DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Thursday, October 28, 1999

patched to the North Caucasus no earlier than six months."

Rumors Of Re-shuffle Focuses On Putin

· Moskovsky Komsomolets argued on Tuesday that despite President Boris YELTSIN's assertion on Monday that he still fully supports Prime Minister Vladimir PUTIN, his position remains in question. The newspaper, linked to Moscow Mayor Yuri LUZHKOV, claims that "it is common knowledge that media magnate Boris BEREZOVSKY wants PUTIN out." BEREZOVSKY, the powerful business tycoon who is said to wield considerable power within YELTSIN's "Kremlin family," has been accused in the past of orchestrating the removal of other prime ministers, namely Yevgeny PRIMAKOV. It added that YELTSIN's meeting with his security ministers during PUTIN's absence form Moscow, "looks suspicious." PUTIN, however, has brushed aside these rumors according to Russia Public Television saying, "Gossip will exist as long as politics exists." RFE\RL Newsline reported that Vladimir PRIBYLOVSKY of the Panorama Research Center said that, "firing PUTIN would be completely illogical right now, but we have learned never to explain or predict YELTSIN's behavior from the point of view of logic." YELTSIN on Wednesday left for a vacation, ahead of the Organization for Security and Cooperation in Europe's summit in Istanbul on November 18th to 19th. On previous occasions, YELTSIN has returned from a vacation and reasserted his power by re-shuffling the government. This cannot be ruled out.

Russian Federation

Politics

Missiles Strike Grozny, Muscovites Avoid Draft

· Russian federal forces stepped up their shelling and bombardment of the Chechen capital Grozny on Wednesday, firing missiles into the center of the city that killed scores of people. Chechen officials said at least 115 people were killed in the bombing and over 200 wounded, while Russian military spokesmen declined to either confirm or deny the rocket attacks even took place. Chechen fighters were digging trenches to defend the capital. Russian fighter jets flew 100 combat missions targeting Islamic militants, armored vehicles, bridges and armed depots. Heavy duty bombs were launched from Mozdok in the neighboring republic of North Ossetia. Russian troops advanced from the Terek River zone toward Gudermes, Chechnya's second largest city. One military spokesman claimed that Russian troops had now taken more than 50 percent of the territory around Grozny and are within six miles of it. Troops had been advancing from the north, east, and west.

While the military action in Chechnya has boosted Prime Minister Vladimir PUTIN's popularity and most Russians are said to support the strikes, Moscow's youth are avoiding the call to fight. Moscow's military commissioner Lieutenant-General Mikhail SOROKIN today admitted that the military action in Chechnya is negatively affecting the Fall draft in Moscow. He said some 1,500 Moscow enlistees are dodging the call-up. "We are taking measures to put these boys in the army's line," SOROKIN said. He noted that parents are worried their sons will be immediately put in the line of fire. "In accordance with the Russian president's decree, active servicemen, who have served over a half-year and have a military specialty, will be sent to the North Caucasus." If a serviceman does have a military specialty, they will be dis

Today's News Highlights

Russia

Talbott Arrives In Moscow

Unemployment Rate Steady

Aeroflot Starts Subsidiary

European Republics

Ukraine JSC Declared Illegal

Lith. Premier Resigns

South Caucasus & Central Asia

Armenian Gunmen Surrender

Aliyev Appointes Foreign Min.

Politics-Economics-Business

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October 28, 1999

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Talbott To Brief Russia On NK Settlement Talks

· US Under Secretary Strobe TALBOTT arrived in Moscow today to brief the Russian Foreign Ministry on the results of his talks with Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN, held separately, on the settlement of the Nagorno-Karabakh conflict. TALBOTT made a stop-over in Yerevan from Baku on Wednesday. He held a two hour meeting with KOCHARYAN, the late Prime Minister Vagzeh SARKISYAN, and Foreign Minister Vartan OSKANYAN behind closed doors. Azeri Presidential spokesman Vage GABRIYELYAN said the discussion focused on ways to settle the Nagorno-Karabakh issue. TALBOTT left Yerevan just hours before the siege on the parliament by gunmen, who assassinated SARKISYAN, parliamentary speaker Karen DEMIRCHYAN, and other top ministers.

In Moscow, TALBOTT will meet with Russian Deputy Foreign Minister Grigory BERDENNIKOV today. The Russian and US Foreign Ministers will hold a meeting in Oslo on November 1st and 2nd. It is quite probable that TALBOTT and Foreign Minister Igor IVANOV will discuss the main topics of the coming talks where the American side plans to concentrate on the Chechen situation.

Economy

Ruble = 26.18/$1.00 (CB rate)

Ruble = 27.57/1 euro (CB rate)

Unemployment Rate Steady, Salary Debt Drops

· The Russian State Statistics Agency did not register significant changes in the country's unemployment rate in September. According to statistics, the total number of unemployed remained at 9.12 million, which is 12.4 percent of the Russian workforce. The official unemployment rate fell by 5.9 percent to 1.339 million persons, which is 15 percent of all unemployed citizens and 1.8 percent of the country's workforce. At the same time, unemployment gained 6.2 percent in comparison with September 1998, while the number of officially registered unemployed fell by 23.7 percent. Russia's workforce totaled 72.7 million persons in September which is about 49 percent of the country's population. About 66 percent of all employed people worked at large and medium-size enterprises.

The agency also announced that the overall salary debt in Russia dropped by 2.7 percent in September 1999 to 54.6 billion rubles. About 25 percent of the salary debt resulted from the insufficient financing from budgets of various levels. The budget debt on salaries dropped by 0.4 percent to 13.7 billion rubles in September, while the debt caused by the deficit of enterprises' funds dropped by 3.4 percent. Territorial budgets were responsible for 81.6 percent of the salary debt, while the federal budget was responsible for only 18.4 percent of that indebtedness.

Business

Aeroflot Forms Subsidiary Company

· Russian airlines company Aeroflot's Deputy General Director Yuri MNATSAKANOV said the airlines is planning to form a subsidiary company, giving it 17 out of its 124 airplanes (104 passenger planes and 20 cargo aircraft). He said Aeroflot does not need more than 77 passenger liners. It can hardly sell the extra planes under the current conditions, so it would be better to pass the airplanes over to a subsidiary company. "That company will target at charter flights," MNATSAKANOV said. It will mostly use Il-86 and Tu-154 aircraft which will soon be prohibited for flights to Europe due to the tougher requirements on the on-board electronic equipment, noise and environmental parameters. The airplanes will be used in flights inside Russia and to foreign countries whose requirements are not that strict, MNATSAKANOV added.

Small and Medium Business Seek Bigger Role

· Russian First Deputy Premier Nikolai AKSYONENKO said at the second all-Russian congress of representatives of small businesses that opened in Moscow Wednesday that small and medium business have not assumed their place in the new Russian economy. He said there is a need to create conditions under which small and medium enterprises could work most effectively. There is concern over the present situation of small enterprises that are adversely affected by high interest on credits, arbitrariness of officials, and are not sufficiently protected by law. AKSYONENKO said the federal authorities see the need for legislative assurance of administrative and financial starting conditions for this sector of the economy. The Russian State Duma will discuss proposals on November 18th at a meeting of the Russian government on

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matters of the antimonopoly policy and support for entrepreneurial activities in 2000 to 2001

responsible for the consequences of the deal." Economics Minister Eugenijus MALDEIKIS and Finance Minister Jonas LIONGINAS resigned over the agreement terms last week. The deal, to be signed Friday, calls for Williams to pay $150 million for 33 percent of Mazheikiu Nafta and to invest $650 million over the next several years. The government must pay a one time fee of $350 million to cover a capital deficit. Many nationalists oppose the sale altogether, demanding that key industries remain in state hands. The refinery is the cornerstone of the Lithuanian economy. The US ownership would lessen the dangerous dependence on Russia, which provides the bulk of Lithuania's crude oil.

President Valdas ADAMKUS, who was forced to shorten his trip to Canada, immediately appointed Labor and Social Welfare Minister Irena DEGUTIENE as acting prime minister until a new government is formed. Outgoing ministers are expected to be re-appointed to their Cabinet seats. It is not clear when DEGUTIENE will announce a new Cabinet. ADAMKUS said his country's international reputation with foreign investors is at stake in the dispute. He has staked his career on pushing through privatization sales and reforming the economy.

South Caucasus & Central Asia

Armen. Gunmen Surrender, Hostages Released

· The leader of an armed group who burst into the Armenian parliament, Nairiu UNANYAN, spraying the chamber with bullets killing Prime Minister Vazgen SARKISYAN and other ministers, surrendered to Armenian authorities and released the more than three dozen hostages after hours of negotiations held directly with Armenian President Robert KOCHARYAN. The terrorists have turned in their guns, been arrested and are in custody for questioning. UNANYAN along with his uncle, nephew and several others seized the parliament and full Cabinet during a speech by SARKISYAN, which was broadcast live, claiming that it was a coup d'etat. UNANYAN pumped SARKISYAN's body with a magazine full of bullets; he died immediately, according to a deputy who escaped. Also assassinated were parliamentary speaker Karen DEMIRCHYAN, deputy speaker Yuri BAKHSHYAN, Energy Minister Leonard PETROSYAN and senior economic official Mikhail KOTANYAN. Another deputy speaker Reuben

European Republics

Ukraine Rules Nikolayev Shareholding Illegal

· The Ukrainian high court of arbitration has ruled that the closed joint stock holding company (JSC), Nikolayev Alumina Refinery, which controls around 40 percent of shares in the plant, is illegal. All shareholdings in the JSC registered to date have been declared invalid and are to be returned to the state. "The court has ruled that the JSC was established illegally, that all the decisions it has made have been taken illegally and that the allocation of shareholdings in the JSC are now invalid," according to a court report. Prior to the ruling, Vitaly MESHIN, former general director at the refinery, held a 26.4 percent stake in the plant, with a 13.6 percent stake owned its workers. "The court is expected in two days to determine a procedure of getting these shares back into Nikolayev control," Pavlo DEMO, a spokesman for Nikolayev said. MESHIN was replaced at the 1 million tons-per-year refinery in June by controversial Trans-World Group linked Nikolai NABOKA. The legality of his dismissal is being investigated. The ruling comes shortly after NABOKA and government agencies moved to block the acquisition of a 33 percent stake in MHZ by the Russian aluminum smelter group Sibirsky Aluminy on the secondary stock market. The state previously owned a 25 percent stake in the refinery and managed its affairs through the National Agency for Managing State Corporate Rights of Ukraine.

Lithuanian Premier Resigns Over Williams Deal

· Lithuanian Prime Minister Rolandas PAKSAS resigned Wednesday because of a dispute over the long negotiated deal to sell US Williams International Company a controlling stake of the Mazheikiu Nafta oil company, the only refinery in the Baltics. His resignation triggered a government crisis for the second time in six months, since the 13-member Cabinet must step down as well. PAKSAS resignation had been expected after he refused to endorse the deal last week. The Lithuanian President, parliament, and Cabinet all voted in favor of the decision. PAKSAS said he didn't oppose the sale in principle, but said that the country couldn't afford the terms of the sale. He said, "I do not want to and cannot be

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MIROYAN was also reported dead. Over 30 people were wounded in the dramatic attack. Police and security forces surrounded and sealed off the building. KOCHARYAN was personally directing the security forces. UNANYAN is a former journalist who had been dismissed from the Armenian Revolutionary Federation, known as Dashnak, the country's oldest political grouping.

UNANYAN said the aim of the attack was to assassinate SARKISYAN. He said Armenia has been suffering from famine and destruction and that the country had run out of hope. He also complained of a lack of political freedom. The gunmen also found fault with SARKISYAN's economic policies. In a few weeks, SARKISYAN was due to present a proposal for recovery economic. The terrorists had been demanding air time on national television and a helicopter. UNANYAN said, "We want to explain to the nation why this was a necessary step, out of desperation, to stop the destruction of our country." He added that the killings would serve as a warning to future leaders to "serve the people." Through overnight negotiations KOCHARYAN resolved the incident by guaranteeing a fair trial over the attack. The President said, "I guarantee a fair trial to the gunmen if they lay down arms and free their hostages. Law enforcement bodies handling the crisis will not allow reprisals. I guarantee that there will be no violent treatment."

The terrorist act is described by the Defense Ministry as "a conspiracy, aimed against statehood of Armenia and future of Armenian people." The incident was able to be organized because of the lack of normally functioning security system in the country, according to the statement. Defense Ministry demands immediate dismissal of the Prosecutor General, National Security Minister and Interior Minister of the country. The leading political parties of Armenia in a joint statement said they believe that their main task is, "to preserve stability in the country." It added, "The legislative body continues to work and to ensure the observance of constitutional order, of

law and order, as well as the normal functioning of the state, together with the President and the government of the Republic of Armenia."

International leaders have expressed concern over the incident. US President Bill CLINTON said he was, "shocked and saddened," by the attack, which he added was, "a senseless act against individuals actively engaged in building democracy in their country." He later said it was, "a real blow to that country and the region." Turkish Prime Minister Bulent ECEVIT said he was concerned that the lethal attack on the Armenian parliament could increase instability in the Caucasus region. He said, "there were already dark developments in the Caucasus region. The atmosphere is tense. Now this atmosphere may become even more tense." He linked the event to the attempts between Azerbaijan and Armenia over the disputed region of Nagorno-Karabakh.

Azerbaijan Appoints New Foreign Minister

· Azeri President Geidar ALIYEV Tuesday named a new foreign minister, Vilayat GULIYEV, to replace of Tofik ZULFUGAROV, who resigned in protest over ALIYEV's plans toward a compromise with Armenia over the disputed territory of Nagorno-Karabakh. GULIYEV was parliamentary deputy and co-chairman of the Democratic Independence Party. He has never worked in foreign policy or held any diplomatic post. He is also a member of the pro-government party. Eldar NAMAZOV, ALIYEV's top aide and adviser on Nagorno-Karabakh and several others, also submitted resignation papers over the Azeri leader's uncertain stand on the future of the disputed enclave, which is populated primarily by ethnic Armenians. US Deputy Secretary of State Strobe TALBOTT held mediation talks with ALIYEV before flying to Yerevan for talks with Armenian President Robert KOCHARYAN on Wednesday. One political analyst said, "They're [Azerbaijan-Armenia] closer now than they've ever been before to making a deal, and there's a very good chance something will be signed in November," at the OSCE summit in Istanbul.

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

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