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

Thursday, October 21, 1999

ZDANOVICH said Wednesday; all are linked to Chechen warlord Shamil BASAYEV and Jordanian KHATTAB. Police confiscated pamphlets on waging hostilities and staging terrorist acts at the homes of the suspects. He said the terrorists were trained in Chechnya and are hiding there. According to the FSB data, terrorists SAITAKOV and GOCHIYAYEV blamed for the blasts in Moscow studied together in the city of Naberezhnye Chelny, then were taught in Chechnya subversive operations, and took part in recruiting mercenaries. He also mentioned terrorists IMPRINTSEV and MIROSHKIN were detained in Vladikavkaz. "They had been preparing blasts there and are giving testimony now," ZDANOVICH said. Russian secret services have established the names of the other five terrorists involved in preparations of abortive explosions in Pyatigorsk. They discovered the explosives at Pyatigorsk and Volgodonsk are similar. "The leader of the Pyatigorsk criminal group, MUSALANOV, has been arrested and is giving testimony," ZDANOVICH said. He has already admitted being trained in a Chechen camp of KHATTAB.

The focus of the investigation is on an Egyptian man suspected of funding Chechen militants by paying $200,000 to Chechen warlord BASAYEV at the Congress of the Peoples of Ichkeria and Dagestan on December 19, 1998. The conference approved a resolution which practically declared war against Russia, ZDAN-OVICH said. The suspect, identified as Said EL-MABAN, reportedly has a Russian wife and a business in Moscow, but left the country shortly

Russian Federation

Politics

Five Missiles Explode In Grozny

· A giant explosion rocket the center of Grozny this evening, as Russian federal troops moved closer to the city. The Russian Defense Ministry could not confirm the attack on the Chechen capital. Eyewitness reported that missiles indeed fell on the city. Chechen armed forces operations chief Mumadi SAIDAYEV, however, said that five surface-to surface missiles hit the downtown area near the city's center. Hospitals are packed with civilian corpses and the wounded. Chechen spokesman Movladi UDUGOV said at least 60 people are dead with more than 150 injured. The missile attack is similar to one in 1994, in which Russia bombed Grozny before assaulting the town on New Year's Eve. The latest action comes on the heals of conflicting statements from Ministers and military commanders. Before leaving for his first western trip the EU-Russia summit, Prime Minister Vladimir PUTIN said that any further military action would, "depend on the concrete situation." Regional commander Nikolai KAZANSTEV said the ring of troops around Grozny would gradually be tightened. Nikolai KOSHMA, the Moscow appointed administrator to the Russian held areas in Chechnya said troops were gearing up to seize the city in the next few days. But Foreign Minister Igor IVANOV, in Spain, said, "There are no plans for a massive land assault on Grozny because that would result in many victims not only among the [rebel] groups but the civil population as well," Reuters reported.

Bombing Investigation Focuses On Egyptian

· The Russian Security Service (FSB) has discovered 23 people associated with explosions of apartments blocks in Moscow, Buinaksk and Volgodonsk, head of the FSB Public Relations Center Alexander

Today's News Highlights

Russia

Alfa Adopts Western Standards

Chernogorneft To Be Sold

European Republics

Aliyev-Kuchma Discuss Corridor

Belarus Removes Rubles Zeros

South Caucasus & Central Asia

US Supports Tbilisi's Policies

Armen-Iraq To Boost Relations

Akayev Gives National Address

Iran-Turkmen Sign Damn Agmt

Politics-Economics-Business

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Thursday

October 21, 1999

Intercon's Daily

after the attacks. It is reported that he wrote off the funding from his company's books as expenses to feed fasting Muslims. The current whereabouts of the suspect is unknown, but the FSB is in contact with the Egyptian secret service regarding the matter. Egyptian police are also searching for EL-MABAN, who is accused of swindling in Egypt. EL-MABAN is also directly connected with the illegal Islamic organization Moslem Brothers and organized financial pyramids, similar to the ill-famed MMM company.

Economy

Ruble = 25.83/$1.00 (NY rate)

Ruble = 25.79/$1.00 (CB rate)

Ruble = 27.78/1 euro (CB rate)

IMF Requires More Information

· After receiving a PricewaterhouseCoopers report on the Russian Central Bank's offshore affiliates, the International Monetary Fund (IMF) is requesting more details on whether the state used the affiliates to hide support for commercial banks. The need for more information is likely to further delay a September $640 million installment of a $4.5 billion loan package until late November. Russia has met deficit targets and other economic goals agreed to with the IMF. However, the IMF's policy on Russia is under increasing scrutiny due to the Bank of New York scandal which was made public in August. The affiliates, which the IMF has demanded Russia sell, are a legacy of the Soviet Union used for foreign trade transactions. The IMF called for a review of their operations after and earlier audit discovered the Central Bank had funneled $1.2 billion in hard currency reserves to an obscure firm in Britain's Channel island of Jersey, Fimaco. That firm is controlled by Banque Commerciale pour l'Europe du Nord, or Eurobank, one of the Central Bank subsidiaries. The other Central Bank affiliates are Moscow Narodny Bank of London, Ost-West Handelsbank of Frankfurt, Donau Bank of Vienna, and East-West United Bank of Luxembourg, The Wall Street Journal reported.

Business

Alfa Group To Adopt Western Standards

· Alfa Group chairman Mikhail FRIEDMAN has issued a challenge to his financial industrial group to adopt western standards and become more com

petitive and efficient. The Alfa Group has interests ranging from commercial banking to supermarket retailing to oil concerns. He believes that the more transparent and trustworthy company, in the post-crisis business world, will attract more corporate clients. He said, "It seems to me that our strategy will be the most effective and the most profitable." To do this within his planned time-frame of three to five years, FRIEDMAN has hired Alex KNASTER, the former head of Credit Suisse First Boston's Moscow office and Alexander TOLCHINSKY, the former head of McKinsey's Moscow office to raise professional standards within its commercial and investment banking businesses, the Financial Times reported. FRIEDMAN believes that the Russian economy has entered a new stage of development as the market continues to mature. He said, "to grow further we need to be prepared for long, laborious routine work and to build our organization brick by brick." The Alfa Group chairman's good intentions, however, may be blurred by the battle over Chernogorneft between BP Amoco and Tyumen Oil Company, in which Alfa Group owns a 25 percent stake.

Creditors Vote To Sell Chernogorneft

· Creditors of Chernogorneft, the bankrupt subsidiary of oil company Sidanko, voted to sell the unit to the highest bidder in a tender tentatively scheduled for late November. Independent appraisers estimate the starting price of Chernogorneft to be $200 million. BP Amoco, owner of a 10 percent stake in Sidanko, has called the creditor's vote invalid and vowed to challenge it in court. BP Amoco spokesman Howard CHASE said Russia's Federal Insolvency Service had revoked the license of Chernogorneft's administrator, making it unclear whether the creditors' committee's decision are valid. The committee is heavily dominated by Sidanko rival Tyumen Oil Company, which has long expressed interest in pressing the sale of Chernogorneft, since its fields lie next to Tyumen's in western Siberia. Tyumen President Seymon KUKES said that, "tremendous synergies" exist that would make Chernogorneft a valuable asset." He added, "We are prepared to participate," in the tender and, "They [BP Amoco] are welcome to challenge it in court." Almost a year of these bankruptcy proceedings are being closely followed by foreign investors as a test to whether Russia's bankruptcy laws can work efficiently and justly.

When you need to know it as it happens

Politics-Economics-Business

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Thursday

October 21, 1999

Intercon's Daily

New Svyazinvest Director General Appointed

· Valery YASHIN has been appointed Director General of the Svyazinvest company at an extraordinary meeting of shareholders today, Director of the Svyazinvest Board Vladimir BULGAK said. YASHIN is concurrently Director General and Board Chairman of the St.Petersburg Telephone Exchange Company, Board Chairman of the Telecominvest Company and non-state Pension Fund Telecom Soyuz. He is also a member of boards of a number of telecommunications companies of St.Petersburg. Oleg BELOV, who had been director general since April 1999, resigned from his post upon the demand of the Russian Ministry for State Property which is one of the biggest shareholders of the Svyazinvest.

move is aimed at simplifying the currency, which has been complicated by years of runaway inflation. Economists point out that the government prints money to pay state workers and pensions instead of collecting taxes, spurring on inflation. Vladimir KULAZHENKO, an economist in Minsk, said, "Denomination in Belarus won't give any results as the main economic problems have not be solved." The Belarus ruble is currently trading at a rate of 750,000 rubles to the dollar.

South Caucasus & Central Asia

US Supports Georgian Military Policies

· Visiting US State Department special advisor on the newly independent states Stephen SESTANOVICH told Georgian President Eduard SHEVARDNADZE, State Minister Vazha LORDKIPANIDZE, and parliamentary speaker Zurab ZHVANIA during meetings on Wednesday that the US supports the position that Russian forces should be withdrawn from Georgia. In addition, the US applauded Georgia's action to retain its quotas, determined by the Agreement [CFE] on common arms in Europe, and not turn them over to Russia, despite pressure from its northern neighbor. Deputy head of international relations service of Georgian State Chancellery Shalva PICHKHADZE confirmed this information to Prime News Agency. Russia has violated its quotas at south flank, claiming that its fight against terrorism in the North Caucasus requires it to violate the agreement. PICHKHADZE has predicted that, at the November summit of OSCE in Istanbul, Russia will be called upon to maintain its commitment to the Agreement terms. According to quotas, Georgia has a right to have 220 tanks, 220 armored cars, 285 artillery units, 100 planes, 50 military helicopters, but it will not be able to fill these quotas. SESTANOVICH also signed an agreement under which the US will provide Georgia with military uniforms and other supplies worth $1.8 million. The supplies will include 16,000 uniforms and 30,000 pairs of shoes. The US is also training Georgian helicopter pilots in the US in preparation for the delivery of 10 US UH-1 Huey general purpose helicopters. This is the first transfer of American military helicopters to a former Soviet Republic.

Armenia-Iraq To Boost Economic Relations

· David HONHANISYAN, an Armenian foreign

European Republics

Aliyev-Kuchma Discuss Caspian Corridor

· Azeri President Geidar ALIYEV is expected to meet with Ukrainian President Leonid KUCHMA in Kiev today. The two sides are set to discuss Ukraine's and Azerbaijan's participation in the construction of a transport corridor Europe-Caucasus-Asia and bilateral cooperation in the area of supplying Caspian energy resources on world markets. As part of his visit, ALIYEV will also hold talks with Prime Minister Valery PUSTOVOITENKO and parliament speaker Alexander TKACHENKO. The talks will focus on Azeri oil supplies to Ukraine and fuel payments. Ukraine and Azerbaijan will consider prospects for increasing the bilateral trade turnover, which dropped by 10 percent last year. The sides will also discuss prospects for cooperation within the framework of the Commonwealth of Independent States, GUUAM (including Ukraine, Georgia, Azerbaijan, Uzbekistan and Moldova), and measures to fight terrorism.

Belarus To Drop Zeros From Ruble

· Belarus President Alexander LUKASHENKO has signed a decree shaving three zeros from the country's ruble, similar to Russia's actions in 1998. According to the decree, the move is intended, "to strengthen the national currency, improve money circulation in the country, [and] simplify accounting and settlements in the national economy." The Central Bank spokesman Anatoly DROZDOV said that the old banknotes will be exchanged for new ones from January 1, 2000 until 2003. The re-denomination will not change the underlying value of the currency. The

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When you need to know it as it happens

Politics-Economics-Business

Thursday

October 21, 1999

Intercon's Daily

ministry commissioner announced that Armenia will soon open a commercial representative office in Baghdad to activate commercial and economic cooperation between the two countries. He is visiting Iraq to discuss boosting economic relations. HONHANISYAN said the talks touched on expanding industry and economic cooperation as well as preparations for an upcoming visit by Armenian Foreign Minister Vardan OSKANYAN to Iraq. Iraq and Armenia have not established formal diplomatic relations, but plan to shortly and HONHANISYAN said that his country is exploring new markets in Iraq through bilateral economic and trade cooperation under the UN oil-for-food program. Under the humanitarian program which expires in November, Iraq is allowed to export limited amount of oil in every six months to buy food, medicine and other humanitarian supplies for its 24 million people.

Azerbaijan-Kazakhstan Strengthen Relations

· Azeri Prime Minister Artur RASIZADE is arriving in Kazakhstan today to promote a further development of bilateral relations. He will attend a session of the Kazakhstan-Azerbaijan intergovernmental commission for trade and economic cooperation, hold talks with his Kazakh counterpart Kasymzhomart TOKAYEV, and take part in broader-format talks. As a result of the visit, a number of joint documents are expected to be sign.

Kazakhstan Confirms Plans For Market Economy

· Kazakhstan Prime Minister Kasymzhomart TOKAYEV described on Tuesday the social and economic priorities of the Central Asian republic's new government. The prior government was dismissed when former prime minister Nurlan BALGIMBAYEV resigned on October 1st. President Nursultan NAZARBAYEV named TOKAYEV as new prime minister and on October 12th the parliament confirmed his appointment. The new government is planning to implement, "the long-term strategy of the head of our state," TOKAYEV stressed. The government will stay the course of economic stabilization, he said. He added that it, "favors the basic macro-

economic figures envisaged in the 2000 draft budget as well as in the forecasts for 2001 and 2002," and is intent on developing a new plan of actions within this framework. The Prime Minister remains hopeful that Kazakhstan and the International Monetary Fund (IMF) will reach and agreement. TOKAYEV said, "The government will proceed with decreasing the payment and trade deficit of the state budget." He emphasized that the time is right to implement specific economic policies. State budget, industry, population and social security, and finance are named by TOKAYEV as his government's priorities.

Akayev Gives Annual National Address

· In his annual address to the parliament on October 14th, Kyrgyzstan's President Askar AKAYEV vowed that the government will pay all wage and pension arrears before the end of 1999, RFE/RL Newsline reported. He said that the guerrilla incursions into southern Kyrgyzstan in August and the military response to that threat have cost a total of 200 million soms (about $5 million) and that 1.5 billion soms must be spent on national security over the next four years. The previous day, Finance Minister Sultan MEDEROV told a Cabinet meeting that the draft budget for 2000 must be amended to provide an additional 200 million soms for the newly created Batken Oblast. He estimated wage costs for the region's 160 administrators alone at 12 million soms. In addition, Kyrgyzstan must repay approximately $80 million next year on loans from Russia and international financial organizations.

Iran-Turkmen Sign Damn-Reservoir Agreement

· Iranian Foreign Minister Kamal KHARRAZI and Turkmen President Saparmurat NIYAZOV reviewed plans for cooperation in road construction, extraction of Caspian gas, and export of electricity from Turkmenistan to Turkey via Iran. They signed an agreement for the construction of a $167 million dam and reservoir for irrigation purposes on the Tedzhen River, which forms the border between the two countries. The damn is 80 meters high and the reservoir with a capacity of 1.2 billion cubic meters.

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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