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 8, 1999

Russian Federation

Politics

Chechnya Declares War And Appeals To NATO

· Chechen President Aslan MASKHADOV has criticized the Russian government for its continued air strikes, calling his government illegitimate (a reversal of its pervious position), and for refusing to hold peace negotiations. He said in an interview with Kommersant Daily, "Russia has launched a full-scale war against Chechnya, breaking the peace treaty signed by the Chechen and Russian presidents. In this situation I had no other choice but to declare war." Russian air strikes, supposedly targeted at terrorist bases, have caused severe damage to civilian villages, killing 450 civilians over the past two weeks. MASKHADOV said that the Russian military campaign has inflicted far more casualties on civilians than on Chechen militants. He has sent a message to NATO Secretary-General George ROBERTSON asking the alliance to, "assist in normalizing relations between the Chechen Republic and Russian Federation in accordance with international law." The appeal comes one day after Foreign Minister Igor IVANOV told a European Union delegation, including new Foreign Affairs Commissioner Chris PATTEN, that the Chechen issues was an internal Russian affair and did not need outside mediation. Russia has claimed that Chechnya remains a part of Russia and therefore its troops, which invaded the Chechen territory two weeks ago, have the right to go wherever they need to fight terrorists.

Constitutional Court To Rule On Skuratov

· The Russian Constitutional Court on Thursday agreed to settle the dispute between President Boris YELTSIN and the Federation Council concerning the suspension of Prosecutor General Yuri SKURATOV. The Federation Council appealed to the court to settle the dispute back in June, Court

Chairman Marat BAGLAI said. However it took the Constitutional Court almost four months to get to the appeal. The court has not set the date for the open hearings, BAGLAI said, adding, that they will take place as soon as possible. According to him, the case will definitely be heard this year, but not earlier than November. YELTSIN had tried to fire SKURATOV, but the Federation Council maintains that according to the constitution it has the only power to hire and fire the prosecutor general. Two times, the Federation Council has voted to reject SKURATOV's forced resignation. SKURATOV had been investgation corruption in the Kremlin, including top officials and members of YELTSIN's family.

Russia-US Push For CTBT To Be Ratified

· Russian Foreign Minister Vladimir RAKHMANIN said, "On instruction from President...Boris YELTSIN the government is putting the final touch to a set of documents required to submit the Comprehensive Test Ban Treaty (CTBT) to the State Duma for ratification." The treaty bans the testing of nuclear weapons and allows nations the right to demand inspections to ensure compliance. The treaty, which was signed by 154 countries since 1996, needs to be ratified by 44 countries for it to take effect. All five declared nuclear powers, the US, Russia, Britain, France and China, have signed the treaty, but only Britain and France have ratified it.

Today, the US Senate is debating the CTBT, which the CLINTON Administration is trying have ratified. Republicans say the US nuclear weapons

Today's News Highlights

Russia

IMF Delays Payment Decision

London Club Negotiations Fail

European Republics

Admakus Visits Tallinn

South Caucasus & Central Asia

Georgia Rejects Russia's Offer

Azeri Foreign Advisor Resigns

Turkmen Reviews Export Routes

OSCE To Monitor Elections

Cent. Asia Agree On Nuclear

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October 8, 1999

Intercon's Daily

program will suffer without adequate testing and that the treaty is impossible to verify. In a statement released on Wednesday, Senator Dick LUGAR (Rep. Indiana) expressed regret that the Senate is debating this treaty in, "an abrupt and truncated manner that is so highly politicized." He said, "I have little confidence that the verification and enforcement provisions will dissuade other nations from nuclear testing. Furthermore, I am concerned about our country's ability to maintain the integrity and safety of our own nuclear arsenal under the conditions of the treaty." He added that Presidential leadership on the issue has been almost non-existent. LUGAR pointed out that the treaty's, "usefulness to the goal of non-proliferation is highly questionable." The US political wrangling over the CTBT is unfolding at a time when an international conference aimed at facilitating its ratification is taking place in Vienna. Senator John WARNER (Rep. Virginia) said, "Other nations will look to what action the United States takes on this treaty...But I hope whatever is done will in no way lessen the confidence that other nations have in the ability of this nation to continue to lead in the area of nonproliferation." The Senate vote is scheduled for Tuesday, October 12th. US President CLINTON said he would rather postpone the vote than kill the treaty.

Economy

Ruble = 25.72/$1.00 (NY rate)

Ruble = 25.76/$1.00 (CB rate)

Ruble = 27.58/1 euro (CB rate)

Apr May Jun Jul Aug Sep Oct

IMF Funds Delayed Over Sberbank Audit

· The disbursement of new International Monetary Fund (IMF) payments to Russia is being held up by a dispute over an investigation into Sberbank. With holdings of 80 percent of Russia's retail deposits, Sberbank is the country's biggest banking group, Financial Times reported. It is 53 percent owned by the Central Bank. Russian and IMF officials have failed to agree on the terms of a wide-ranging audit into the functioning and future strategy of Sberbank. This conflict is the main reason for the delay in the meeting of IMF directors to consider whether to approve a second payment of $640 million. The immediate delays in the consideration of new IMF payments have been caused by the conflict over Sberbank, as well as the wait for a new audit by PricewaterhouseCoopers into the relationship between the Central Bank and its foreign commercial banking subsidiaries. Without the latest IMF installment, the delay is placing strains on the Russian budget, particularly with new spending on the military campaign in Chechnya. Central Bank chairman Viktor GERASHCHENKO, however, rejected this stating, on the Hero of the Day program, that the delay will have no negative consequences for Russia this year. He expects next year to be more difficult, since the 2000 draft budget takes into account the IMF funds to pay off Russia's debt. First Deputy Prime Minister of Viktor KHRISTENKO said that the IMF directors may consider releasing the next installment in the beginning of November.

London Club Talks Fail To Reach Agreement

· Talks between the London Club of creditors and the Russian government and Vneshekonombank ended without reaching an agreement for settling the Soviet-era debt of $32 billion. Vneshekomombank's president Andrei KOSTIN said negotiations would continue within two weeks. He described the negotiations as, "useful, good and constructive dialogue." The goal is to come to agreement before year's end. The Russian delegation to the talks is expected to be led by Finance Minister Mikhail KASAYNOV. The London Club members are demanding that the defaulted debt be swapped for Eurobonds issued by the government. Russia is hoping for a 30 percent to 35 percent write-off, or $10 billion. Head of the Finance Ministry's economic department Arkady DVORKOVICH said, "The draft 2000 budget includes...up to $1 billion reserved for possible

When you need to know it as it happens

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payments to the London Club. The sum can vary depending on the results of talks with the London Club." It also set aside about $400 million to the Paris Club of lenders.

Business

Gazprom Proposes OPEC-Like Organization

· Russian gas monopoly Gazprom's chairman Rem VYAKHIREV proposed in Paris the creation of an international organization similar to OPEC to control the price of gas and warned that it might reduce its contracts to western Europe if prices remain low. Europe counts on Gazprom to meet a quarter of its gas needs. Germany imports 35 percent of its natural gas supplies from Russia. VYAKHIREV suggested that he will hold talks with Norway and Algeria, two other major suppliers of gas to European markets. Gazprom is the world's largest natural gas producer, even though it posted a $6 billion loss in 1998, primarily due to the Russian financial crisis. VYAKHIREV explained that the company's low revenues are due to low gas prices and the failure of Russian consumers to pay for their gas supplies. He added that low revenues has forced Gazprom to seek foreign investors. He said that Europe could face an energy crisis unless it makes investments in Gazprom which would allow it to expand its production capacities. Gazprom also needs funds to develop its transportation route across the Black Sea through Turkey and the northern route through Belarus and Poland to Germany. Gas experts said that VYAKHIREV's notion of foreign up gas prices through an anti-competitive association with other producers is likely to be viewed with hostility by the European Commission, The Wall Street Journal reported.

Estonian parliament speaker Toomas SAVI, Prime Minister Mart LAAR and other officials. He also was the opening speaker for a Lithuanian-Estonian business seminar at the Estonian Chamber of Commerce and Industry, and met with Lithuanians living in Tallinn. ADAMKUS also visited the Baltic Military College which opened earlier this year to train military personnel from the Baltic states, and the Tartu University, one of the oldest higher educational institutions in Europe.

South Caucasus & Central Asia

Georgia Rejects Russia's Border Proposal

· The commander of Georgia's Border Guards, Lieutenant General Valery CHKHEIDZE, said on Thursday said that Tbilisi has categorically rejected Moscow's proposal to station Russian border guards in the Georgian village of Shatili, close to Georgia's frontier with Chechnya. CHKHEIDZE said if it did so, it would run the risk of Chechen attacks on Georgian territory. He again denied that arms are being transported to Chechnya via Georgia. Georgian Minister of State Vazha LORDKIPANIDZE said there is no need for additional Russian border guards on that section of Georgia's border as there are enough Georgian border troops already deployed there. He added that Tbilisi would be grateful for Russian help in providing those Georgian border guards with additional equipment. Representative of Ichkeria in Georgia Khizri ALDAMOV told Prime News Agency that Russian border guards are extracting bribes of at least $100 from each refugee heading from Chechnya to Georgia. Refugees trying to enter the inner region of Russia are also being robbed by Russian officers. Head of the department for refugees Irakli PIRTSKHALAVA said that 1,438 refugees from Chechnya have already crossed Georgian-Russian border through the Shatili village checkpoint. Meanwhile in Yalta during the session of Council of CIS foreign ministers, Russia and Georgia agreed to start consultations on problem of Abkhazian portion of Russian-Georgian state border.

Azeri Foreign Policy Advisor Resigns

· Azeri President Geidar ALIYEV's foreign policy advisor, Vafa GULUZADE, has tendered his resignation. He said he has been forced to resign in connection, "with his age and deteriorating health." GULUZADE has repeatedly called for a NATO, US

European Republics

Adamkus Make Official Visit To Tallinn

· Estonian President Lennart MERI met Lithuanian President Valdas ADAMKUS in Tallinn on Monday to discuss bilateral relations, cooperation between the Baltic states, and integration into European structures. Both states hope to increase economic relations and trade. In 1998, Estonian imports into Lithuania accounted for only 1.5 percent of Lithuania's entire imports, while Lithuanian exports to Estonia accounted for 2.6 percent of the republic's entire exports abroad. During the visit, ADAMKUS met

When you need to know it as it happens

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or Turkish military presence in Azerbaijan to counter Russian-Armenian military cooperation. Today, GULUZADE denied reports in Russian newspapers that Chechen gunmen are being trained and armed in Azerbaijan. He said, "Azerbaijan is a small country, 20 percent of the territory of which is occupied and if Azerbaijan trained gunmen it would be done for freeing Karabakh only," Prime News Agency reported. He added that the Russian reports aim to form a negative international image of Azerbaijan.

Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN will meet on October 11th, at the countries' border in Sadarak district of the Nakhichevan Autonomous Republic. This will be the fourth direct negotiations at the top level over the past four months on the settlement of Nagorno-Karabakh conflict. The previous three meetings took place in Geneva on July 16th and August 22nd, and the latest in Yalta on September 10th.

Turkmen Reconsiders Export Routes

· After meeting with Turkish Energy Minister Cumhur ERSUMER, Turkmen President Saparmurat NIYAZOV said that if construction on the trans-Caspian pipeline to export Turkmen gas to Turkey has not started construction in the next six or seven months, his country will begin exporting gas via Iran and Russia, RFE\RL Newsline reported. On Monday, NIYAZOV issued similar threats during a meeting with the representative of US company PSG, which will be the pipeline operator. He also met with representatives of Royal/Dutch Shell, a partner in the project. Construction on the project is contingent on the singing of a political agreement by Turkmenistan, Azerbaijan, Georgia, and Turkey. Turkmenistan and Azerbaijan disagree over how much Azeri gas will be exported via the pipeline.

OSCE Monitors To Observe Kazakh Elections

· About 200 officials from the Organization for Security and Cooperation in Europe (OSCE) will monitor Kazakhstan's forthcoming elections to the lower house of parliament, scheduled to be held on

October 10th. Tatyana OKHLOPKOVA, member of Kazakhstan's Central Electoral Commission (CEC), said the OSCE's full-scale long-term mission of the Democratic Institutions and Human Rights Bureau is currently in the country. However, the polling is to be monitored by a short-term mission as well. The CEC member said that at the close of the polling, the OSCE monitors are to draw up the document setting out all remarks and proposals that would arise during the election campaign. The CEC has already issued 25 certificates to observers from Ukraine, Uzbekistan, Kyrgyzstan, and Russia. Along with international observers, the polling process will be also monitored by representatives from parties and movements of Kazakhstan. Azamat Party leader Petr SVOJK said he expects local administrators to falsify the outcome of the elections. The OSCE has previously declared Kazakhstan elections as invalid due to major voting violations.

Central Asia Agrees On Nuclear-Free Pact

· Three former Soviet republics in Central Asia agreed in principle today on a draft treaty for establishing a nuclear weapons-free zone in the region as part of a four-day, UN-sponsored meeting in Sapporo. The draft treaty was backed by Kyrgyzstan, Kazakhstan and Uzbekistan, but two other former Soviet republics in the region—Tajikistan and Turkmenistan—did not attend the meeting. A tentatively adopted document in an attached protocol calls for nuclear powers not to use or threaten to use nuclear weapons against the five Central Asian countries. The document also calls for efforts to clean up the environment in the northeastern Kazakh city of Semipalatinsk, where the Soviet Union conducted tests on nuclear weapons. Uzbekistan will review an article in the draft treaty on whether the Central Asian nations would permit the passage through their territory of aircraft and ships carrying nuclear loads.

The Daily Report on Russia and FSU

will not be published on October 11th

in observance of Columbus Day.

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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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.

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