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

Wednesday, August 4, 1999

Russian Federation

Politics

All Russia And Fatherland Form New Party

· The All Russia movement, set up by several regional governors, and Fatherland Party, led by Moscow Mayor Yuri LUZHKOV, today announced plans to merge into one electoral bloc to field its candidates for the Russian State Duma in December. The parties adopted a joint political statement today and set up a coordination council and joint campaign headquarters. Both movements want to serve Russian citizens, live in a federal, integral and strong state, develop democratic values and the market economy. Only four names of people to manage the center for preparing the elections have been cited at the joint sitting. The coordinating council of the electoral bloc will be co-chaired by LUZHKOV and St. Petersburg's governor Vladimir YAKOVLEV, its secretary will be Oleg MOROZOV, and the pre-election headquarters will be headed by Georgy BOOS of Fatherland. President of Tatarstan region Mintimer SHAIMIYEV said, "Somebody has to assume the responsibility now. It is time we achieved comprehensive political stability to carry out reforms, because this state of uncertainty cannot last any longer." He added, "We are committed to gaining a constructive majority in the State Duma, which will later allow the president to form his Cabinet on the basis of a parliamentary majority. This is the only way to eradicate the main cause of conflicts between the branches of power." MOROZOV noted that All Russia agreed 90 percent of its pre-election planks with Fatherland. He believes the coalition, "should be headed by a person who is famous in Russia, a politician of federal scope who belongs to neither All Russia nor Fatherland." The new movement hinted that it would either back LUZHKOV or former prime minister Yevgeny PRIMAKOV in the presidential elections in 2000. LUZHKOV said recently he was

ready to concede to PRIMAKOV the top job in Fatherland. Early this morning SHAIMIYEV met with President Boris YELTSIN to brief him on the new movement. He said YELTSIN was keen to know details of the ongoing merger. "When a decisive force is emerging, the president cannot but consider what is happening," SHAIMIYEV said. He described the new bloc as "sound forces that are open for other political forces" to join.

Chernomyrdin Resigns As Balkan Envoy

· Former Russian prime minister Viktor CHERNOMYRDIN resigned Tuesday from his post as the Russian presidential Balkan envoy, during a meeting with President Boris YELTSIN. He stressed that thanks to Russian efforts it became possible "to step away from the abyss. The world has seen that such questions cannot be solved without Russia. We proved it by our work," CHERNOMYRDIN said adding that Russia has to participate in the post-war restoration of Yugoslavia. "Russia managed to stop the Balkan war. We worked as mediators, as a country which could speak with both sides. We were not tied up by anything and convinced both parties." YELTSIN gave CHERNOMYRDIN a big bear hug and handed him an official letter of thanks for his service. Reporters note that YELTSIN's speech was labored and slightly slurred, and CHERNOMYRDIN smiled somewhat uncomfortably. Last week, Prime Minister Sergei STEPASHIN attended the Balkan summit in Sarajevo to which Yugoslav President Slobodan MILOSEVIC was excluded, showing Russia's wan

Today's News Highlights

Russia

IMF Warns Russia Is Risky

Rapota Replaced By Orgaryov

European Republics

Multinational War Exercises

Nine Ukrainian Candidates

South Caucasus & Central Asia

Tripartite Meeting In Moscow

UN Extends Abkhaz Mandate

Azeri-Iran On Extradition

Tajik Imports 156,000 Tons of Oil

Politics-Economics-Business

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Intercon's Daily

ing support for the Yugoslav President.

Economy

London Club Talks To Resume In September

· During the talks, expected to last two days, between the Russian Finance Ministry, state foreign debt agent Vneshekonombank, and the London Club of creditors led by Deutsche Bank it has been agreed that Russia's proposals for rescheduling of the debt will be discussed in detail at its next meeting in mid-September. It is believed that Russia has offered the London Club a choice between a debt restructuring option that covers only payments over the next two years and one that seeks a comprehensive agreement. Russia's debt to the London Club including Soviet-era debt totals $32 billion. According to a joint statement released today, "Both sides expressed their willingness to seek an early solution to Russia's London Club indebtedness." There was no information on whether the Russian has proposed debt write-offs. Until September, the London Club will continue "its analysis of Russia's financial situation and prospects," for its probable development. Martin KOHLHAUSSEN, the head of Germany's fourth largest bank Commerzbank, said last week that conditions in Russia were currently unsuitable for business to flourish. Germany has consistently criticized Russia for the lack of reforms. Russia's special envoy to international lending institution Mikhail ZADORNOV confirmed, "This stage of talks will allow us to compare positions and define further tactics." He thinks that the political situation in Russia can influence the negotiations because, "the creditors always take it into account...Any change will mean a break, and that is always a deterioration."

IMF Warns Of Considerable Risks In Russia

· The International Monetary Fund (IMF) on Monday said in a strongly worded statement that "limited recovery" has emerged in Russia, but warned that "considerable risks remain." In its annual review of the Russian economy, the IMF said there has been a turn-around in 1999, noting that industrial output during April to June exceeded the levels of one year earlier by over 5 percent on average. "Foreign exchange market pressures have also eased and the ruble has stabilized, while monthly inflation has come down to under 2 percent in June, reflecting a tightening of fiscal and monetary policies," the IMF said. The Russian government's macroeconomic

framework for 1999 envisages that the economic contraction will bottom out in 1999, with output for the year as a whole declining by 2 percent. The external position should strengthen, enabling a small increase in foreign reserves. However, it said that Russia's failure to tackle, "underlying fiscal problems" had been the main factor behind last year's financial crisis." The Fund added that Russia's extremely difficult economic and financial situation, amid a sharp cut-back in access to external financing, should lend a new sense of urgency to the need for fundamental and lasting reform. "Directors stressed that fiscal consolidation remains at the heart of the adjustment effort," it added. The Fund reiterated its deep concern about the way Russia had channeled money through the off-shore firm Fimaco in 1996. The report said, "These transactions constituted an episode of a fundamental lack of cooperation on the part of the authorities and a serious violation of Russia's obligations to the Fund. A number of directors felt that the corrective actions so far fell well short of what was needed." Despite this, the IMF approved last week a 17-month stand-by credit of $4.5 billion for Russia to support the government's 1999 to 2000 economic program. The money will be used to pay off Russia's earlier debts to the IMF due this year.

Ruble = 24.22/$1.00 (NY rate)

Ruble = 24.3/$1.00 (CB rate)

Ruble = 26.04/1 euro (CB rate)

Business

Rapota Removed From Rosvooruzheniye

· Russian President Boris YELTSIN Tuesday signed a decree firing Lieutenant General Grigory RAPOTA from his post as head of government arms trader Rosvooruzheniye, replacing him with Kremlin staffer Alexei OGARYOV. The decree said that RAPOTA, a former KGB intelligence officer and longtime aide to former prime minister Yevgeny PRIMAKOV, was being transferred to another post. The removal of RAPOTA, predicted for weeks, has been seen as another step in the presidential entourage's drive to consolidate political and economic control ahead of parliamentary and presidential elections. OGARYOV has been described by the media as an ally of YELTSIN's daughter and image adviser, Tatyana DYACHENKO. OGARYOV was a deputy chief of YELTSIN's staff before being named

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to the security council earlier this year. Rosvooruzheniye, which accounts for more than 80 percent of Russia's arms exports, sold $2.3 billion worth of weaponry last year. In the period of January to June, 1999, Rosvooruzheniye earned $118 million from arms exports. It expects to sell $2.7 billion of arms this year, RAPOTA said last month.

Media Call For Meeting With Yeltsin

· Editors-in-chief of Russian leading newspapers and magazines have requested a meeting with Russian President Boris YELTSIN, "in connection with the alarming situation in the sphere of national mass media during a few past weeks." Their letter states that, "on the eve of the beginning of the election campaign high-ranking state officials try to exert pressure on mass media and journalists using their influence and even the Russian president's name." The authors of the document express conviction that "such a development of events threatens to cause real restriction of the freedom of speech in Russia." The freedom of speech, they note, "may be sufficiently protected only by the Russian President's direct interference."

stages and end on August 15th. As was the case last year, computers supplied by the US, will be used instead of combat material at the war games. A scenario of the exercise was taken from the latest events in the Balkans, including Kosovo.

Ukraine Registered Nine Presid. Candidates

· The Ukrainian Central Election Commission registered nine candidates to participate in the presidential elections scheduled for October 31st. They include current President Leonid KUCHMA, parliament speaker Alexander TKACHENKO, former prime minister and former security chief Yevgeny MARCHUK, former-speaker and socialist leader Alexander MOROZ, communist leader Petr SIMONENKO, nationalist Rukh leader Gennady UDOVENKO, Rukh's splinter group leader and once environmental minister Yuri KOSTENKO, chairwoman of the Progressive Socialist party Natalya VITRENKO, and mayor of the city of Cherkassy Vladimir OLYINIK. The candidates were registered after the commission checked the lists of one million signatures in their support from two-thirds of the voting districts. Six other candidates failed to get registered. Political analysts in Ukraine have not predicted the outcome of elections, but are unanimous that a second round of voting will be necessary to determine the winner. To win in the first round it is necessary to get over 50 percent of support. The second round, if any, will be held on November 14th.

South Caucasus & Central Asia

Lordkipandze To Meet Ardzinba In Moscow

· Georgian State Minister Vazha LORDKIPANIDZE met with his Russian counterpart, Sergei STEPASHIN, First Deputy Premier Nikolai AKSENENKO, Foreign Minister Igor IVANOV, Russian Security Council Secretary and Federal Security Service Director Vladimir PUTIN, Moscow Mayor Yuri LUZHKOV, and Kremlin chief of staff Alexander VOLOSHIN. The talks reportedly focused on issues that have increased tensions in bilateral relations, including the Abkhaz conflict and the future of the four Russian military bases in Georgia. Russia made proposals to ensure the functioning of the CIS collective peacemaking force in the conflict zone. STEPASHIN and LORDKIPANIDZE called for the consistent development of the dialog, relations and contacts in the political, economic, cultural and other

European Republics

Multinational Computer War Exercise Begins

· A multinational computer exercise began at the Yavorsky training range near Lvov on Monday under the plan of international cooperation between the Ukrainian Defense Ministry and the US Department of Defense. The exercise, code-named Peace Shield-99, is overseen by Ukrainian Colonel Alexander PUSHKAR and US Brigadier General Gerald MINETTI. In addition to Ukraine and the US, the exercise involves military representatives from Azerbaijan, Belgium, Bulgaria, Greece, Georgia, Denmark, Italy, Latvia, Moldova, Poland, Romania and Turkey. The Ukrainian Defense Ministry said the main purpose of the exercise is to give brigade commanders and chiefs of staff an opportunity to hone their skills of organizing, controlling and sustaining a multinational peacekeeping operation. The military officers will work out a joint tactic, practical methods of carrying peacekeeping operations and train commanders and headquarters in running peacekeeping operations with allies who have different types of weapons. The exercise which involves more than 1,300 servicemen will be held in five

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spheres. "It is necessary to ease tension in some aspects of the Russian-Georgian relations and to develop the bilateral ties," LORDKIPANIDZE said. The State Minister is visiting Moscow to attend a sitting of the Russian-Georgian Economic Cooperation Commission. Items on the agenda include cooperation in the energy and gas industries, transport and the military sphere as well as the drafting of an intergovernmental agreement on joint economic restorations in the Georgian-Ossetian conflict zone and the return of refugees.

Tonight, LORDKIPANIDZE will meet the leader of the breakaway Abkhazia province, Vladislav ARDZINBA, in a tripartite meeting with STEPASHIN. They will review measures to solve the Georgian-Abkhaz conflict. The State Minister said, "We are beginning the gradual return of refugees, starting from the Gali district." He stressed the need to create proper security conditions to guarantee peaceful return of refugees. Earlier today, Georgian Foreign Minister Irakli MENAGARISHVILI said in Tbilisi, Russia's decision to invite LORDKIPANIDZE and ARDZINBA to Moscow at the same time had come as a "surprise" to Georgia. MENAGARISHVILI said such moves could hardly bring about a solution to problems between Georgia and Abkhazia. However, Tbilisi will greet any moves that will help settle the Abkhazia conflict, he added.

UN Extends Abkhaz Mandate

· On July 30th, the UN Security Council extended the mandate of UN military observers in the Georgian-Abkhaz conflict zone until January 31, 2000. First deputy Russian permanent representative to the United Nations Gennady GATILOV said Russia strives to promote the process of the Georgian-Abkhazian conflict. He said Russia hopes Georgia gets out of the crisis so it could, "concentrate their efforts on solving pressing problems of ensuring stable economic growth and forming a political system that would ensure democracy and observance of basic rights and freedoms, including the rights of national minorities." GATILOV said, "We think it

counter-productive to call for using force methods of the Georgian-Abkhazian settlement since it would not yield the desired result, and moreover, it might undermine the situation in the Caucasus, which is far from being tranquil." However, the UN resolution failed to include a finding that Abkhazia is guilty of engaging in ethnic cleansing. Georgia sought such a finding, but the Russian Federation indicated it is opposed.

Azerbaijan Seeks Dzhavadov's Extradition

· Azerbaijan insists that Iran extradite former Interior Ministry special forces officer Makhir DZHAVADOV, an organizer of the abortive coup d'etat in March, 1995. This tense bilateral issue was discussed at a meeting between Azerbaijan Foreign Minister Tofik ZULFUGAROV and Iranian Ambassador to Azerbaijan Ali Reza BIKDELI on Tuesday evening. BIKDELI was invited to the foreign ministry specifically to discuss this issue. DZHAVADOV, considered traitor to Azerbaijan, escaped from the country immediately after the failed coup. He was originally residing in Austria, but moved to Iran seven months ago. DZHAVADOV has repeatedly declared his intention of taking power in Azerbaijan. ZULFUGAROV said that Tehran's failure to curtail DZHAVADOV's "illegal activities" negatively affects relations between the two countries. This could possibly lead to the postponement of the planned visit to Iran by Azeri President Geidar ALIYEV.

Tajik Oil Imports Reach 156,000 Tons

· Tajikistan imported 156,181 tons of oil products at the cost of $26.7 million between the period of January to June. The Commonwealth of Independent States (CIS) accounted for 97.3 percent of the delivery, the national statistics agency under the government of the republic said Monday. The main CIS oil importers to the republic in the period were Uzbekistan with 113,995.7 tons ($18.1 million), Turkmenistan with 22,860 tons ($4.8 million) and Russia with 13,090 tons (and no disclosed price). Another 3,282 tons of oil products at $727,523 were imported from outside the CIS.

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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