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

Wednesday, November 10, 1999


Russian Federation

Politics

OSCE To Focus On Chechen Genocide

· Calls for a peaceful solution to the conflict in Chechnya continue to come from international leaders, ahead of the Organization for Security and Cooperation in Europe's (OSCE) summit in Istanbul next week. France's Foreign Minister Hubert VEDRINE said the Chechen situation will top the agenda of the OSCE summit. He said that a number of states are planning to call Russia to find another solution to the Chechen problem. In an Op-Ed piece in The Wall Street Journal, former US National Security Advisor Zbigniew BRZEZINSKI agrees that the OSCE summit is, "the appropriate place to register the international community's outrage and launch the needed steps to engage the US in halting the final phase of Russia's genocide of Chechnya." He believes that Russia must be made aware that its actions threaten the stability of the region and that those actions are incompatible with US and European interests. It should be warned that financial assistance could be put on hold. BRZEZINSKI said the West should address the moral dimensions of Russia's conduct. He added that the US should propose a joint, US, Russian, and European Union, to develop a regional economic-development plan for the Northern Caucasus, under the auspices of the UN or other international organizations. He believes that, "Russia's failure to provide the promised post-war economic assistance is the main reason for the internal mess in Chechnya and for extremism's appeal among some Chechens." Chechen President Aslan MASKHADOV has called for negotiations to stop the "virtual elimination" of the Chechen people, who are neither Russian or Orthodox. He pointed out that, "if they had allowed us two presidents to meet [as planned for this past summer], we could have escaped the war and there would be no

terrorists and no terrorists acts." Russia has claimed that the six-week old military campaign is in response to the incursions by Islamic rebels into Daghestan and the apartment bombings, declared as an act of terrorism, in August and September. The Financial Times reported in an editorial that while YELTSIN and his allies have said they are fighting terrorism, by using such bombardment tactics, they themselves are terrorizing the entire civilian population.

The military campaign continues, despite calls for negotiations from the Yabloko party. Russian jets flew more than 30 sorties against rebel positions in Bamut, Duba-Yurt, and Chishki. Commanders claim to have destroyed eight rebel bases, a telephone exchange, a command post, and seven vehicles, as well as mining almost 12 miles of road. Russian helicopters unleashed 18 rocket attacks against rebel positions around Grozny. The Financial Times reported that the war is costing little to fight because Russian forces have vast stocks of outdated missiles and ammunition to fire, even if they do not hit military targets. Andrei PIONTKOVSKY, director of the Center of Strategic Studies, described the situation as a creeping military coup. "YELTSIN is already hostage to PUTIN. And PUTIN is hostage to the generals," he said. The Russian army has vowed to avenge its humiliating defeat to Chechen separatists in 1996. In addition, BRZEZINSKI pointed out that Russian troops are using a new weapon, which blanket targeted terrain with a flammable vapor cover and following a massing explosion will create a lethal vacuum.

Today's News Highlights

Russia

ARCO Takes Over SBS-Agro

Gazprom Y2K Compliant

European Republics

Marchuk Endorses Kuchma

Adamkus Approves New Cabinet

South Caucasus & Central Asia

Disinformation Reveals Scheme

Movsesyan Stipped Of Immunity

Kazakh Approves 2000 Budget

Karimov-Jiang Meet In Beijing

Politics-Economics-Business

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Wednesday

November 10, 1999

Intercon's Daily

Meanwhile as thousands of refugees risk their lies fleeing the region, an eight-member delegation from the Organization for Security and Cooperation in Europe (OSCE) arrived in Ingushetia today, to visit tent towns sheltering refugees as well as the Kavkaz checkpoint. The OSCE representatives are also expected to meet Ingush leaders, who are struggling to cope with the massive influx.

Economy

Ruble = 26.18/$1.00 (NY rate)

Ruble = 26.11/$1.00 (CB rate)

Ruble = 27.18/1 euro (CB rate)

ARCO Takes Over SBS-Agro

· Russia's Agency for Restructuring Credit Organizations (ARCO) has decided to take over and restructure SBS-Agro, once Russia's largest private bank. ARCO's deputy director of public relations Vadim KOKOLEV said that the Agency will pay 1,000 rubles to gain control over the bank. The Agency will hold talks with creditors and help SBS-Agro avoid bankruptcy. KOKOLEV declined to estimate SBS-Agro's debt , but the Moscow Times reported the bank's debts exceed its assets by 60 billion rubles or $2.3 billion. Even though SBS-Agro has a banking licenses, it hasn't released any funds to its depositors for over a year since the devaluation of the ruble and the government's default on its treasury debts. KOKOLEV predicts that depositors will get about half of the 7 billion rubles frozen in the bank's accounts.

Deposits In Russian Banks Increase

· Total deposits in Russian banks reached 279.1 billion rubles as of September 1, 1999, marking an increase of 28.7 percent against the beginning of this year and 44 percent against the same period in 1998. Russia's State Agency for Statistics reports that total deposits in the Savings Bank increased by 33.7 percent from 153.3 billion rubles to 204.9 billion rubles. This means the Savings Bank's share in national bank deposits went up from 70.7 percent as of January 1, 1999, to 73.4 percent as of September 1. In August, the total deposits in the bank showed an increase of 1.94 percent against the previous month. The ruble equivalent of private hard-currency deposit balances came to 87.2 billion rubles as of September 1, including 38.1 billion in the Savings Bank. The bank's share in the total currency depos

its rose 4.3 percentage points to 43.7 percent. The ruble deposits in Russian banks increased by 28.28 percent from 149.6 billion rubles to 191.9 billion rubles. Currency deposits grew 29.57 percent from 67.3 billion rubles to 87.2 billion rubles. The increase of ruble deposits in the Savings Bank stood at 31.55 percent and of currency deposits, by 43.77 percent. As of October 7, 1999, the Savings Bank had 8.8 billion rubles of obligations on the private deposits transferred from Most-Bank, Mosbusinessbank, Promstroibank, Inkombank, Menatep, SBS-Agro, Rossiisky Kredit, and Kuzbassprombank. The Savings Bank paid out in cash 8.5 billion rubles, or 96.3 percent of the means under obligations. In the structure of Saving Bank deposits 48.3 percent was the share of pension deposits, 32 percent of time deposits, 9.4 percent of time deposits with monthly dividends, 8.7 percent of call deposits, and 0.3 percent of plastic card deposits.

Business

Conoco Seeks Growth in Russia

· US Conoco chief executive officer Archie DUNHAM on Tuesday said that Conoco has, "a lot of ambitious growth plans outside North America." He said that Conoco's expansion into Russia is thriving and producing about 42,000 barrels of oil per day. He downplayed concerns about Russia's political instability. "Long-tern major integrated energy companies must be in Russia, Asia, and the Middle East," all of which have political problems, the Dow Jones Newsline reported. DUNHAM also dismissed concerns about the changes in oil prices. "The price that we have today is probably higher than what we'll see in the long term." He added that Conoco can weather out an expected dip.

Gazprom 98 Percent Y2K Compliant

· A statement from Russia's natural gas monopoly Gazprom has reported that the company is now 98 percent prepared for the millennium bug. A company spokesman added that over 88 percent of the critical systems are now Y2K compliant, but including non-critical systems, the overall readiness is 98 percent. "The measures being taken will allow Gazprom to guarantee, in full measure, fulfillment of its export contracts for deliveries of natural gas. In general, the year 2000 problems will have no influence on the company's production activities." Gazprom is the major supplier of gas to Europe.

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

November 10, 1999

Intercon's Daily

European Republics

Marchuk Endorse Kuchma, Wins Appointment

· Former prime minister and former security service chief Yevgeny MARCHUK, who received 8 percent of votes in the first round of the presidential election on October 31st, has called on his backers to support incumbent Leonid KUCHMA in the run-off. Presidential spokesman Alexander MARTYNENKO said, "The President expects that all of those who voted for MARCHUK in the first round will support KUCHMA in the second round, because they [the President and MARCHUK] are already one team." To seal their commitment to each other, KUCHMA today appointed MARCHUK as chairman of the Ukrainian National Security Council, according to a presidential decree. The spokesman added, "This appointment has been prompted by the fact that the President and MARCHUK had never differed on the vision of the country's future. MARCHUK currently chairs the parliamentary committee for social policy and labor and heads the Popular Solidarity national political movement.

Adamkus Approves New Cabinet

· Lithuanian President Valdas ADAMKUS on Friday approved the 14-member cabinet of newly appointed Prime Minister Andrius KUBILIUS. The Cabinet includes new Finance Minister Vytautas DUDENAS and Economics Minister Valentinas MILAKNIS. The other 12 Cabinet members remain unchanged from the previous government of former prime minister Rolandas PAKSAS. The Cabinet must still have its program approved by parliament before the government assumes full power. A vote on the program is expected by week's end. PAKSAS, former finance minister Jonas LIONGINAS, and former economic minister Eugenijus MALDEIKIS resigned at the end of October in protest of the controversial sale of the Mazheikiu Nafta Refinery's controlling stake to US Williams International.

Meanwhile, Lithuanian legislators said on Tuesday that a planned referendum on the refinery sale has been withdrawn since one of the 48 initiators withdrew his support, leaving it one short of the requirement. The Ethics and Procedure Committee decided that Democrat Sauliu PECHELIUNAS was within his rights to withdraw his name. Experts say that it is unlikely that the deal will be scrapped, since com

pensation to Williams would be more costly. If any referendum is held, it will be no earlier than February. For it to pass, more than 50 percent of all registered voters would have to vote against the sale.

South Caucasus & Central Asia

Disinformation Campaign Implies Larger Plan

· The Russian media today published reports that the Chechen parliament is forming a government in exile from within Georgia. Georgian State Minister Vazha LORDKIPANIDZE and Russian Prime Minister Vladimir PUTIN today held a conversation over the information that Tbilisi had agreed to permit such a formation. LORDKIPANIDZE expressed bewilderment with the information, which is completely untrue. Chairman of the parliamentary committee for defense and national security of Georgia Revaz ADAMIA described the media reports as, "a provocation by Russian intelligence," according to Prime News Agency. ADAMIA does not exclude that the General Staff of Russian Armed Forces may be considering the possibility of attacking Georgia. The Foreign Ministry believes that forces in Russia are attempting to ruin the neighborly relations with Georgia and provoke them into joining the North Caucasus conflict. Comment: Russian's continued disinformation campaign against Georgia further indicates that Russia has been orchestrating a broader scheme for control not only in the North Caucasus, but in the South Caucasus as well. In an Op-ED piece in The Wall Street Journal, former US National Security Advisor Zbigniew BRZEZINSKI warned that the conflict in Chechnya could spread to Georgia. He wrote that, "A military success in Chechnya is likely to tempt the Moscow hard-liners either to subdue or to eliminate Georgian President Eduard SHEVARDNADZE, thereby also subordinating his nation." He warns that this would give direct access to Armenia, already dependent on Russia, cutting off Azerbaijan from the West and gaining control of the Baku-Supsa pipeline. The US has backed the Supsa route and the proposed Baku-Ceyhan because they allow the new states to become independent of Russia's pipeline routes and avoids Iran.

Armenia Strips Deputy Immunity

· The Armenian parliament today agreed to strip National Assembly member Musheg MOVSESYAN of his deputy immunity and approved the arrest and

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

November 10, 1999

Intercon's Daily

prosecution of him on a charge of terroristic murder. MOVSESYAN was detained on Saturday for complicity in the assassination of Prime Minister Vazgen SARKISYAN, Chairman Karen DEMIRCHYAN and six other government officials. Prosecutor-General Agvan OVSEPYAN presented his request for the deputy's arrest to the parliament in person. OVSEPYAN said preliminary investigation established that the terrorist act staged in the hall of Armenian parliament on October 27th had been masterminded and committed with MOVSESYAN's complicity. He pointed out that in March to April MOVSESYAN became acquainted with Nairi UNANYAN, who later assumed the lead role in the terrorist act. Both blamed SARKISYAN for the social and economic plight of Armenia.

Baku-OSCE Discuss Nagorno-Karabakh

· The Azeri leadership Tuesday met in Baku with French Co-Chairman of the Organization for Security and Cooperation in Europe (OSCE) Minsk Group on Nagorno Karabakh Jean-Jacques GAYARD. The talks focused on the settlement of the Armenia-Azeri conflict around Nagorno-Karabakh. GAYARD is expected to meet with Foreign Minister of Azerbaijan Vilayat GULIYEV. Later in the day, he held talks with Azeri President Geidar ALIYEV. The meetings were expected to center on the ways of invigorating the peace talks and to specify the positions of the sides on the eve of the OSCE summit to be held from November 18th to 19th in Istanbul. Today, GAYARD will leave Baku for Yerevan to hold similar political consultations with the Armenian leadership.

Kazakh Parliament Approves 2000 Budget

· The Kazakh parliament on Friday, except for one abstentions, unanimously gave final approval to the austere 2000 budget. It won 55 votes in the Mazhilis (lower house of parliament) and 36 in the Senate. Prime Minister Kasymzhomart TOKAYEV said, "Maybe there is a bitter taste to this budget, but it is realistic. It will definitely be implemented." The $2.6 billion budget has been written with the International Monetary Fund's policies and requirements in mind.

The International Monetary Fund approved Kazakhstan's spending parameters, but judged its planned revenues as ambitious. The budget aims to spend 404 billion tenge, collect revenues of 286 billion tenge, and calculates the deficit at 3 percent of gross domestic product.

Uzbek-China To Boost Relations

· Today, Uzbekistan President Islam KARIMOV concluded his third official visit to Beijing. He held meetings with Chinese President JIANG Zemin, Premier ZHU Rongji, legislator LI Peng and a group of Chinese businessmen. The two heads of state signed a joint statement on furthering friendship and cooperation between China and the Central Asian nation. ZHU said that China highly values its relations with Uzbekistan and other Central Asian countries, supports bilateral cooperation in business and economic areas, and encourages relevant Chinese companies to study market trends. ZHU stressed that with the deepening of China's economic reforms and development in the central and western parts of the country, there will be increasing opportunities for cooperation between China and Central Asia. KARIMOV expressed his thanks for the warm reception he received during his visit and his satisfaction over the development of the bilateral relations.

In The Great Hall, KARIMOV and JIANG also signed agreements on extradition, protection of intellectual property, telecommunications, cooperation between the security services of China and Uzbekistan, cooperation in tourism and education, and a framework agreement on a Chinese preferred loan program for Uzbekistan. China and Uzbekistan back the idea of reviving the Great Silk Road: revitalized business transactions and cultural contacts in the area along ancient caravan roads. In this respect, the sides discuss a possibility of re-building the Andizhan-Osh-Kashgar highway. JIANG and KARIMOV also discussed international terrorism and religious extremism. KARIMOV was accompanied by Deputy Prime Minister Rustam YUNUSOV and Foreign Minister Abdulaziz KAMILOV during the trip.


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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