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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, September 16, 1999

Russian Federation


Volgodonsk Apartment Building Bombed

· At least 17 people have died, more than 300 injured and 50 of them are in serious condition at area hospitals, after a powerful explosion ripped through a nine-story building on Gagarin Street in Volgodonsk early this morning. Investigating authorities say the cause of the blast was a Gaz-53 truck loaded with explosives parked between the apartment building and a police station, located only 8 miles from an unfinished nuclear power plant, Rosenergoatom, and not far from a hydro-electric dam. Volgodonsk is located about 700 miles south of Moscow near the border with Chechnya. The blast left a 45-foot-wide hole in front of the building. Fire fighters battled a blaze which engulfed the fourth through eighth floors. Rescue workers and volunteers are digging through the rubble looking for survivors. No one has claimed responsibility for the attack, which is being treated as a terrorist act. Authorities again have blamed Islamic militant rebels for the bombing. A spokesman from the regional center of Rostov-on-Don said the Volgondonsk building had been checked on Wednesday as part of the national security operation ordered by President Boris YELTSIN and Prime Minister Vladimir PUTIN called "Operation Whirlwind." The two leaders met today in the Kremlin to discuss the latest explosion. PUTIN told his Cabinet, "I urge you not to dither or panic, but to grit your teeth, act decisively. I'm calling on you to be more disciplined and vigilant in deed not words." Federal Security Service (FSB) and Moscow police officers found timers set for concrete dates on 3.5 tons of explosives, set through September 21st, Alexander ZDANOVICH, head of the FSB press center, said. He added that "the explosions which are shaking Russia are all links of the same chain." The Volgodonsk bombing comes as Russia authorities have been

conducting a massive sweep in an attempt to find those responsible for the series of explosions in Moscow apartment buildings and a military barracks in Daghestan, which have killed over 300 people.

Russia Headed For Change In Power?

· Rumors of a change in power in Moscow are ranging from the resignation of President Boris YELTSIN, which has been predicted for September 19th, to the removal of Prime Minister Vladimir PUTIN. Russian State Duma presidential representative Alexander KOTENKOV has discounted the rumor of YELTSIN's resignation. He emphasized that a decision on that could only be made by the President, adding that the parliament has nothing to do with the resignation procedure, except impeachment. A bid to oust YELTSIN failed in May. Nonetheless, Federation Council Speaker and onetime YELTSIN ally, Yegor STROYEV today in The New York Times called for the ailing leader to step down. He said, "If YELTSIN left today, it would be better for the people and political parties, and it would be better for him too." He added, "His attempt to hold on to power or to stay there by installing his own man will create enormous tension in society." If YELTSIN steps down, Prime Minister Vladimir PUTIN would take over as acting president until elections are held about three months later. The latest twist is that YELTSIN may soon sack PUTIN for his failure to resolve the conflict in Daghestan in favor of a more Chechen- friendly successor. Former general and Krasnoyarsk Governor Alexander LEBED might

Today's News Highlights


Militants Mass On Border

CB Sold IMF Loan Dollars

Ex-Im Not To Stop Tyumen Loan

European Republics

Latvia Issues Euro Bonds

Ukraine-Kazakh Boost Relations

South Caucasus & Central Asia

Speakers Sign Declaration

Vollebaek Visits Armenia

Akayev Not To Run In Elections




September 16, 1999

Intercon's Daily

then be appointed and replaced as YELTSIN's chosen heir. LEBED played a crucial role in ending the 1996 Chechen War and remains an important negotiator with the breakaway republic. Others have speculated that YELTSIN will institute a state of emergency due to mass civil disturbances and rule by decree. Top officials have claimed that an emergency order has already been drafted by the Kremlin. Liberal Democratic Party leader Vladimir ZHIRINOVSKY believes that, "The introduction of a state of emergency would benefit the whole population." All Russia-Fatherland leader and former prime minister Yevgeny PRIMAKOV and Moscow Mayor Yuri LUZHKOV have stated that such an emergency institution would add tension and further instability.

Meanwhile, YELTSIN has relieved Vladimir STAROSTENKO of his duties as Railroad Minister, appointing to this post First Deputy Premier Nikolai AKSENYENKO, who formerly headed the Railroad Ministry. AKSENYENKO will now combine jobs of first deputy premier and Railroad Minister.

Militants Massed On Chechen Border

· Approximately 1,500 Islamic militants are massed in Chechnya near the border with Daghestan, possibly in preparation for a new invasion, Interior Ministry spokesman Mikhail ARKHIPOV said. The militants, who have twice cross the border seizing Daghestan villages, are assembling in the regions of Kizlyar and Babayurt, north of earlier incursions. He noted that rebels are still in control of Akhar and Shusheya villages. Russian troops have recaptured Novolaksky and Tukhchar villages. Defense Minister Igor SERGEYEV said his army is "fully ready" to repel rebel fighters if they invade Daghestan for a third time. The Minister stressed that there are three most dangerous sections on the border—Botlikh, Babayurt and Kizlyar. He noted that he has military intelligence information about changes in the activities of guerrillas in certain places and their movements. President Boris YELTSIN today said that reinforcement of the border with Chechnya is now one of the most important tasks. Russian authorities maintain that the Muslim militants are behind recent terrorist explosions in Moscow. The government is issuing a demand that Chechen authorities hand over "known criminals" hiding in the republic. Chechen President Aslan MASKHADOV has denied any link between Chechens and the Moscow explosions,

and says any mercenaries that may be involved in operations against Russia have "nothing to do with the state of Chechnya." Today an estimated 15,000 people protested in Grozny to denounce Russian strikes on Chechnya and claims that Chechens are behind the series of explosions in Moscow and Daghestan. Russia has acknowledged hitting militants and their bases inside Chechnya. However, Chechen authorities have said that Russia has killed 200 civilians and destroyed whole villages in their raids. One protester said, "Don't blame Chechnya for all the crimes committed. Leave us alone, if you don't, a new war will be unleashed and we are ready to win it and defend our fatherland."


Ruble = 25.48/$1.00 (NY rate)

Ruble = 25.4/$1.00 (CB rate)

Ruble = 26.49/1 euro (CB rate)

IMF Loan Sold By Central Bank

· Russia's suspended prosecutor general Yuri SKURATOV said that as much as $3.9 billion of $4.8 billion received from the International Monetary Fund (IMF) as an emergency bailout loan never entered Russia, but was sold by the Central Bank to help powerful, well-connected banks rather that support the overall economy, the Associated Press reported. He said, "Of that money, $3.9 billion was sold directly to Russian and foreign banks, bypassing the trading session at the Moscow Interbank Currency Exchange (MICEX), and only $471 million, less than 10 percent of the loan, went to support the ruble exchange rate on MICEX. Another $100 million went for intervention on other [currency] exchanges." SKURATOV said 18 Russian banks were involved the scheme, including SBS-Agro, Uneximbank and others. He declined to name the foreign banks and didn't say at what rate the Central Bank sold the dollars. The dollars sold to Russian banks were then deposited in US bank accounts, such as the Bank of New York, which is at the center of an international money laundering investigation. The IMF and the Central Bank declined to comment on the story and the Bank's then chairman Sergei DUBININ was on vacation and unavailable. The IMF earlier issued three audits on the Central Bank for possible misappropriation of funds. PriceWaterhouseCoopers, which conducted the audit, found no misuse of the money, but acknowledged that at the time the docu

When you need to know it as it happens




September 16, 1999

Intercon's Daily

mentation it was allowed to use may have been incomplete. This report shows that the Central Bank spent $6.9 billion intervening in Interbank foreign exchange trading and $2.5 billion on the MICEX. The Bank of New York served as the settlement bank for transactions completed on the MICEX. The audit report added that it found no preferential exchange rates for specific banks or any other irregularities.


US Ex-Im Prepares Loan To Tyumen

· US Export-Import Bank Chairman James HARMON said he sees no reason to postpone a $500 million loan to Tyumen Oil Company, despite heavy lobbying from BP Amoco hoping to limit Western financing for its rival. Tyumen has been trying to win control of oil fields owned by Sidanko and its main production unit Chernogorneft. BP Amoco bought a 10 percent stake for $571 million in 1997. It has been actively trying to pull Sidanko and Chernogorneft out of bankruptcy proceedings which have been ruthlessly marred by unfair tactics. Tyumen and affiliated companies control 60 percent of Chernogorneft debt. They have used their voting rights to push through a measure which calls for the liquidation and sale of Chernogorneft's assets by the year's end. HARMON said the bank, "has seen nothing in the behavior of Tyumen management that would make us not conclude the transaction. In all takeover battles there are almost always aggressive actions taken." The Export-Import Bank loan will be used to buy US-made equipment to upgrade Tyumen's oil fields and refinery.

economy is expected to grow about 1 percent this year and 4 percent in 2000.

Ukraine-Kazakh To Improve Bilateral Relations

· Kazakh President Nursultan NAZARBAYEV is starting a three-day official visit to Ukraine today in hopes of reviving bilateral trade and economic relations. Ukrainian President Leonid KUCHMA and NAZARBAYEV will discuss a number of issues including Kazakhstan's importing An-74 planes from Ukraine for use on national airlines. Ukraine will also discuss the processing of Caspian crude at its refineries and participating in Caspian oil transits to Europe. Ukraine, which has heavily relied on Russia for oil supplies, is seeking better, more reliable alternatives. NAZARBAYEV will also lead discussions related to Kazakhstan's participation in the privatization sale of Ukraine's Lisichansk Oil Refinery, which is only using a fraction of its 16 million tons annual capacity, and the construction of machinery and tractor stations in Kazakhstan to service Ukraine-made tractors, ship- and aircraft-building. The Kazakh President will visit the Antonov Aircraft Plant and the Oil Transportation Institute. Kazakhstan and Ukraine are expected to sign a number bilateral agreements including a ten-year economic cooperation program during NAZARBAYEV's visit. These agreements cover areas such as customs and taxes, emergency situations, cooperation between the national banks and the transfer of people sentenced on each other's territory.

South Caucasus & Central Asia

Georgia Hosts Conference For Caucasus Peace

· Georgia will host an international conference to promote regional peace and relations with the East-West corridor. The International conference Peaceful Caucasus and Eurasian Corridor: Ways of Integration East-West will be held in Georgia on September 17th to 18th by the initiative of the Center of Research of Relations of East and West headed by Georgian President Eduard SHEVARDNADZE State Minister Vazha LORDKIPANIDZE said Wednesday, Georgia is able to become a base center for research of relations of East and West. "Georgia has a unique experience of tolerance," LORDKIPANIDZE stressed. Former advisers to the USA presidents, well known political scientists Zbignev BZHEZINSKY and Richard PIPES, special adviser to the president

European Republics

Latvia Tries To Fill Budget Deficit Gap

· The Latvian government plans to issue a 75 million euro bond ($77.7 million) and draw on world bank structural funds to fill the budget deficit gap this year. The credit line, secured by an economic policy agreement with the International Monetary Fund (IMF), will extend to the end of 2000. The Finance Minister Edmunds KRASTINS said the agreement would allow Latvia to defer borrowing on international markets until next summer. The Financial Times reported that the euro emission, scheduled for October, is the second installment of Latvia's debut international bond issued this Spring. Latvia's

When you need to know it as it happens




September 16, 1999

Intercon's Daily

and secretary of state of the USA for Caspian energy resources John WOLF, director of the US Congress Library James BILLINGTON, state adviser of Azerbaijan for foreign policy Vafa GULUZADE, director of Russian Institute of Europe Vitaly ZHURKIN, and other political and public persons are to participate in the conference.

Caucasus Speakers Sign Declaration

· Georgian Parliament speaker Zurab ZHVANIA, Armenia's Karen DEMIRCHYAN, Azerbaijan's Murtuz ALESKEROV, and the chairman of the Parliamentary Assembly of the Council of Europe Russel JOHNSTON signed a joint declaration in Tbilisi on Wednesday, after holding a two-hour closed door session covering a number of topics. According to ZHVANIA, these issues included human rights issue, building of democratic institutes, judicial reforms, development of culture, science and arts. The declaration confirms their intention to continue cooperation between the parliaments of the three countries in the field of human rights and to hold tripartite meetings twice a year: one in Strasbourg and one in the region. The declaration also specifies the functions of a three-party parliamentary working group. The group will realize decisions adopted at the seminar and work out the agenda for the next session to be held in Strasbourg in the Spring of 2000. ZHVANIA described the meeting as "historic." He added that this meeting and the upcoming meeting of the prime ministers of the South Caucasus countries are part of preparations for a summit of the presidents of Georgia, Armenia and Azerbaijan slated for the end of the year. DEMIRCHYAN said one of the issues discussed at the meeting with his Georgian and Azeri counterparts was the settlement of the Nagorno-Karabakh conflict. He said the meeting was held in the atmosphere of "mutual understanding." ALESKEROV welcomed the meeting in Tbilisi and is looking forward to the next meeting.

OSCE Chairman Makes Caucasus Tour

· Norwegian Foreign Minister Knut VOLLEBAEK, who currently chairs the Organization for Security

and Cooperation in Europe (OSCE), arrived in Armenia Wednesday to discuss with his Armenian counterpart Vartan OSKANYAN over the Nagorno-Karabakh region. In order to promote settlement in the region, several OSCE member countries formed the Minsk group for Nagorno-Karabakh, chaired jointly by Russia, France and the US. VOLLEBAEK and OSKANYAN are expected to sign a memorandum on the establishment of the OSCE mission in Yerevan. VOLLEBAEK believes economic cooperation between Armenia and Azerbaijan is interconnected with the settlement and may be of great importance for the economic development of these countries.

The meeting will be followed by a visit to the memorial to victims of the Armenian massacre in the Ottoman Empire in 1915, after which VOLLEBAEK will attend the opening of an exhibition dedicated to Norwegian humanitarian Fridtjof NANSEN, who did a lot to help Armenian refugees who had escaped the massacre. VOLLEBAEK will also have a meeting with Nagorno Karabakh President Arkady GUKASYAN and separately with leaders and representatives of the Armenian parliament, President Robert KOCHARYAN and Prime Minister Vazgen SARKISYAN. After his visit in Armenia, the OSCE chair will fly to Georgia.

Kyrgyz President Won't Run In Elections

· Kyrgyz President Askar AKAYEV announced he will not run for a presidential third term next year. He said he want to see a younger successor. During a visit to Germany this week, he told Der Tasgesspiegel that, "Younger people have to do it." AKAYEV also mentioned returning to his former career as a scientist once presidential elections were held. No date for a presidential election has been set yet. The Kyrgyz constitution limits the president to two terms. AKAYEV took over under the previous constitution during Soviet rule, calling into doubt whether AKAYEV is now serving his first or his second term. Kyrgyz is regarded as more liberal and open than its Central Asian neighbors, where leaders are virtually forming autocracies. The West has recognized Kyrgyzstan's progress with democracy and market reforms.

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When you need to know it as it happens