DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, October 29, 1999

Deputy Head of the Federal Migration Service Yuri BIRAGOV. The location of such compounds will be determined jointly with the Russian Defense Ministry, he said. The main problem faced by the services involved in the construction of the camps is financing. According to the data released by the Federal Migration Service, there are around 11,000 forcibly resettled people staying in Ingushetia, who have been temporarily accommodated in six tent compounds and dozens of railway cars. The temporarily homes are being improved to make them more resistant to cold. The Federal Migration Service will resolve the problem of food supply to refugees, who live in private houses and who make up the majority of the resettled people. Around 2,000 forcibly resettled people have already returned to areas in Chechnya where a security zone has been created, BIRAGOV said. The European Commission has provided 1.2 million euros as part of humanitarian assistance to the victims of the North Caucasus conflict. The money will be sent to the UN High Commissioner for Refugees to carry out the programs in Dagestan and in the north of Ingushetia, for the purchase and the distribution of food, bedclothes and warm clothes. According to the EC, up to one million people are staying in these republics due to the complex situation in Chechnya.

Following his meeting with Russian Foreign Minister Igor IVANOV, US under secretary of state Strobe TALBOTT said that while the US understands that Russia has the "right and duty" to protect the state and its

Russian Federation

Politics

CEC Lobbies Duma On Election Law

· Chairman of the Central Electoral Commission (CEC) Alexander VESHNYAKOV intends, "to persuade deputies that a law on presidential elections should be adopted by this composition of the State Duma by all means." He explained on Wednesday his appointment as the Russian president's representative on this bill by the fact that the Central Electoral Commission is the main compiler of this document. "The Duma made a very serious historic move by adopting a new bill on elections of Duma deputies. They now have to make another historic move," VESHNYAKOV added. He confirmed that, judging by the first response of deputies, they mostly agreed to adopt the bill in the first reading. When preparing the second reading, VESHNYAKOV continued, it is necessary to reflect in the document practices of using the law on elections of Duma deputies, to specify it and adjust some elements. The Duma should approve this bill by early December. VESHNYAKOV stated, "we shall have a chance to use a normal legal basis for the coming presidential elections." If the bill is adopted, the elections will be held on June 4, 2000, while the announcement on them will be made no earlier than January 4th and no later than February 4th. Thus, the parliamentary elections will be held on December 19th. Results will be summed up by the New Year, and two weeks later the Federation Council, as is provided for by the Constitution, can declare presidential elections, VESHNYAKOV concluded.

Russia Prepares For Chechen Refugees

· The Russian Emergency Situations Ministry jointly with the Federal Migration Service have prepared refugee camps to accommodate people resettled from Chechnya over the winter, according to

Today's News Highlights

Russia

Budget Operating With Deficit

Gazprom Taxes Raised

European Republics

Corruption In Kuchma Campaign

Ukrainian Presidential Elections

South Caucasus & Central Asia

Georgian Parliament Elections

Zhironovsky On Armenian Attack

Armenia To Form New Gov't

Baikonur Bans Rocket Launches

Politics-Economics-Business

Page

Friday

October 29, 1999

Intercon's Daily

citizens from the "threat of extremism and terrorism," it nonetheless hopes that Moscow will "turn to political levers as soon as possible" to resolve the Chechen conflict. Meanwhile, in responding to remarks by US Secretary of State Madeleine ALBRIGHT, Prime Minister Vladimir PUTIN declared that, "everything that concerns the North Caucasus is Russia's internal matter." TALBOTT and IVANOV also discussed mediating a solution to the Nagorno-Karabakh dispute. TALBOTT is meeting with Georgian President Eduard SHEVARDNADZE in Tbilisi; he is expected to return to Armenia this weekend.

Economy

Ruble = 26.09/$1.00 (NY rate)

Ruble = 26.05/$1.00 (CB rate)

Ruble = 27.34/1 euro (CB rate)

May Jun Jul Aug Sep Oct

Russia's Budget Operating With A Deficit

· The Russian Statistics Agency citing data of the finance ministry said that Russia's budget over the past nine months operated with a deficit totaling 47.4 billion rubles, compared with a deficit of 56.2 billion ruble over the same period in 1998. January was the only month this year when the government operated with surplus of 400 million rubles, with monthly deficit to follow. The main source of deficit financing this time was external borrowing in the sum of 64.3 million rubles, with domestic financing curtailed by 16.9 million rubles. Revenues over the past eight month reached only 70.6 percent of the target and totaled 334.3 billion rubles. Over 85 percent of the revenues accounted for taxes.

Business

Gazprom Taxes Raised For War Effort?

· Russian newspaper Segodnya reported on Wednesday that Tax Minister Aleksandr POCHINOK announced that in both October and November Russian gas monopoly Gazprom must pay the treasury 2 billion rubles ($70 million) over and above what had been stipulated in an earlier agreement between the government and the company, RFE\RL Newsline reported. The newspaper speculates that Russia's Unified Energy Systems will also be asked to make increased payments to the federal treasury. POCHINOK recently estimated that the conflict in Chechnya could result in 20 to 30 billion rubles in additional expenses. In an interview with Trud, POCHINOK said the Chechen war will put tax reform efforts on hold since it will be necessary for the government to find an additional 18 billion rubles. Earlier reports have suggested that the government will try to increase budget revenues by increasing oil export duties.

European Republics

Corruption Scandal Leaks Into Campaign

· Ukrainian President Leonid KUCHMA's administration and campaign are facing serious allegations of corruption, ahead of the presidential election set to be held on October 31st. KUCHMA's top adviser and campaign manager Alexander VOLKOV is under investigation by Belgian law enforcement agencies for money laundering and connections with Russian organized crime, the Financial Times reported. VOLKOV has been accused by some in Ukraine for carving up Ukrains's industries and bringing in the influence of Russian mobsters. Two yeas ago, in response to a legal assistance request from Switzerland, a Belgian judge froze $3 million in VOLKOV's bank accounts in Belgium. He also holds bank accounts in the UK, Germany, Monaco, Luzembourg, Switzerland, and the US. Investigators have discovered that $15 million was transferred to his Belgian accounts from 1993 to 1997. Belgian investigators interested in determining the source of money transfers, have been denied visas to Ukraine. An official from the Belgian prosecutor's office said, "Until now we have had no cooperation at all from the Ukrainian side. To be honest, I would say this is due to deliberate obstruction from a very high level."

When you need to know it as it happens

Politics-Economics-Business

Page

Friday

October 29, 1999

Intercon's Daily

Belgian prosecutors have confirmed of that amount at least $5 million came from companies owned by or associated with Boris BIRSHTEIN. A Russian businessmen, BIRSHTEIN is being investigated by Antwerp police for suspected money laundering. He contributed to KUCHMA's 1994 election campaign and is said to have been rewarded with business favors. In a new book on Russian Organized crime The Grey Eminence by Jurgen ROTH, BIRSHTEIN was given credit for organizing a summit meeting in Tel Aviv of mafia figures on October 10 to 19th, 1995. At this meeting, according to a US Federal Bureau of Investigation, "The subject of the meeting was the sharing of interests in Ukraine." KUCHMA's political opponents point out that VOLKOV has served as BIRSHTEIN's representatives in dealing with KUCHMA during his first term as president. These allegations just days ahead of KUCHMA's bid for his second term has cast a dubious shadow over him and his administration.

Ukrainian Voters Decide Outlook: East or West

· On Sunday, 38 million Ukrainian voters are expected to go to their local polls and choose the next president of their country. In making the decision between 14 candidates, the electorate will also be making a statement on the future outlook of Ukraine. Ukraine has suffered from widespread corruption, drop in gross domestic product by two-thirds in eight years, and a fall in real wages. Profits from state enterprises have been diverted to privately owned trading companies. Former justice minister Sergei HOLOVATY has described the election as, "the choice of whether to pursue the course that Poland has taken - of integration into the European family of nations - or to follow Belarus into a murky pan-Salvic union." Incumbent Leonid KUCHMA is confident of winning re-election on Sunday. He said, "It should all be settled in the first round. There isn't another 100 gryvnia ($22 million) in the budget for a second round." KUCHMA has employed ruthless tactics to sideline his rivals. Through the government the incumbent president has closed off the media access to his opponents and spent huge amounts on paying wages and pensions ahead of the vote. KUCHMA pledges to continue with market reforms and states that a stable currency, balanced state budget, sound banking system, and robust stock market are priorities for his second term. He is closely followed by Communist Party leader Petro

SYMONENKO and Progressive Socialist Party leader Natalya VITRENKO. SYMONENKO promises to restore socialism, abolish the presidency, redistribute wealth earned under the current regime and suspend cooperation with NATO. VITRENKO, who survived a grenade attack at one of her rallies earlier this month, will break relations with the International Monetary Fund, calls for a freeze on foreign debt payments, and channel money to solve social problems. Yevhen MARCHUK, who had been chosen the leader of the Kansev Four, is a former prime minister, officier of the KGB, and head of the Ukrainian Security Service. He vows to honor foreign debts, fight corruption, uphold law and order, pay overdue wages and pensions, and use a pragmatic approach to foreign relations and the economy. Alexander MOROZ, who in a surprise move declined to withdraw from the presidential race, stands against private land ownership. With an agricultural engineering background, MOROZ promises to build an economy mixing state regulation and market mechanisms. Other candidates include Gennady UDOVENKO a former foreign minister from the Rukh nationalist party, Yuri KOSTENKO a former environment minister from the splinter group of Rukh, Vitaly KONONOV leader of the Green Party, Alexander BASYLYUK leader of the Salv Party, Mukola HABER, Yuri KARMAZIN, Vasyl ONOPENKO, and Alexander RZHAVSKY.

South Caucasus & Central Asia

Decisive Choice At Parliamentary Elections

· The upcoming parliamentary elections in Georgia on October 31st will be a decisive election - a choice between the reform-minded SHEVARDNADZE government of the Citizens' Union of Georgia party and the separatists of the Batumi Alliance, part of the Revival party of Adjarian leader Aslan ABASHIDZE. One of the leaders of the Citizens' Union of Georgia Michael SAAKASHVILI emphasized this when he said that electors will have to make a principle choice between the renewed team of Georgian President Eduard SHEVARDNADZE and, "the most aggressive and anti-patriotic force."

According to SHEVARDNADZE, if "another force" receives majority in the new 250-seat parliament, realization of many decisions by president will be hampered and that may result in change of the

When you need to know it as it happens

Politics-Economics-Business

Page

Intercon's Daily

political course of Georgia. The majority party in the current parliament the Citizens' Union of Georgia (CUG) has been in a tight race with the Batumi Alliance, but has recently pulled ahead of it in the polls. On October 20th, chairman of the parliament and CUG member Zurab ZHVANIA said it is necessary to determine the party's general principles now, "when large amounts of money and aggressive dark forces oppose the CUG." Chairman of the Liberal-democratic party Michael NANEISHVILI, who will be running under the CUG list, believes that ABASHIDZE acts by dictation of Russia. He told the Prime News Agency that the objective of the political alliance is to dismiss president SHEVARDNADZE from the government, because of his pro-Western stance and efforts to integrate Georgia into European structures. NANEISHVILI added that if the Batumi Alliance does not succeed in this goal Russia will bring in "another force," to Georgia. Today in Tbilisi, it is estimated that 4,500 youths announced they were leaving the Batumi Alliance because of its closeness to Russian policies, claiming they did not want to be used as a tool of Russia.

The Main Players In the Georgian Election

· The Georgian electorate of approximately 2.9 million will vote on Sunday for a new parliament. Only the Citizens Union of Georgia (CUG) and Revival Party are expected to pass the seven percent hurdle needed to be represented in the 150 seats up fpr grabs on the party list sections. Another 85 seats go to the winners of individual constituencies. Three other parties, the center-right National Democratic Party, the leftist Labor Party, and Industry Will Save Georgia, have a chance of passing the seven percent barrier. They could become major power brokers if neither the CUG or the Revival Party gets a majority. The CUG, led by Georgian President Eduard SHEVARDNADZE, advocates continued economic reforms, political stability, and promises to increase wages and pensions. It also pledges to increase tax revenues and combat corruption and graft. The Revival Party, built around Adjarian leader Aslan ABASHIDZE, is capitalizing on the discontent over low living standards. It is backed by Socialists Union of Georgian Traditionalist and Nationalist Chkondideli Movement, Gamsakhurdia's Society and Movement "Voice of the Nation." The National Democratic Party promises to find a third way between the two major

blocks. The party includes Republicans and Union of Industrialists. The Industry Will Save Georgia is a new bloc led by brewing businessmen Gogi TOPADZE. It promises protection for Georgian industry from foreign competition and denounces the International Monetary Fund. The Georgian Labor Party believes the most basic social needs of the nation can be met by reducing rampant government corruption. It is hoping to use positive results from local elections as a springboard into the parliament.

Armenian Attack: A Pro-Western Plot?

· Russian state television on Thursday aired outrageous comments by Liberal Democratic Party leader Vladimir ZHIRONOVSKY regarding the staged coup attempt in the Armenian parliament. He said that the attack was a plot by Azerbaijan, Turkey, and the US to unseat the pro-Russian government in Armenia and install a pro-Western government. He said that strange coincidence between the departure of US under secretary of state Strobe TALBOTT just hours before the gunmen burst into the parliament could only be explained by a planned plot. He said TALBOTT's departure served as a signal to the gunmen to carry out the attack. The commentator generally agreed with ZHIRONOVSKY's accusations, lending credence to the fact that others in Russia support his anti-US views.

TALBOTT's visit to Baku and Yerevan was the result of a US push to help mediate the Nagorno-Karabakh conflict. Many US military analysts point out that a renewal of this conflict could drawn in Russia and Turkey, a NATO country. Armenia already has Russian bases on its territory, with several thousand troops stationed there. Russia has transferred some $2 billion of military hardware, including the supply of MiG-29 fighter jets and S-300 ground-to-air missiles. On October 21st, Russian Colonel General Anatolii Kornukov presented four new MiG-29 jet pursuit aircraft to the Armenian government. Armenia now has 20 of the advanced fighter planes. This has increased fears of a regional arms race. Earlier this year, Turkey, on behalf of NATO, held talks with Azeri President Geidar ALIYEV over the possibility of developing a NATO base. Turkey maintains a partial blockade of Armenia in protest against the occupation of

Politics-Economics-Business

Page

Friday

October 29, 1999

Intercon's Daily

Nagorno-Karabakh. The US' renewed interest in the Armenian-Azerbaijan conflict is partially motivated by the hope for peace and stability in the region, which would allow for the construction and development of oil pipelines. A route for Caspian oil through Azerbaijan and Armenia to Turkey would be considerably shorter and cheaper than that planned Baku-Tbilisi-Ceyhan alternative. The former option remains out of the question so long as the dispute over Nagorno-Karabakh remains, the Financial Times reported. Nevertheless, the attack in parliament has increased tensions in the already unstable region.

Armenian To Form New Government

· Black ribboned flags flew at half mast today in Armenian, marking the beginning of three mourning days to remember Prime Minister Vazgen SARKISYAN, parliamentary speaker Karen DEMIRCHYAN, and other deputies who were killed on Wednesday when nationalists gunmen stormed the parliament. President Robert KOCHARYAN pledged to form a new government after the funerals. He has temporarily taken over the duties of prime minister. The presidential spokeswoman Hasmik PETROSYAN said that the President will consult with political forces on naming a prime minister, after the parliament elects its new speaker and deputy speakers. She added, "The work of the new government will be very hard. Today, the country is facing a new battle which only united forces can fight. We have to show that the country is getting over the crisis." Former President Levon TER-PETROSSYAN issued a statement calling on all Armenians to, "unite around the President and meet the challenge to our statehood with solidarity and dignity."

Within hours of the dramatic incident at the parliament, the Defense Ministry demanded the resignation of the General Prosecutors, the Interior Minister, and the Security Minister. According to a ministry statement, "A treacherous and premeditated crime was committed. It was a plot aimed at Armenia's statehood and against the future of the Armenian nation....Those who allowed this crime to happen

are responsible before the Armenian nation. It was possible due to the lack of a system of overseeing security." In response, Interior Minister Suren ABRAMYAN submitted his resignation late Thursday, but KOCHARYAN has not yet accepted it.

Baikonur Bans All Rocket Launches

· Kazakhstan has banned all rocket launches from its Baikonur cosmodrome, after a second Russian Proton booster rocket crashed just four minutes into its flight on Wednesday. The Proton-K booster rocket was carrying a commercial communications satellite into orbit from Baikonur when its engines malfunctioned shortly after launch, sending the rocket flying off course and out of control before crashing in an unpopulated area of Kazakhstan's northern Karaganda region. Chief of the National Aerospace Agency of Kazakhstan, Nurlan UTEMBAYEV said that the malfunctions of the Proton-K booster is, "linked with the state of things in the Russian space industry." The cause of the crash will be determined after, "search teams complete an examination of the territory where the fragments of the second stage of the booster have been scattered, the results of chemical tests of soil samples, taken from the area of the accident, are known and the real causes of the accident are established." UTEMBAYEV said. A joint inter-state Russian-Kazakh commission will be set up to investigate the failed Proton launch from Baikonur on October 27th. Kazakh Prime Minister Kasymzhomart TOKAYEV has held conversations with head of the Russian Aerospace Agency Yuri KOPTEV. TOKAYEV and Russian Prime Minister Vladimir PUTIN agreed in a telephone conversation to conduct regular joint consultations in connection with the Proton rocket booster breakdown. Kazakhstan plans to demand compensation for the damage during talks, and "the amount of compensation will be much greater than that for the first accident" on July 5th, TOKAYEV said. Russia paid Kazakhstan around $270,000 for the damage caused by that crash. Russia had planned to launch another Proton rocket on October 31st, but it has been dealyed for two weeks because for "technical reasons."

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1999, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page