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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, November 17, 1999

Russian Federation


OSCE Summit: Russia Vs. The Rest

· The wily but weak Russian President Boris YELTSIN plans to persuade all 54 members of the Organization for Security and Cooperation in Europe (OSCE) that Russia's operations in Chechnya is critical to the fight against international terrorism. He will try to use his political influence to change attitudes about Russia's military offensive. Before departing today, YELTSIN said, "I hope common sense will prevail with those who have not been ready for that so far." The Russian President set a confrontational tone, warning the Western states on Monday not to interfere in Russia's internal affairs. YELTSIN blasted the West for daring to accuse Russia of using inappropriate methods in Chechnya, which is still formally Russian territory, where he said "bandits, murderers" and international terrorists are being destroyed. US Bill CLINTON, in a meeting scheduled with YELTSIN for Thursday, intends to tell YELTSIN that Russia's military offensive policy in Chechnya "is a dead end" and that the conflict needs third-party mediation. US Presidential spokesman Sandy BERGER said that CLINTON plans to raise the Chechen issues even if YELTSIN attempts to deflect discussion of the conflict. In an address to the Turkish parliament, CLINTON said, "We must be clear with Russia that its fight against terrorism is right, but that the use of indiscriminate force against civilians is likely to exacerbate the very tensions Russia wants to resolve." However, many feel this soft approach will produce little to modify the Russian military apparent plans to reduce Chechnya to rubble.

The issue of Chechnya is bound to be discussed in the summits full format, because Russia is breaching its limits in the Conventional Forces In Europe (CFE) arms control treaty to be signed on Friday. OSCE

chairman and Norwegian Foreign Minister Knut VOLLEBAEK said, "Chechnya will influence many parts of the agenda," which also includes a charter on European Security, CFE treaty, declaration on topical issues, and possibly an agreement on the Baku-Ceyhan oil pipeline, Turkey-Turkmenistan gas pipeline and a joint statement on the Nagorno-Karabakh by Azerbaijan and Armenia. He has urged Moscow to allow the OSCE a more active role in resolving the conflict. This offer was rejected by Russian Foreign Minister Igor IVANOV last week.

Also attending the OSCE summit are Tajik President Emomali RAKHMONOV, Turkmen President Saparmurat NIYAZOV, Georgian President Eduard SHEVARDNADZE, Belarus President Alexander LUKASHENKO, Moldovan President Petru LUCINSCHI, Azeri President Geidar ALIYEV, Armenian President Robert KOCHARYAN, and Ukrainian President Leonid KUCHMA. Estonian President Lennart MERI announced on Monday that he will boycott the summit in protest of the OSCE's ineffectiveness over Chechnya. Russia more and more is becoming isolated from the rest of the world, moving closer and closer to the like of Iraq and Yugoslavia with its terroristic methods of saturation and indiscriminate bombing of civilian population centers in Chechnya. Comment: It may be that President MERI's crystal ball has foretold the outcome of the OSCE summit and the silence of the West. We hope not?

Submarine Fires Two Test Missiles

· Ahead of the Organization for Security and Co

Today's News Highlights


Audit Finds No Wrongdoing

London Talks "Difficult"

European Republics

S&P Gives Lithuania A Warning

Estonia Joins WTO

South Caucasus & Central Asia

Rus. Invades Georgian Airspace

Azeri-Armen Presidents Meet?

New Armenian Gov't Completed

Tokayev Presents Econ. Plan




November 17, 1999

Intercon's Daily

operation in Europe (OSCE) summit Russia showed its might by test firing two nuclear capable ballistic missiles form a submarine in the Barents Sea. The missiles successfully hit their targets on the testing grounds in Kamchatka. Navy Commander Admiral Vladimir KUROYEDOV in a Navy report said, "The successful test of the two missiles from the nuclear submarine showed the high level of preparedness of the combat command system and personnel training." He said earlier launches were designed to provide Russia with a suitable response if Washington presses ahead with plans to deploy a national anti-missile defense shield. Tuesday's statement was the first time that Russian officials have directly linked the test of an offensive nuclear strike weapon to the arms control dispute. The US has planned to pull out of the 1972 Anti-Ballistic Missile treaty, if Russia fails to amend it. The US wants to deploy a system to defend against a possible launch from "rogue states" such as North Korea or Iran.


Ruble = 26.24/$1.00 (NY rate)

Ruble = 26.38/$1.00 (CB rate)

Ruble = 27.47/1 euro (CB rate)

Banks Holding Tax Payments From Budget

· Russian Tax Minister Alexander POCHINOK said that 110,000 million rubles in payments to the budgets of all levels and extra-budgetary funds is stuck in Russian banks. In other words, taxpayers have settled with the state, but the money has not reached the respective budgets. POCHINOK said tax payments account for 50,000 million rubles of the sum, fines account for 37,000 million rubles, and money which has failed to reach purpose-oriented budget and extra-budgetary funds account for 18,000 million rubles. The Minister pointed out that 6,000 million rubles of tax payments were, "deliberately remitted through problem banks." As long as a licensing of banks, which have the right to make tax payments, is not introduced, tax revenue bodies will have to continuously notify the Central Bank of violations made by banks and demand revocation of their licenses, POCHINOK said. On Friday, he announced that in the first nine months of this year the Tax Ministry collected the equivalent of $22 billion, which is a 72 percent increase over the same period in 1998.

Audit Finds No Evidence Of Stolen Funds

· An independent audit by PricewaterhouseCoopers has concluded that although no International Monetary Fund (IMF) loans were siphoned or stolen, the audit found "some further evidence" that the Russian Central Bank misreported foreign currency reserves to the Fund in 1996. The IMF has under pressure from the US withheld a $640 million installment to a $4.5 billion loan in part because of allegations that IMF funds were misused and funneled through accounts at the Bank of New York. The report found "nothing criminal" in the operations of Central Bank subsidiaries in France, Germany, Britain, Luxembourg, and Austria. The Auditors discovered that the Central Bank subsidiaries invested in Russian assets and then asked the Bank to cover the investment. The Wall Street Journal explains that this means approximately $100 million to $200 million were no longer available to the Central Bank emergencies fund, but were reported to the IMF as part of available reserves.

London Club Talks Are "Difficult"

· Russian Finance Minister Mikhail KASYANOV described the talks with the London Club on the restructuring of the former Soviet Union's foreign debt to private western banks as "difficult." Russia is successor to the Soviet debt of $32 billion. He noted, "a certain progress has been made, but it is difficult to say something definite yet." The first meeting in the current round of talks was held at the Deutsche Bank's headquarters. Vneshekonombank president Andrei KOSTIN also attended the meeting. KASYANOV pins special hopes on today's meeting at which "the main talk" is expected. He said the key goal is, "try to secure progress in the negotiations." "We have arguments to prove the justifiability of our position," he emphasized. The Finance Minister said that the situation in Chechnya should not affect the London Club talks. He pointed out that, "Economically, our expenditures [for the anti-terrorist operation] are not so great as to undermine the capacity of the country to fulfill its economic program." Russia has said it wants to write off 40 percent of its debt and may be willing to swap the rest for sovereign paper equivalent to eurobonds. KASYANOV hopes to reach an agreement with the creditors before December 2nd, when the next series of coupon payments are due. Russia has missed payments of $815 million on the debts since the financial crisis in August, 1998.

When you need to know it as it happens




November 17, 1999

Intercon's Daily


Russia Emergency Min. Buys New Aircraft

· The Emergencies Ministry is expected to increase its aircraft to 75 by the year 2005, or a 1.5-times rise compared to 1999. It is expected that 33 planes and helicopters will be stationed in European Russia, 25 in Siberia, 6 in the North Caucasus, and 11 in the Far East. The Ministry is planning to buy 8 multipurpose Be-200ChS amphibious planes and 5 light Ka-266A helicopters. The orders for their production have been handed over to plants in Orenburg and Irkutsk. Ka-32A and Mi-26T helicopters will also be purchased. Two An-124 cargo planes will be bought to participate in international humanitarian missions. All new equipment will be fitted with state-of-the-art avionics similar to Russia's GLONASS and GPS of foreign production, and with night-vision devices. The Emergency Ministry will receive the first batch of new aircraft in 2000.

Savings Bank Grants Loan For Aircrafts

· The Russian Savings Bank has allocated a special credit to Volga-Dnepr Airline to complete the construction of two An-124-100 Ruslan aircraft, according to the company's deputy director-general Sergei SHKLYANIK. He said this is important not only for the airline but also for the country's entire aircraft industry. He declined to give the amount of the loan, the terms on which it is to be repaid, and other details, saying that these are commercial confidential information. The two An-124-100 Ruslan aircraft will be built at the Ulyanovsk Aviastar factory. The first one of them is to take off in 2000. With these two aircraft, the An-124-100 fleet of Volga-Dnepr Airline will number ten such aircraft, which will enable the airline to consolidate its position in the world market of air carriers of super-heavy and large-size cargoes. Volga-Dnepr already accounts for over 50 percent of transportation of cargoes in this high-tech segments of the world market. Volga-Dnepr clients include General Electric, Lockheed Martin, Hughes and other firms.

pressures on Lithuania's ratings," if the country impedes fiscal consolidation or derails further privatization and restructuring of the industrial sector, "in particular, its energy sector," RFE\RL Newsline reported. The agency also criticized the deal that gave majority ownership of Mazheiki Nafta oil refinery to US-based Williams International, saying the sale terms will "considerably burden the country's already fragile budget situation."

Estonia Enters WTO

· Estonia notified the Geneva-based World Trade Organization (WTO) Secretariat Saturday that it had completed its national ratification proceedings. Trade officials Monday announced that Estonia has become the 135th member of the WTO. WTO accession negotiations for Estonia concluded successfully on May 21, 1999 after WTO's General Council adopted Estonia's Working Party Report and Protocol of Accession. In April 1999, the Working Party adopted by consensus the draft report, protocol of accession and the schedules of concessions on goods and services. Estonia has agreed to bring its economic and trade regime into conformity with WTO rules and obligations in all areas. It will sign on to all multilateral agreements, that is, the government procurement agreement and the agreement on trade in civil aircraft, without any transition periods.

South Caucasus & Central Asia

Rus. Helicopters Invade Georgian Air Space

· Georgian State Border Guard Department has reported that three Russian Mi-8 helicopters violated Georgian air space today and dropped mines in the highland village of Shatili, nearby the Chechen border with Georgia, shot at the border outpost and the territory of Mutso ravine. Some anti-personnel mines were dropped on a schoolyard and the children fled in all directions seeking shelter. There has been no word as to the extent of damage and casualties. Chechen refugees have been crossing state border of Georgia at that portion during last few months. Chairman of the State border guard department of Georgia Valery CHKHEIDZE and the first deputy head of the Staff of Georgian border guard forces Kornely SALIA have departed for Shatili village, to study the scene of the incident. President Eduard SHEVARDNADZE was immediately notified of the air violation, prior to his departure for the

European Republics

S&P Gives Warning To Lithuania

· Rating agency Standards & Poors (S&P) has maintained its BBB- rating for Lithuania, but warned of a growing fiscal gap. According to an S&P report, "continuous politicking would result in downward

When you need to know it as it happens




November 17, 1999

Intercon's Daily

Organization for Security and Cooperation in Europe (OSCE) summit in Istanbul. On August 9th, Russian warplanes engaged in the bombing offensive against Chechnya mistakenly bombed the Georgian village of Omalo. The Russian Air Force at first denied this, but after a joint investigation admitted the mines were Soviet-made. Georgian State Minister Vazha LORDKIPANIDZE has asked Russia for an explanation of the latest incident, which he said was "unacceptable." He said, "No matter what reasons were behind the violation of the border of the sovereign Georgian state, such actions are absolutely unacceptable in relations between the two countries and do not accord either with the norms of international law or common sense." There has been no official response from Russia. Russian Prime Minister Vladimir PUTIN only said, "There was a violation of the air border. I don't know anything else about it."

Azeri-Armenian Presidents May Meet In Istanbul

· On the sidelines of the Organization for Security and Cooperation in Europe (OSCE) summit in Istanbul, Azeri President Geidar ALIYEV and Armenian President Robert KOCHARYAN may hold a meeting over the Nagorno-Karabakh dispute. In an interview before leaving for Istanbul, KOCHARYAN said he will meet with the presidents or foreign ministers of the OSCE's Minsk group on Nagorno- Karabakh (Russia, France and the US). He said that such a meeting, "will become a very important step towards the settlement of the Nagorno-Karabakh problem." The Armenian President predicted that, "If the Karabakh problem is settled, Armenia will find itself in an entirely different situation from all points of view," foremost predicting an economic upturn in this case.

New Armenian Government Complete

· Armenian President Robert KOCHARYAN said he was satisfied with the new government which was completed on Saturday. The government, however, does not include the people who were strongly suggested by his opponents among the military. KOCHARYAN appointed Interior Minister Gaik

ARUTYUNYAN, National Security Minister Karlos PETROSYAN, and Minister of Industry and Trade Karen CHSHMARITYAN. The new members replace, Sergei SARKISYAN, Suren ABRAMYAN, Aik GEVORKYAN who resigned after the assassination of top officials in the parliament on October 27th. All other members have retained their jobs, presidential press secretary Vage GABRIYELYAN said. He added that the post of minister for urgent issues have been abolished. It was occupied by former prime minister of Nagorno-Karabakh Leonard PETROSYAN, who was killed in the terrorist act. Aram SARKISYAN replaced his late brother Vazgen SARKISYAN as Prime Minister on November 3rd. In his first public address he said that he agreed to take the post in order to continue the politics pursued by his brother for the good of Armenia's future. "The task set forth by Vazgen SARKISYAN, the government and the Unity political bloc to create prerequisites in the shortest possible time for establishment of a prosperous, stable and just state which would ensure equal conditions for its citizens, remains the main course my government and myself will pursue," the new prime minister declared. He stressed that a prerequisite for political stability is continued cooperation between the government and parliament.

Kazakhstan Outlines Three-Year Program

· Kazakh Prime Minister Kasymzhomart TOKAYEV on Friday submitted to a joint session of parliament his Cabinet's economic program for the period 2000 to 2002. He said that by 2002 the government is aiming to increase gross domestic product (GDP) by 10 to 12 percent compared with 1999, to cut inflation to 4 to 5 percent, and reduce the budget deficit to 1.2 percent of GDP. Unemployment is to be brought down from the current 13 percent to 8 percent of the able-bodied population. TOKAYEV also called for a "serious reform" of budget policy, the liberalization of foreign trade, and cuts in customs duties. He also announced that measure will be taken to legalize the shadow economy which accounts for an estimated 25 percent of GDP, mostly generated by small businesses, RFE\RL Newsline.

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

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When you need to know it as it happens