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

Friday, October 15, 1999

lage of Stepnoi, located on the southern bank of the Terek River. Russian troops called in helicopters and artillery attacks, killing 20 militants and dispersing the rest. There was also fighting in the western town of Bamut. While the Russian military has said it want to create a security zone around Chechnya and seal off Islamic fighters, it also has said it will destroy militants wherever they are located. It has not ruled out a plan to take Grozny. IVANOV said that Russia is working to stabilize the situation in Chechnya quickly and with minimal casualties. MASKHADOV and other warlords have warned that they are ready for a long drawn-out war.

CIS Parliament May Lose One Member

· The fourteenth plenary meeting of the CIS Interparliamentary Assembly (IPA), to be held in St. Petersburg this Saturday, will discuss a broad range of topics, but is at risk of losing at least one member, if the Abkhaz election is not condemned. The IPA forum, attended by parliamentary delegations from ten CIS countries and chaired by Federation Council Speaker Yegor STROYEV, will focus on problems linked to the creation of a free-trade zone in the Commonwealth as well as adopt important decisions on measures to combat terrorism, as well as twelve model draft laws on economic, financial, ecological, and social problems, human rights, security and national development. Georgia has warned that it may leave the assembly if the session does not condemn presence of Russian State Duma observers at presidential elections in Abkhazia on October 3rd. This

Russian Federation

Politics

Presidential Elections Scheduled For June, 2000

· In a new Presidential Election bill, submitted to the Russian State Duma by President Boris YELTSIN, the presidential election has been scheduled for June 4, 2000. If necessary, a run-off election will be held on June 25th and the inauguration of the newly-elected president on August 9th. Andrei LOGINOV, head of the presidential administration department for domestic affairs said that YELTSIN will continue to perform his presidential duties right up to August 9, 2000, despite rumors that he will step down before his term ends. LOGINOV said that the law does not provide for any special period for handing over presidential powers but it is clear that this will be done within about a month in the period between the election run-off and the inauguration of next president of Russia.

Russia Ready For Talks With Chechnya?

· Foreign Minister Igor IVANOV said the Russian leadership is ready for a political dialogue with Chechen President Aslan MASKHADOV, so long as the Chechen side stops combat operations and extradites bandits and terrorists, guilty of committing crimes. During his press conference with his German counterpart Joschka FISCHER, IVANOV pointed out that MASKHADOV had been elected Chechen president not under Russian laws but under norms established in the republic. He said Russia is ready for negotiations to settle the situation in Chechnya. Meanwhile the commander of the federal forces in the North Caucasus, Viktor KAZANTSEV, has confirmed the military's intention to expand the security zone across the Terek River. He said, "Chechnya's sanitary zone will not be limited to three northern districts." Earlier today, about 60 militants ambushed two Russian armored personnel carriers in the vil

Today's News Highlights

Russia

Primakov On Economic Crimes

WB To Freeze Lending?

Gov't To Sell Gazprom Stake

European Republics

Lith. Budget Cuts Approved

Ukrainian Poll Predictions

South Caucasus & Central Asia

All UN Hostages Released

Dirty Poster Politics In Batumi

Five Kyrgyz Hostages Released

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October 15, 1999

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election has been declared as illegal by the UN, US, Russia and many other nations. As the chairman of the committee for foreign relations of Georgian parliament Kakha CHITAIA said, "position of Russian delegation in the Parliamentary Assembly will be the most important," Prime News Agency reported. Georgia is also demanding the condemnation of the unilateral decision by the Russian government on abolishment of admission limits at Abkhazian portion of Georgian-Russian border.

Primakov New Anti-Corruption Candidate

· At a conference sponsored by the All Russia-Fatherland party, former prime minister and presidential candidate Yevgeny PRIMAKOV re-invented himself as the anti-corruption candidate, warning that criminals threaten national security. He said, "Today, organized crime is no longer content with buying officials but openly want to infiltrate the government. Corruption in Russia has become a national security problem, the resolution of which will be critical not only for the future of the country , but for its very existence," the Financial Times reported. He said that criminal structures control about 40 percent of the economy and that the economy loses about $20 billion a year from criminal activity. That figure is almost equivalent to the 1999 federal budget revenues. PRIMAKOV added that, "The state turns out to be incapable of ensuring observance of honest rules of the market game. And this means that the very idea of the market becomes discredited." Sergei MARKOV, director of the Institute of Political Research, believes that PRIMAKOV's statements may come back to harm him and his party, since many governors, who support the All Russia-Fatherland movement, have "institutionalized corruption" in their own regions. PRIMAKOV has called for regional and central powers to coordinate their fight against criminal organization and the implementation of new tough laws. In addition, law enforcement agencies should be cleansed of corrupt officials.

Meanwhile, PRIMAKOV is filing a lawsuit against the newspaper Novye Izvestia over its publication of the so-called "PRIMAKOV's list" of officials suspected of corruption, allegedly compiled on his order. "It is real provocation," he said. PRIMAKOV also pointed out that the list is similar to a ratings lists published by the newspaper Nezavisimaya Gazeta. He claims that the list has been created by his opponents and said,

"those who seek but fail to find any compromising materials against me, invent such things."

Economy

Ruble = 25.67/$1.00 (NY rate)

Ruble = 25.8/$1.00 (CB rate)

Ruble = 27.91/1 euro (CB rate)

May Jun Jul Aug Sep Oct

Economic Crime In Russia Rising

· Russian Interior Ministry's administration for struggle against economic crime Alexander VOROBYOV on Tuesday said that economic crime is on the rise in Russia. In 1999, the number of economic crimes reported has increase 20 percent against 1998. According to VOROBYOV, over a 9-month period this year, 247,600 crimes had been exposed in the sphere of economy. Every second crime was reported to be aimed at property and every tenth crime violated the interests of state services and bodies of local self-government. Head of the State Administration for Struggle against Economic Crime Valery GURYEV reported that economic crimes related to consumer market increased in number by 20 percent. The crimes include larceny, fraud, illegal trade in precious metals and stones, forgery, counterfeit, illegal business, contraband, illegal credits.

WB Follows IMF Lead On New Loans

· World Bank representative in Moscow Michael CARTER on Thursday said that the bank may freeze its lending programs in Russia, if the fighting in Chechnya drains the country's budget. He said, "If there were to be a very sharp increase in military expenditure which would destabilize the budget, that

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would destabilize the macro-economic situation. That would indeed interrupt our ability to continue with the disbursement of adjustment loans." His statements follow comments made by International Monetary Fund managing director Michel CAMDESSUS, who issued a similar warning earlier this week. However, CARTER added that suspending World Bank support was only hypothetical so far, but could affect structural adjustment loans, which directly fund the budget, and require policy action from the borrower rather than spending commitments. He also pointed out that the currency funds of the World Bank could not be used by the borrowing country for the military needs, as well as for some other purposes, including the production of alcohol and tobacco. CARTER also stated that the World Bank has tightened controls over money disbursed to Russia in view of allegations that funds wee misdirected. He said, "So far the additional checking of the adjustment loans reconfirms that all money has reached the appropriate destination." Russian Prime Minister Vladimir PUTIN has pledged to increase the salaries of Russian soldiers fighting in the region to $1,000 per month equal to those serving in a peacekeeping capacity. A prolonged conflict could turn out to be a heavy burden to an already austere budget.

Business

Beijing To Buy Russian Jets

· China has revised plans to buy Russian Sukhoi fighter jets, reducing the number to about 30 advanced fighter jets. China has signed a contract for $2 billion. Victor CHEPKIN, president of Lyulka-Saturn which builds the jet's engines, said, "They have purchased some 30 Su-30 aircraft. The contract was signed recently." Russian media in August reported that state arms dealer Rosvooruzheniye reached a preliminary deal after four years of negotiations to sell 60 Su-30 aircraft for $2 billion.

Gov't Gazprom Stake For Sale?

· First deputy property minister German GREF on Tuesday announced, "Today, from the point of view of buyer demand, we can see interest in Gazprom is heating up again. Taking this into consideration, the government may take the decision to sell," Vedomosti reported. The government may sell a 2.5 percent stake. Last week, Gazprom chairman Rem VYAKHIREV said he could not find investors for the stake at the asking price.

European Republics

Lithuanian Budget Cuts Approved

· The Lithuanian parliament on Thursday in a vote of 72 to 18 approved cuts to this year's budget by 450 million litas ($112.5 million) to a total of 6.76 billion litas. Opposition Social Democratic parliamentary deputy Aloyzas SAKALAS said that, "the budget reduction cannot wipe out the principal problems that led the state to [its] current plight," RFE\RL Newsline reported. Other opposition deputies argued the cuts are not enough, suggesting the deficit is already close to 1 billion litas.

Polls Predict Ukrainian Run-off Election

· According to results of the institute of Sociological Studies poll, which took a widely-representative survey in all regions of the country, Ukraine's presidential elections will be held in two rounds, with incumbent Leonid KUCHMA and Natalia VITRENKO, leader of the Progressive Socialists facing off in the run-off election. Their prediction shows KUCHMA winning that round by 43 to 52 percent of the vote. Pyotr SIMONENKO, First Secretary of the Central Committee of the Communist Party of Ukraine, will be third in the first round. Parliament Speaker Alexander TKACHENKO, and ex-Speaker Alexander MOROZ, in sociologists' estimate, will not be among the top three positions. In a poll conducted by Socis Gallup, 43 percent of respondents said they will vote for KUCHMA, VITRENKO 20.9 percent, SIMONENKO 14.8 percent, MOROZ 8.1 percent, and Yevhen MARCHUK 5.2 percent. The Ukrainian Institute of Social Studies and the Social Monitoring Center poll shows similar results with Kuchma receiving 33.6 percent support, VITRENKO 15.8 percent, SIMONENKO 13.6 percent, MOROZ 8.2 percent, MARCHUK 5.2 percent, and TKACHENKO 4.9 percent. Sixteen days remain prior to the October 31st presidential elections. The Central Electoral Commission has registered 15 candidates but even this figure is not final.

South Caucasus & Central Asia

Negotiations Successful: Hostages Released

· Georgian State Minister Vazha LORDKIPANIDZE has confirmed that the remaining UN Military observers being held hostage, Georgios KAPRANOS from Greece, Jorgen OBERG from Sweden and inter

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preter Artur POGOSYAN, have been released this morning after negotiations with Defense Minister David TEVZADZE and the presidential envoy to Kodori Gorge Iveri CHELIDZE. They are being flown by helicopter to Kutaisi and then will be driven to Sukhumi. There is little information regarding the details of their release. Following Thursday's release of the four UN military observers, the kidnappers again increased their ransom demand from $250,000 to $350,000 per individual. Speaker of Georgian parliament Zurab ZHVANIA said that no ransom was paid for the first group of four released on Thursday and it is believed that no arrangements were made for today's release. The kidnappers were also demanding security guarantees, but Georgia made no concessions to the terrorists. ZHVANIA stressed, "the Georgian authorities do not negotiate any ransom speaking with terrorists and abductors." Officials believe the gunmen involved in the kidnapping are ethnic Svanetians, a militant tribe settled in Kodori Gorge. State Security Minister Vakhtang KUTATELADZE believes the kidnapping incident could be connected to the forthcoming October 31st parliamentary elections.

The seven UN military observers were seized near the line separating the Georgian government forces and the territory of Abkhazia when they arrived by helicopter to Azhara village to deliver aid to Georgian refugees. Some 100 UN observers are in Georgia to monitor the truce between the districts separating government forces and separatists in Abkhazia which broke away from Georgia in 1994. In July, a group of Georgian officials was abducted in the same area under similar circumstances, but all hostages were later released unharmed.

Dirty Politics Played Out In Batumi

· The office of the Mayor of Batumi is paying 20 tetri to anyone who tears down the pre-election posters of the Citizens' Union of Georgia (CUG), according to representatives of Adjarian regional organization of the CUG. Prime News Agency reported that approximately over 2 thousand posters of

the Citizens' Union have already been torn down in Batumi and Kobuleti. Posters with the portrait of Georgian President Eduard SHEVARDNADZE can now only be seen by the office of the CUG in Batumi. Adjarian authorities have unofficially warn the Adjarian population that the voting process will be recorded by special video-cameras, which will monitor who a person votes for. This kind of threat has instilled fear in those who do not want to vote for the Revival Party, but see little alternative. Comment: SHEVARDNADZE has stressed that the parliamentary elections must be free and democratic. With this kind of dirty politics being played out in Adjaria, which during the last elections banned foreign observers, the challenge for a free and fair election is great. During a recent visit, Louise SHELLEY, director of TraCCC at America University, described her impressions of Adjaria as a "banana republic."

Five Hostages Released In Kyrgyzstan

· Kyrgyz parliamentary deputy Tursunbai BAKIR-UULU flew back to Bishkek today from southern Kyrgyz with five of the 13 hostages which were released this week. He also relayed the difficult news that the rebels killed one of the Kyrgyz hostages before October 4th. He did not give the name of the deceased hostage. The gunmen have sworn on the Koran that the other hostages, including four Japanese geologists are alive and well. He also said that the militants may release the Japanese hostages on Saturday, if the Japanese government requests BAKIR-UULU by Saturday to play an intermediary role in the talks. BAKIR-UULU is advocating negotiations between the Uzbek government and the opposition Islamic Movement in Uzbekistan, to which the rebels are members. Kyrgyz President Askar AKAYEV today is visiting the scene of clashes between government troops and Islamic militants, where he will tour the restoration of the Kara-Teiit village which was bombed by Uzbekistan's warplanes in August. AKAYEV said Kyrgyz had already spent some 200 million soms ($4.5 million) in fighting the gunmen in the south of the republic, where gangs from Tajikistan have operated since August 22nd.

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

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