from Itar-Tass that several people were killed. The bomb is believed to have been located on the fourth floor in a video gameroom near the food court. Police have evacuated the area. The explosion was said to have caused no fires. The Moscow prosecutor's office opened a criminal investigation into blast. Viktor BIRYUKOV, spokesman for the Moscow police said it is unclear whether the blast was planned or an accident. The mall, which opened in 1997 as part of Moscow's 850th anniversary, is a popular hangout for teenagers.

IMF Says No Evidence Of Money Laundering

· The International Monetary Fund (IMF) has absolutely no evidence proving that its money granted to Russia was illegally diverted through the Bank of New York by Russian organized crime Thomas DAWSON, director of the IMF public relations department said on Monday. He said that the lending agency already has tight controls in place to prevent the siphoning off of its loans. DAWSON added, "we continue to take the allegations seriously." Federal authorities are investigating the accusations. The IMF is cooperating with US, British and Russian investigators and is updated with the latest reports. At the Russian government's request, auditing company PricewaterhouseCoopers has been conducting a study for the IMF of possible manipulations of loan money by the Central Bank. Deputy Finance Minister Aleksei KUDRIN said that Russia has never

Today's News Highlights

Russia

ORT Reprimanded By Press Min

Yukos Statement On NY Scandal

Laying Lenin To Rest?

European Republics

Ukraine's Gov't Outgoing?

Latvian-Estonian Bilateral Issues

South Caucasus & Central Asia

New Oil Terminal Approved

Kazakh Presents 2000 Budget

Kyrgyz Crisis Continues

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Tuesday

August 31, 1999

Intercon's Daily

riched themselves at public expense with the aid of Swiss-based companies, specifically Mabetex which was hired to renovate the Kremlin buildings. The Kremlin and Mabetex last week denied allegations that Mabetex chief Behgjet PACOLLI had paid credit card bills on behalf of President Boris YELTSIN and his daughters, Tatyana DYACHENKO and Yelena OKULOVA. The Kremlin also stated that YELTSIN and his immediate family members have never opened bank accounts abroad. Kremlin manager Pavel BORODIN, responsible for contracts with Mabetex said, "All these [allegations] are inventions and lies. The results of the investigation will come up with nothing." He further added that forces prefer to go after YELTSIN and his family instead of other corrupt individuals, "to gain a reputation for exposing corruption. By such actions, they threaten stability in Russia." RAYMOND pointed out that Swiss prosecutors do not want to "intervene in the Russian political discussions." In the past DEL PONTE has said that Russian Mafia is one of the main external threats to Swiss security. The Swiss prosecutor noted that organized crime families from eastern Europe had also infiltrated 300 Swiss companies and were using Switzerland as a "piggy bank."

Economy

Ruble = 24.86/$1.00 (NY rate)

Ruble = 24.81/$1.00 (CB rate)

Ruble = 26.05/1 euro (CB rate)

Russia Sets Economic Growth Goal

· The Economics Ministry released a report Monday stating that the Russian government is aiming for an average annual economic growth of 5 percent for the next eight to ten years. The report, approved by the Cabinet, has been sent to the Russian State Duma for consideration. Russia's economy has contracted for the past decade, with the exception of 1997, when it grew by 0.4 percent. The economy is predicted to contract this year by 2 percent. Russia's industrial and agricultural production may grow, respectively, 4 percent and 3 percent by 2000. Construction volume is expected to remain on the current year's level. The Economics Ministry projects for the year 2000 a 2 percent to 3 percent increase in investments in fixed capital, compared with 1999, in which only a stabilization of the investment process is expected.

Business

ORT Reprimanded Over Right Cause Video

· The Russian Press Ministry issued a warning to ORT Television on Monday, threatening that the station might be stripped of its broadcasting license in the event of abuse, "of the freedom of the mass media." The warning about breaking the existing laws issued by Press Minister Mikhail LESIN, is in connection with a video-tape featuring a mass rally staged by supporters of the Right Cause bloc in St.Petersburg. LESIN explained that the incident violated the law on the mass media and the law on elections to the Russian State Duma. The Minister underlined that it was not a matter of censorship, but stressed that the law must be respected and complied with. This clearly is a move by the government to begin controlling the media ahead of parliamentary and presidential elections.

Yukos Releases Statement On Bank Scandal

· Russia's second largest oil company, Yukos Oil Company, Monday issued a statement on the media coverage of the alleged Russian Mafia money laundering scandal with the Bank of New York. "The reports in these publications are not based on specific facts exposed by law-enforcement agencies, but rather on vague assertions, by anonymous American sources, that preclude conclusions even on how much money was transferred and through what accounts." It added that the US media claims, "it is impossible for the US to cooperate with a country like Russia...that is run by criminals." Yukos expressed concern that Russia has failed to take sides on the matter. The statement says, "Why? Is it because the authorities know what has actually happened, but are not prepared to admit it? Or is it because they are indifferent to the reputation of Russia and Russian business in the Western democracies? If the situation does not change, it will inevitably lead to a complete boycott of Russian companies in the West. Such a development would not only hurt Russia, but each of its citizens as well." The oil company calls on the Russian government to counter claims that the Russian economic and political system has been criminalized and state that Russian law enforcement will work with their US counterparts, "to achieve a timely resolution to their investigations, particularly regarding the sources of the allegedly laundered money. Yukos is committed

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

August 31, 1999

Intercon's Daily

to cooperating in this process and hopes that its colleagues will take the same position." In addition, LogoVAZ president Boris BEREZOVSKY called on Moscow to respond to the US press or, "all business in Russia will be represented as criminal." He said that those spreading such allegations are trying to obstruct the construction of a democratic Russia.

Tuesday Tid-Bit

Laying Lenin To Rest?

· The decision whether to bury the founder of the Russian Communism Vladimir LENIN or not has sparked wide ranging debate that may cause political parties to draw battle lines. It is widely believed that the government might use this issue to force the Communist Party to rally support and march on Red Square, where LENIN is on display in the mausoleum. The government would then take measures to abolish the Communist Party on charges of disorderly conduct. According to a nationwide poll conducted by the Public Opinion Foundation 47 percent of Russians oppose burying LENIN, while 33 percent support that idea. RFE/RL Newsline reported that supports of Yabloko's Girgor YAVLINSKY are most strongly in favor of burying LENIN, 52 percent for and 35 percent against. Not surprisingly, backers of Communist Party leader Gennady ZYUGANOV are most opposed to the burial, with 13 percent for and 70 percent against.

on its border with Russia. LAAR said that Estonia will back Latvia in its quest of full membership of the European Union. VIKE-FREIBERGE said Latvia and Estonia, "as small nations see the guarantees of their survival and security in participation in international organizations and trans-Atlantic defense structures." She said Latvia and Estonia are moving toward NATO membership at a comparable pace and will join it with time. Estonian President Lennart MERI and VIKE-FREIBERGE also discussed the need for a common energy policy for the Baltic states. The Latvian President and Estonian parliament Speaker Toomas SAVI discussed joint efforts aimed at ensuring security in the Baltic region. VIKE FREIBERGE is now traveling to Helsinki for a meeting with Finnish President Martti AHTISAARI and other officials.

South Caucasus & Central Asia

New Oil Terminal Approved

· Georgian President Eduard SHEVARDNADZE has approved plans by an Austrian-Georgian joint venture to build a new oil terminal in the village of Kulevi, some 15 kilometers north of Poti, RFE\RL Newsline reported. The terminal will have a capacity of 5 million to 6 million tons per year and will be used primarily for the storage of crude to be transported by barge across the Caspian from Turkmenistan and then by rail across Azerbaijan and Georgia. The joint venture has reached a preliminary agreement with the European Bank for Reconstruction and Development (EBRD) on financing for the project. The cost is estimated at $70 million.

Georgia Opposes Lifting Abkaz Sanctions

· Georgian President Eduard SHEVARDNADZE in his weekly radio address strongly criticized Russian Border Guard Commander Konstantin TOTSKY's plan to lift economic sanctions imposed against Abkhazia in 1996. The Georgian President said TOTSKY's proposal is "unjustified" and exceeds the general's sphere of competence. SHEVARDNADZE claimed that the ban on allowing residents of Abkhazia to cross the border into Russia or Russian citizens from bringing goods into Abkhazia does not constitute a blockade, but rather economic sanctions. He added that such statements raise tensions in bilateral relations. Border Guard Chief Valeri CHKHEIDZE said any attempt by Russia to lift the sanction would violate bilateral agreements.

European Republics

Pustovoitenko Predicts Gov't Sacking

· Speaking at a session of the association of parties supporting President Leonid KUCHMA, Prime Minister Valery PUSTOVOITENKO today predicted that the Ukrainian government may soon be sacked. "One cannot let a crisis of power break out in the run-up to the presidential elections scheduled for October 31st. That [would be] a crime against people," he said. The left-wing factions of the parliament will be trying "to take revenge at any price."

Latvia-Estonia On Bilateral, Regional Issues

· Estonian Prime Minister Mart LAAR and Latvian President Vaira VIKE-FREIBERGE met in Tallinn Monday to discuss Estonian-Latvian relations, regional cooperation and integration of Estonia and Latvia in European institutions. They agree that Estonia would assist Latvia in technical equipment

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When you need to know it as it happens

Tuesday

August 31, 1999

Intercon's Daily

Azeri-Georgia FMs Sign Joint Statement

· Georgian Foreign Minister Irakly MENAGARISHVILI and his Azeri counterpart Tofik ZULFUGAROV signed a joint statement in Tbilisi last Tuesday, after holding a meeting on bilateral issues. The two ministers stated that strategic relations between Georgia and Azerbaijan are an earnest of democratic development of the two countries and an important guarantor of security and mutual understanding in the Caucasus. The statement points out that the leadership of the two countries will support Georgia's and Azerbaijan's full integration into European and Euro-Atlantic institutions in future as well as cooperate in defense matters of common interests. MENAGARISHVILI said the talks touched on a wide range of relations between the two countries—political and economic cooperation, the situation in the region and prospects for the implementation of major joint projects. ZULFUGAROV said Azerbaijan supports Georgia's territorial integrity. He said Azerbaijan is ready to assist in settling the conflict in Abkhazia. However, he said it is too early to consider an Azeri contingent's participation in the peacekeeping operation in Abkhazia. He noted it is necessary to define the tasks and objectives of the peacekeeping force in Abkhazia more clearly. This was ZULFUGAROV first official visit to Georgia. He also met with President Eduard SHEVARDNADZE, State Minister Vazha LORDKIPANIDZE and parliament chairman Zurab ZHVANIA.

Kazakh Prime Minister Presents 2000 Budget

· Kazakh Prime Minister Nurlan BALGIMBAYEV outlined the parameters for the 2000 budget at a Cabinet meeting today and will present it to the parliament on Wednesday. Spokesman Viktor KIANITSA said the Prime Minister told his Cabinet that, "The budget is extremely difficult but realistic." Following the Russian financial crisis and the devaluation of the tenge, the government is still struggling to fill budget gaps. The government pledged earlier this year to narrow the deficits planned for 2000 and 2001. The budget envisioned a 3 percent deficit compared to a 3.6 percent in 1999.

BALGIMBAYEV said, "Trends in the past months have indicated growth in the economy and in tax collection along with a rise in prices for our main exports." The economy contracted 2.5 percent in 1998 and zero growth is an optimistic target for this year. KIANITSA said the 2000 budget plans for privatization sales to net $400 million, while expenditures on defense, internal affairs, transport, and the judicial system will be stepped up.

Kyrgyz Hostage Crisis Continues

· Kyrgyzstan today marked its independence day, amid the worst threat to its security since Soviet rule. A gang of Islamic militants have invaded Kyrgyzstan from Tajikistan, seized up to five villages, and taken several people hostage, including four Japanese geologists. The gunmen are believed to be led by Uzbek rebel Dzhuma NAMANGANI, who is accused of participating in a plan to assassinate Uzbek President Islam KARIMOV in February. The militants are trying to transport a large arms arsenal through Kyrgyzstan to Uzbekistan to be used in destabilizing the Uzbek government. Over 600 reservist have been called up. Kyrgyzstan is seeking assistance from its neighbors to help combat the armed rebels and prevent their escape. Kyrgyz Deputy Prime Minister Boris SILAYEV and Defense Minister Esen TOPOYEV met Russian officials today to discuss aid to fight Islamic militants in southern Kyrgyzstan. "Sending a Russian military contingent to Kyrgyzstan is out of the question," SILAYEV said after meeting Russian Prime Minister Vladimir PUTIN. The sides are discussing providing Kyrgyzstan with military and technical assistance in destroying the rebels. Russian Army headquarters are drawing up plans on how to help Kyrgyzstan and rescue hostages, with small risk for the hostages' lives. Russia's Defense Minister Igor SERGEYEV will fly to Uzbekistan to discuss the crisis and plot strategies against the rebels. Uzbekistan's air force is conducting air raids in the Batken district. By mistake, one jet fighter accidentally bombed the village of Kara-Teiit, killing three people and wounding 17. All bombing raids by Uzbekistan were immediately suspended.

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

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