DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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Daily intelligence briefing on the former Soviet Union

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Friday, August 6, 1999

space rocket research and production center TsSKB-Progress manufactures spacecraft and satellites used in the distant probing of the earth and in the verification of compliance with the interstate strategic arms limitation treaties. The equipment produced here helps compile high-precision geographical maps, prospect for minerals and monitor environmental changes on the earth. STEPASHIN also visited the Aviakor stock company in Samara. Aviakor is manufacturing in cooperation with the Kharkov aircraft the first new planes of the An-140 family to replace the obsolescent An-24 planes, which have been flying for the past 40 years. The new plane can carry 52 passengers at a speed higher than that of the An-24, while only burning one half of the fuel required by the other plane. The An-140 also uses a shorter runway. Aviakor Director-General Andrei KARKLIN said the first planes of the series will be rolled out at the beginning of next year.

Meanwhile, The Washington Times reported on Wednesday that the US customs in the port of Charleston seized a container with spare parts for the Russian MiG fighter. The container, marked as belonging to a Moscow company, was heading for Peru. The newspaper said the container was seized last Friday because its accompanying documents were not in order. The customs did not reveal explanations and submitted the case to the US Department of State. A spokesman for the department said the incident was still, "under consideration." He said he was not sure any details would be given to the press

Russian Federation

Politics

Primakov Still The Most Trusted Politician

· According to the latest All Russia Public Opinion Center poll conducted from July 8 to 24th on who is the most trusted politician in Russia, former prime minister Yevgeny PRIMAKOV earned the top position with 26 percent of the 2,407 Russians polled. The margin of error for the poll is less than 2 percent. Pollsters asked citizens to name five or six political figures they trusted. Following PRIMAKOV is Moscow Mayor Yuri LUZHKOV with 17 percent, significantly higher than last year's 11 percent. Communist Party leader Gennady ZYUGANOV earned 16 percent, compared to 14 percent last year. Yabloko Party leader Grigory YAVLINSKY has improved his standing from 12 percent last year to 15 percent. Prime Minister Sergei STEPASHIN ranked next with 13 percent. Krasnoyarsk Governor Alexander LEBED was named by 11 percent this year, from 17 percent in 1998. Liberal Democratic Party leader Vladimir ZHIRINOVSKY's standing rose from 6 percent to 8 percent. Former prime minister Sergei KIRIYENKO is trusted by 7 percent, down from 10 percent. Kemerovo Governor Aman TULEYEV was named by 5 percent, while Boris NEMTSOV was last on the list with only 4 percent, against last year's 8 percent.

Stepashin Tours Military Industrial Complex

· Russian Prime Minister Sergei STEPASHIN chaired in Samara a session of the government commission on the military industrial complex which considered the development of the national aviation and space industries and their production base. Before the conference, the Russian head of government watched the process of assembly of Soyuz booster rockets, in particular the Soyuz-2, which will make it possible to launch more powerful rockets and spacecraft from Plesetsk, not Baikonur. The state

Today's News Highlights

Russia

WB Releases Loan Installment

ORT Bankruptcy Case Closed

UES Sets Up Debt Center

European Republics

Gryvnia Outside Exchange Ban

IMF Mission Leaves Ukraine

South Caucasus & Central Asia

Tevzadze Attends GUUAM Mtg.

CIS Secretary Briefs Azerbaijan

Rushalio Goes To Tajikistan

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at all, as it was just an ordinary investigation. Such cases are usually not made public if no charges are brought. The spokesmen for the Russian Trade Mission in Washington also declined to comment on the incident.

Economy

Ruble = 24.4/$1.00 (NY rate)

Ruble = 24.55/$1.00 (CB rate)

Ruble = 26.39/1 euro (CB rate)

Mar Apr May Jun Jul Aug

WB Releases First Installment Since 1998

· The World Bank has released its first tranche to Russia under its restructured structural adjustment loans, the bank announced on Tuesday. Following the World Bank's approval of the restructuring of the second Coal Sector Adjustment Loan (Coal2) and the Social Protection Adjustment Loan on July 23, and the third Structural Adjustment Loan (SAL3), the bank disbursed $50 million under the Coal2 last Friday, and a further $100 million on Tuesday under SAL3, according to a World Bank statement. The World Bank's board has re-negotiated the terms for the three loans, taking into account Russia's new economic circumstances. The two payments are the World Bank's first cash injections for Russia since August 1998, when Moscow devalued the ruble currency and defaulted on some domestic debt, wrecking the terms of a rescue package agreed to just weeks before. Bank officials said disbursements from the three loans may reach $1.85 billion over the next 18 months, including about $1.1 billion this year, if the government sticks to its economic promises.

Tax Target Surpassed By 31 Percent

· The Tax Ministry collected 29.5 billion rubles ($1.2 billion) in cash in July according to preliminary figures. This figure is 7.04 billion rubles or 31.4 percent higher than the target for that month. This money was transferred to the federal budget. An additional 2.48 billion rubles were paid towards the Federal Road Fund and 411 million rubles towards the Fund of Reproduction of the Mineral and Raw Materials Base in the same month. The ministry said that all taxes were collected in cash, while earlier a large part of taxes were accounted for by mutual write-offs. The tax collection totaled 27 billion rubles in June and 25 billion rubles in May, 11.6 percent and 6 percent above the monthly targets respectively. In January-May the ministry transferred 101.3 billion rubles in taxes to the budget, 5.8 percent above the target. The 1999 budget target for revenues was set at 473.8 billion rubles. Of this amount, tax collection is to account for 399.1 billion rubles. Budget revenues are now expected to exceed their target by 39 billion to 40 billion rubles. Tax and Duty Minister Alexander POCHINOK said, "We can for the first time say with confidence that the 1999 budget will be fulfilled, and that the defense sector and civil servants will get a rise in pay."

Inflation Does Not Exceed 3 Percent

· According to the Russian Agency for Statistics, inflation in July did not exceed 3 percent. Inflation in July reached 2.8 percent, while in the first 7 months of this year Russia's inflation stood at 28 percent. In the same period in 1998, inflation was 4.2 percent. In June, Russia's inflation was 1.9 percent. Last month, the Economics Ministry forecast that inflation could reach 45 percent this year, rather than the 30 percent projected in the 1999 budget. Food items became more expensive by 3.2 percent, services added 3.1 percent, non-food items, by 1.9 percent. The highest price rise was monitored in the Magadan and Perm Regions, 6.9 percent and 6.4 percent, respectively. In the Sakhalin region, goods and services rose by 5.7 percent, in Buryatia, by 5.3 percent. Meanwhile, consumer prices fell in the Kaliningrad and Volgograd Region, Chukotka, Stavropol Territory, Northern Ossetia, by 0.1 percent to 2 percent. Inflation in Moscow in July was above the average nationwide levels reported at 3.2 percent, while in the first 7 months of the year, prices in Moscow surged by 34.8 percent. In St. Petersburg,

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inflation stood at 1.6 percent, as in the first 7 months, at 31.2 percent. First Vice-Premier Viktor KHRISTENKO said there are certain expectations for inflation in August related to the gasoline market and the seasonal rise in the bread price. Russia is experiencing a high demand for gas and grains.

Business

ORT Bankruptcy Proceedings Halted

· Konstantin ERNST, general producer of the Public Russian Television (ORT), Russia's leading TV channel, hailed the Moscow arbitration court's decision to stop bankruptcy procedures against the channel. During the court's Thursday session, ORT representatives filed a petition calling for bankruptcy proceedings to be halted since the company had effectively paid back the debts to 310 of its 312 creditors. The two exceptions are the state-owned Television Technical Centre (TTC) and the Russian Bank of Foreign Economic Activity. According to the petition, ORT has already signed an agreement on debt repayment with TTC and is planning to sign an additional agreement to the credit treaty with the Bank. But creditors confirmed in writing that they had no claims against the channel. The petition was supported by ORT temporary manager Pavel CHERNOVALOV, who was appointed only for the arbitration period and is expected to leave his post today. The claim of bankruptcy against the TV channel was filed this January by the International Association of What? Where? When?, producer of an extremely popular TV show of the same name which is aired on ORT. The channel has already repaid its debts to the association earlier this year, but under Russian legislation, the claim remains valid until the debtor pays back all its creditors. ERNST said ORT still faces, "severe problems caused by continuing economic crisis in the country which reduces our profits from advertisements." The situation was aggravated by ORT's former advertising partner which still owes the channel a considerable sum of money for ads aired in 1998. The channel continues, however, to fulfill its advertising obligations for 1999, without any guarantees that its services will be properly paid.

UES Forming Debt Management Center

· The board of directors of the Russian natural monopoly of electric power, Unified Energy Systems

of Russia (UES), has approved an idea of forming a center for handling receivables and liabilities of the company. The vice president of UES, Valentin ZAVADNIKOV, on Monday said that the center will be formed as a 100 percent subsidiary of UES and will carry out offsets, the most part of which is handled by private and government go-betweens. ZAVADNIKOV said that at its next meeting the board will adjust the dates of reform in the power industry detailed by the joint venture of the Central Bank and government for receipt of the third structural assistance loan of the World Bank. ZAVADNIKOV said UES management was shocked that the approved and released joint letter was of the version developed in March, 1999 under Yevgeny PRIMAKOV's government with outdated terms for UES reforms.

European Republics

Gryvnia Slides To Lower Limit Of Trading Band

· Ukraine's currency, the gryvnia has fallen below the bottom of the currency trading band set for the year at 3.4 to 4.6 gryvnias for one dollar. Ukraine's Central Bank will not intervene in the devaluation of its gryvnia currency. The bank said it will abstain from forcefully keeping the national currency within its fixed exchange rate. The ban range was established in February and is valid until the end of 1999. One dealer said, "This morning we bought [dollars] at 4.7. Now we want to buy more, but we cannot find dollars cheaper than 4.8." He added that clients were ready to buy dollars at 4.75. Experts forecast the gryvnia may lose more value. This is because Ukraine is paying Russia for its gas deliveries in hard currency and without payment delays, instead of barter and delays as was common the practice before. "The entire burden has laid on the currency market," said head of the Central Bank's currency regulation department Sergei YAREMENKO. Ukraine's foreign currency reserves are estimated as of July 16th at $1.3 billion. With only this amount, the Central bank cannot undertake a large-scale intervention on the currency market, since Ukraine needs some $3.5 billion to service various debts due by 2000.

IMF Leaves Kiev With No Commitment

· An International Monetary Fund (IMF) mission, led by John ODLING-SMEE, left Ukraine on Monday without recommending the release of a new $90 million loan installment of a previously approved $2.6

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billion loan program. An IMF statement summing up the mission's two weeks of work noted that so far this year tax revenues have been lower than expected, while recent tax legislation changes have further diminished expected revenues. The IMF promised to resume discussion with Ukraine at the end of August, if the government takes steps to slash spending and increase budget revenues. The mission pointed to the necessity of toughening fiscal discipline and to go on with market reforms in agriculture and the fuel sector. In the meantime, a Ukrainian delegation, led by Deputy Prime Minister Sergei TYGIPKO, will leave for Washington next week to meet with IMF leadership. The delegation hopes to convince the Fund to resume lending to Ukraine. TYGIPKO said the visit could result in an agreement to renew the three-year aid program and disburse up to $180 million at the end of the month. Ukraine has received $770 million since September, 1998, as part of the extended-financing program.

South Caucasus & Central Asia

Tevzadze Attending GUUAM Conference

· The defense ministers of Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova (GUUAM) are due to meet in the Lvov region of Ukraine today to discuss, "prospects for multilateral cooperation" within the framework of the regional alliance GUUAM. On Thursday, Georgian Defense Minister David TEVZADZE participated in the official opening of a military exercise code-named Peace Shield-99 that began in Ukraine under NATO's Partnership for Peace program. In addition to Ukraine and the US, the exercise involves military representatives from Georgia, Azerbaijan, Belgium, Bulgaria, Greece, Denmark, Italy, Latvia, Moldova, Poland, Romania, and Turkey. Spokesman for the Ukrainian Defense Ministry Valery KOROL pointed out that multinational war games were being held close by the meeting site. He declined to provide details of the agenda of their talks, but noted that no documents are expected to be signed in the course of the ministerial meeting. Experts believe that the defense

ministers will confirm the intention of their governments to carry on integration within the GUUAM framework and to deepen cooperation in the military-technical sphere. The ministers are expected to touch on the problem of the settlement of the Abkhaz conflict. A month ago, Kiev expressed readiness to send Ukrainian peacekeepers to the Abkhaz conflict zone under the aegis of the UN and the Organization for Security and Cooperation in Europe (OSCE).

Yarov Discusses CIS Reform In Baku

· Yuri YAROV, the Executive Secretary of the Commonwealth of Independent States (CIS) is scheduled to arrive in Baku to discuss CIS reform and prospects for development. He will brief the leadership of Azerbaijan on the process of implementation of the decisions made by the Council of the heads of state or government of the CIS member states on April 2nd. He will also continue consultations on compromise solutions to issues involved in the formation of the CIS executive committee and economic council. YAROV will attempt to formalize the holding of an economic council session, which was tentatively set for September 10th, and formulate questions for the next CIS summit. The meetings of the CIS council of foreign ministers and the CIS council of the heads of government will next meet in Kiev on October 8th. Today, YAROV will be received by President Geidar ALIYEV, Prime Minister Artur RASIZADE, and other high level officials.

Interior Minister Rushailo To Visit Tajikistan

· Issues of cooperation between the Interior Ministries of Russia and Tajikistan will be discussed during a two-day working visit scheduled by Russian Interior Minister Vladimir RUSHAILO to Dushanbe, which begins today. According to the Interior Ministry press service, RUSHAILO will take part in a meeting of the joint collegium of the Russian and Tajik Interior Ministries scheduled for August 7th. Participants in the meeting will consider a number of issues on combating organized crime and drug trafficking. RUSHAILO is scheduled to have a meeting with Tajik President Emomali RAKHMONOV.

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

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