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

Monday, September 27, 1999

Russian Federation

Politics

Shoigu Agrees To Lead Unity Bloc

· Russian Minister for Emergency Situations Sergei SHOIGU announced that he has agreed to lead the Unity Party made up of several Federation Council regional governors. Apparently, SHOIGU made his participation conditional, on the new bloc not being linked with Russian business tycoon Boris BEREZOVSKY. SHOIGU expressed confidence that honest decent people of firm principles can and should become members of the new Russian State Duma and that the lower house of parliament should represent the interests of all Russia's regions and the entire population. The Emergency Minister is not going to leave his post as he leads the federal list of a new election movement. The Unity bloc was proclaimed to be in emergence after governors of Russia's 39 regions issued a Statement of 39 on Monday. The statement addressed Russians and called for accord in the campaign for the forthcoming elections to the State Duma. Prime Minister and presidential candidate Vladimir PUTIN voiced support for the new party, saying it will help stabilize the political situation in Russia.

Chechen Refugees Flood Into Ingushetia

· The Russian Air Force this weekend continued its air strikes on oil refineries, telephone installations, a television station and other industrial targets, despite reports from Chechnya that the air campaign is hitting civilian villages. The air raids have forced thousands of Chechens to abandon their homes and head north to the Russian republic of Ingushetia. More than 100,000 Chechens have crossed the border. The situation is chaotic as cars stretched on one highway more than 10 miles from the border. The Ingush authorities have appeal to Moscow for emergency assistance, including food and tents. After the

massive infusion of refugees, the authorities have now closed the border. Acting prime minister of Ingushetia Akhmed MALSAGOV said, "We are on the brink of a humanitarian disaster." In spite of this desperate situation and calls from Chechen President Aslan MASKHADOV to meet with the Kremlin leadership, Russian Air Force Chief General Anatoly KORNUKOV has said that the air strikes could go one for another month. In addition, Russia's Defense Ministers Igor SERGEYEV suggested the fighting might intensify. He said, "There are several variants for a land operation, which will be carried out, depending on the developing situation...The main aim of all the plans is to destroy the bandits and to create a sufficiently broad zone of safety around Chechnya." A full scale invasion of Chechnya seems unlikely due to the deterioration of the Russian military. Prime Minister Vladimir PUTIN, however, did not rule out that a group of special forces could carry out a commando raid to target field commanders, such as Shamil BASAYEV and KHATTAB. PUTIN, SERGEYEV, Director of the Federal Security Service Nikolai PATRUSHEV, First Deputy Prime Minister Nikolai ASKYONENKO, and Interior Minister Vladimir RUSHAILO met today in the Kremlin to discuss new strategies, "linked to the more effective use of military hardware," and the growing refugee problem. MASKHADOV has said he will exert all of his efforts to avoid a full-scale war.

Economy

Top Financial Leaders Meet In Washington

· A team of Russian delegates including First Deputy Prime Minister

Today's News Highlights

Russia

London Club Offers Tough Plan

Telecom Merger Considered

European Republics

Eesti Telefon-Telia Internet Link

Rus-Belarus State Considered

South Caucasus & Central Asia

Russian Claims Slanderous

Georgian Suspect Detained

Nazarbayev Slams The CIS

Tajik Constitution Amended

Politics-Economics-Business

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Monday

September 27, 1999

Intercon's Daily

Viktor KHRISTENKO, Finance Minister Mikhail KASYANOV, and Central Bank chairman Viktor GERASHCHENKO arrived in Washington this weekend for talks with the International Monetary Fund (IMF), World Bank, Group of Seven (G-7) Finance Ministers, and US Treasury Secretary Lawrence SUMMERS, receiving strong calls for Russia to strengthen its financial integrity. KHRISTENKO expressed hope that Russia will receive the next installment its IMF loan without delay. One Russian negotiator said that the IMF is thinking up new obstacles such as the continuing audit of Central Bank transactions and the investigation into the Bank and Finance Ministry's handling of hard currency reserves. The G-7 Finance Ministers released a joint communiqué stating that there is a "critical need" for Russia to fight corruption and money laundering. It insists that future aid can be granted only after the Russian government enacts stronger controls to prevent the misuse of funds. In addition, Russia must agree to quarterly audits of its Central Bank reserves. After a relatively calm meeting with SUMMERS, GERASHCHENKO lashed out at new requests for extensive new auditing demanded by the US government before it would support new lending through the IMF. He said, "We can improve technology once, but why should we have to account for everything everyday? Do we have to publish our accounts in the gutter press or at official councils?" SUMMERS countered with his earlier argument, "The capacity of the IMF and the World Bank to help bring about effective policies depends on the will and capacity of Russian authorities and the Russian people to carry forward reforms in their national interests." GERASHCHENKO's comments and behavior are in direct contrast to Foreign Minister Igor IVANOV, who was asked by Russian President Boris YELTSIN to reassure the CLINTON administration that Moscow is strongly interested in cracking down on corruption and welcomes international scrutiny. Today, KRISTENKO is participating in a closed-door meeting of the IMF-World Bank development committee and meet an executive vice-president of the International Finance Corporation and IMF Managing Director Michael CAMDESSUS.

Ruble = 25.28/$1.00 (NY rate)

Ruble = 25.27/$1.00 (CB rate)

Ruble = 26.24/1 euro (CB rate)

London Club Offers Difficult Plan

· Russian Finance Minister Mikhail KASYANOV has described the London Club's offer for the restructuring the debts of the former Soviet Union into Russia's eurobonds backed by state guarantees as "very stiff." The Finance Minister and head of Russia's Vnesheconombank Andrei KOSTIN met with the London Club of creditors on Thursday in Frankfurt. He said, "We treat these demands without enthusiasm, do not give our consent to them and do not feel any wish to fulfill them." On the other hand he pointed out that the ministry will be reviewing the offer. KASYANOV said that, "a very tough stance" assumed by the western partners was "no surprise" to the Russian delegation, and declared that a tendency towards rapprochement of the positions had appeared. Russia is determined to reach understanding with the London Club this December, he stressed, not ruling out, however, that the talks might be continued into the first quarter of the year 2000. He said that creditors, "agreed to examine the question of writing off the debt." According to KASYANOV, the sides did not set "a level" below which they agree to conduct talks. The question of overdue payments is also examined in package with all other aspects of a possible settlement. He said additional efforts will have to be made within the next two weeks to prepare economic arguments for a more detailed explanation to the lenders about the essence of the problems faced by Russia at present and in the near future. Russia will require at least six or seven years to return to the 1997 level in terms of its ability to pay foreign debts, KASYANOV pointed out. The next round of talks with the London Club will be held in October.

Business

Telecom Merger Plans Considered

· A plan to merge Russia's two government-dominated telecommunications firms Rostelecom and Svyazinvest is under consideration. The merger would send the industry back to a monopolistic structure. Rostelecom, the national long distance company, and Svyazinvest, the holding company for Russia's telephone carriers, would completely donate wire-line traffic in Russia and control a large section of Russia's mobile and Internet markets, through Svyazinvest subsidiaries. Dmitry IOUSINE, a telecommunications analyst with Merrill Lynch

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said, "By creating a top-down monopoly, with Rostelecom at the helm, the government hopes to reinject a degree of cohesion into the sector. Today, the industry is too unruly and too fragmented." Terms of the deal and possible implications to shareholders are still unclear. Political infighting could delay the process.

South Caucasus & Central Asia

Georgia Calls Russian Accusations Slanderous

· Georgian Ambassador to Russia Malkhaz KAKABADZE was summoned to the Russian Foreign Ministry on Saturday and informed of concrete evidence that Chechen rebels train on Georgian territory. However, no details were released. Georgian President Eduard SHEVARDNADZE in his national radio address described as "slander" the allegations from Russian mass media sources and political leaders that weapons were being delivered to the Northern Caucasus, namely to Chechnya and Daghestan, via Georgian territory. He said it was strange to hear such accusations from those who had previously encouraged separatists by deeds and words. SHEVARDNADZE suggested that a leak of arms to North Caucasus gunmen must be investigated at Russian military bases in Georgia. He dismissed reports that 400 foreign mercenaries arrived in the Chechen capital Grozny via Georgia. Valery CHKHEIDZE, head of the Georgian state border protection department said such allegations are, "part of deliberate provocation campaign aiming to discredit Georgia's policy." He stressed Georgia, "has never been and will never be a country to allow the transit of criminals, mercenaries, weapons, etc." Russia has demanded negotiations between power bodies on the problem of transit of arms and gunmen. Russian President Boris YELTSIN, "strictly demanded hundred percent guarantees for avoidance of entrance of foreign gunmen and arms to the North Caucasus." Georgian Interior Minister Kakha TARGAMADZE will hold negotiations with his Russian counterpart Vladimir RUSHAILO on important bilateral issues, just before a trip to Ukraine. Russian agencies reiterated their readiness to, "immediately expand contact and information exchange with their Georgian colleagues in order to prevent the spread of terrorism and extremism in the Caucasus."

Georgian Suspect Detained In Russia

· The Russian Security Service (FSB) in Vladikavkaz, North Ossetia has arrested Nugzar CHUKHUA, a Georgian citizen wanted in connection with an attempt on the life of Georgian President Eduard SHEVARDNADZE on February 8, 1998. SHEVARDNADZE escaped unharmed, when gunmen showered his motorcade with grenades and automatic weapons, but two of his bodyguards were killed. Ten

European Republics

Eesti Telefon-Telia To Set Up Internet Link

· The Estonian telecoms operator Eesti Telefon and Sweden's Telia have plans to build a fixed Internet linking Estonia and Sweden. The 250 kilometer fiber optic cable is to use the latest ATM technology in order to enable connection speeds of up to 40Mb per second. Fixed Internet connections already exist between Estonia and Finland, and Estonia and Canada. Eesti Telefon is a subsidiary of the former state-owned telecoms company Telekom. Finnish operator Sonera and the Swedish Telia together own 49 percent of Telekom.

Rus-Belarus Unified State One Step Closer

· Russian President Boris YELTSIN is considering the draft treaty on the formation of a single state with Belarus, submitted by Prime Minister Vladimir PUTIN. The President has instructed PUTIN, head of the Kremlin Administration Alexander VOLOSHIN, Foreign Minister Igor IVANOV, and Minister for the Affairs of the Commonwealth of Independent States Leonid DRACHEVSKY, "to ensure, in coordination with the Belarus side, the publication of the draft document for nationwide discussion and to report to him on the results of its finalization with due account of the generalized remarks and proposals." The draft treaty on the creation of a unified with Belarus is to be published simultaneously in the Russian and Belarus central press within the coming few days. Deputy Head of the Presidential Administration Sergei PRIKHODKO said that the document may be signed this year. He stressed that the signing of this treaty, "is in no way linked with either the upcoming parliamentary or presidential elections in Russia." He said that the unification of Russia and Belarus, "is a very serious matter—it involves the merging of the two economies, of the two nations." PRIKHODKO said that the sides had also prepared a Program of Russia's and Belarus' actions to implement the provisions of the treaty to set up a unified state.

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Monday

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Intercon's Daily

of 12 people suspected of participating in the attack are in Georgian custody and are awaiting trial. Another suspect escaped and was killed in a shoot-out with police in 1998. Guram ABSANDZE, a former finance minister, has been indicted on charges of organizing the attack. Most of the suspects are supporters of Georgia's late president Zviad GAMSAKHURDIA. Sources in the Georgian National Security Ministry have confirmed CHUKHUA's detention in North Ossetia. CHUKHUA was known to have escaped from Georgia to North Ossetia following the attack on SHEVARDNADZE. Russian police detained CHUKHUA after he admitted responsibility for the bomb attack on a market in Vladikavkaz in March 1999, and provided details of its preparation. Russian authorities are planning to prosecute him for taking part in the terrorist act which killed 50 people. Georgia's Security Ministry will most likely seek CHUKHUA's extradition.

Turkmen-German Business Drops 10 Percent

· The Turkmen-German business activity declined by 10 percent over the past eight months against the corresponding period in 1998, German Ambassador to Turkmenistan Hans Juergen KEILHOLZ said at a meeting of Saxonian and Turkmen businessmen in Ashkhabad last Monday, sponsored by the Turkmen Trade and Foreign Economic Relations Ministry and the Saxonian organization for the promotion of industry. Representatives from 12 companies offered Turkmen businessmen assistance in equipping small and medium production lines. Germany is interested in establishing firm business contacts with Turkmen companies, the German ambassador emphasized. Germany ranks fifth among Turkmenistan's foreign trade partners. KEILHOLZ pointed out that debts from some CIS countries to Turkmenistan is part of the reason for the slump, as well as the underdeveloped structure of private business. Bilateral trade turnover totaled $42.4 million over the eight months of the current year, including export $2 million and import $40.4 million. German firms participated in construction of 28 economic projects over the past three years with a total value of $224.42 million.

Kazakh President Criticizes CIS

· Kazakh President Nursultan NAZARBAYEV voiced discontent Friday with the status quo of the Commonwealth of Independent States (CIS), criticizing it for failing to promote regional economic integration. "The CIS is losing its sense as a cooperative organization...The CIS is not heading for integration but rather disintegration," he said. The Kazakh President made the statement to reporters after talking with government heads from Russia, Belarus, Kyrgyzstan and Tajikistan, who met in Astana and signed a series of accords on economic cooperation. The four countries plus Kazakhstan set up a customs union last February in Moscow in an effort to ride out the severe economic aftermath incurred by Russia's financial crisis. NAZARBAYEV said that trade among CIS countries had shrunk 70 percent since 1991. In the first half of this year, he added, trade between Caucasus countries and CIS members fell by 40 percent and that with Kazakhstan down 20 percent. Moreover, he complained, CIS members have signed thousands of documents, but only 5 to 10 percent of them have been implemented. The Kazakh President hoped that with concrete actions and measures, the five-nation customs union will be able to set an example for CIS integration. "Nobody touches political sovereignty, it is a question of goods and protection of the internal market of the state members of the Customs Union."

Tajikistan Votes To Amend The Constitution

· Two-thirds of Tajik citizens, who participated in a referendum on the Tajik Constitution on Sunday, have voted for the introduction of amendments. The amendments and supplements into 27 articles of the Constitution, include the formation of two-chamber professional parliament, the right to create political parties, including on the basis of religion, and the extension of the term of presidential powers from four to seven years. The Central Election Committee said there were, "no breaches have been so far reported either by the voters or independent observers." Tajik President RAKHMONOV said the vote has historical importance for the fate of the people of Tajikistan.

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

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