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

Monday, December 13, 1999

Russian Federation

Politics

Duma Approves Amnesty Measure For Rebels

· The Russian State Duma today approved a measure granting amnesty to Chechen rebels who surrender before February 1st. The amnesty measure has certain restrictions including that it will not be granted to any rebel, who carried out a serious crime, such as murder. Prime Minister Vladimir PUTIN told deputies, "It is a very important document that you have adopted. Even the rumor about the amnesty has forced many fighters to lay down their arms." Last week, Russia issued an ultimatum calling on Chechens to leave Grozny by Saturday or face annihilation. The military backaway from what it calls a warning and first deputy chief of the Russian General Staff Major General Valery MANILOV said Russia had no immediate plans to hit Grozny with powerful air and artillery strikes. "Unorthodox action will be taken...to ensure the liberation of Grozny from bandits and terrorists, without the frontal storm or the massive strikes that they like to talk so much about in the West." On Saturday, daytime air strikes were called off to help boost plans to rescue civilian refugees from Gronzy, but overnight bombing resumed late Sunday. The first safe corridor was opened Tuesday from Grozny to the village of Pervomaiskaya. A second corridor was opened on Saturday from Grozny through Chernorechye and the village of Alkhan-Yurt. MANILOV said, "We can fully guarantee safety and a decent reception at tent camps and others sites with all necessary facilities." Deputy Prime Minister Nikolai KOSHMAN said, "We know...that the militants are blocking people from leaving the city," adding that the rebels are using civilians as human shields. He estimates that 50,000 civilians remain in Grozny. In addition, PUTIN has held direct talks with representatives of Chechen President Aslan MASKHADOV. He said that no

progress had been made since MASKHADOV could not meet Russian demands for turning over radical warlords and releasing hostages. However, holding these talks is a step forward from early in the campaign, when PUTIN declared he would not negotiate with rebels, let alone MASKHADOV, whom he labeled as the illegitimate leader of Chechnya. Russia's softening is a clear indication that International pressure is working.

Russia Deploys Missiles; Delays START II Vote

· Just one day after Russian President Boris YELTSIN, while in China, reminded US President Bill CLINTON that, "Russia is a great power that possesses a full nuclear arsenal," the Russian military deployed 10 new Topol-M nuclear missiles on Friday. This is only the second time in two years that it has put the missiles on full combat readiness. The Topol-M, which carries a single nuclear warhead, was developed to be the backbone of Russia's strategic forces, The missiles were deployed in the Saratov region, about 450 miles southwest of Moscow. Russia's strategic Missile Forces chief Colonel-General Vladimir YAKOVLEV, said YELTSIN had been aware of the Topol-M deployment when he made his remarks. He also pointed out that the US move to amend the 1972 Anti-Ballistic Missiles Treaty will virtually mean, "a return to the arms race."

Meanwhile, the Russian State Duma today put off voting on the START II Nuclear Arms Treaty. Hopes for debate and passage had been raised last week that the Communists might drop their

Today's News Highlights

Russia

Russia Still Paying IMF

LUKoil Reports High Profits

European Republics

Russia Cuts Energy Supplies

Latvian Standby Loan Granted

South Caucasus & Central Asia

Tevzadze Resignation Rumors

Azeri Municipal Elections

Turkmen Parliamentary Elections

Uzbek-Russia Firm Up Relations

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December 13, 1999

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resistance to the treaty. However, the Communists led the movement to prevent a debate and vote. Communists Party chief Gennady ZYUGANOV said, "The issue hasn't been prepared yet." Russia and the US signed the agreement in 1993. The US Senate ratified it in 1996. The treaty would halve US and Russian nuclear arsenals to between 3,000 and 3,500 warheads each. Prime Minister Vladimir PUTIN said that government would continue to pressure lawmakers to ratify START II.

Economy

Ruble = 26.85/$1.00 (NY rate)

Ruble = 26.91/$1.00 (CB rate)

Ruble = 27.29/1 euro (CB rate)

CB To Maintain Reserves In 2000

· Central Bank First Deputy Chairman Tatyana PARAMONOVA announced that the bank will maintain its gold and foreign currency reserves in the year 2000 at $12 billion. Reserves totaled $11.5 billion on December 3rd. She said that the reserves will remain roughly equal to three months worth of imports. PARAMONOVA added that the Central Bank's decision to maintain a floating exchange rate has helped prevent a further depletion of reserves. Russia's inflation rate is expected to be between 38 percent and 40 percent in 1999. That rate is predicted to fall to around 18 percent in 2000. The First Deputy Chairman pointed out that although Russia's industrial production is rising and the economy has outperformed recovery predictions, the nation is still struggling with immense debts. PARAMONOVA said, "We're still in the grip of a heavy foreign debt burden, and we also have large debts owed to internal investors. There are large payment arrears among enterprises, and this interferes with the dynamic of economic development."

Russia Still Paying IMF Debt

· The International Monetary Fund (IMF) released new figures showing that Russia is continuing to repay old IMF loans, despite a freeze placed on a $4.5 billion loan approved in July. On Thursday, the IMF reported that Russia repaid a net $3.14 billion to the IMF in the last 12 months. This includes a $308 million payment in November. Russia's debts to the IMF totaled $15.92 billion on November 30th, down from a peak of $19.44 billion in July, 1998. Russia is the IMF's largest single borrower, but has one of the worst track records for meeting structural and eco

nomic requirements. Many IMF members states have expressed concern over issuing new loan installments while Russia is pounding Chechnya with heavy artillery and bombs. The IMF has delayed the latest installment of $640 million claiming that Russia has not met a string of economic promises centered on restructuring the banking sector, strengthening the economy, and ensuring institutional reforms. IMF First Managing Director Stanley FISCHER stressed, "We will keep political factors to a minimum. I've been struck by the very rapid change in rhetoric about Chechnya over the last day or two. But we made our decision when the emphasis was very strictly on economic conditions."

Ruble Unsteady Without IMF Loan?

· Finance Minister Mikhail KASYANOV said that the ruble's rate could slip to the rate of 27.5 rubles to the dollar in the first quarter of 2000, if the International Monetary Fund (IMF) continues to delay the next installment of a $4.5 billion loan. He said that Russia is prepared to pay $900 million on its foreign debt in the first quarter. KASYANOV said, "there cannot be any devaluation of the ruble," due to the issue of 1,000 ruble banknotes into circulation planned before year's end. "The ruble's rate will be kept within parameters determined by the economic program of the government." He mentioned that the ruble will not go above the rate predicted in the 2000 budget, 32 rubles to the dollar.

Business

LUKoil's Profits Increase 207 Percent

· LUKoil, Russia's largest oil company, during the first three quarters of 1999, recorded profits of $830 million, a 207 percent increase over the same period last year. The company's net profits increased four times. Rising crude prices, the devaluation of the ruble last year and lower operating costs are credited with boosting profits. Last week, the government slapped higher duties on crude exports in what some analysts are characterizing as the government's attempt to get its share of rising revenues.

European Republics

Russia Cuts Energy Supplies To Ukraine

· Acting on threats issued by Russian Fuel and Energy Minister Viktor KALYUZHNY, Russia on Friday stopped all gas and electricity deliveries to

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Ukraine. Speaking in Rostov-on-Don, KALYUZHNY said energy supplies will be cut because Ukraine had taken "unsanctioned" volumes of gas from the main export pipeline crossing Ukraine to Western Europe. The illegal draw is estimated to be 150 million to 200 million cubic meters of gas per day. Board member of Neftegaz Ukrainy national power company Bogdan KRUPSKY argued that, "Ukraine was not stealing Russian gas." He referred to a contract with Gazprom, that states during the winter months Ukraine can draw as much Russian gas from the pipeline as it needs to consume, but no more than that amount. Ukraine produces just 75,000 barrels per day of crude, but consumes 500,000 barrels per day, with most of the supplies coming from Russia. Ukraine imports annually from Russia approximately 7 million tons of petroleum and 5 billion to 6 billion kilowatt hours of electricity. Ukraine's Energy Minister Ivan PLACHKOV confirmed that, "all the deliveries of gas and Russian electricity to Ukraine were stopped." Prime Minister Valery PUSTOVOITENKO said, "We must pay Russia for the gas." He believes that, "The energy industry will work stably." He pointed out that Ukraine plans to set in motion the third unit of the Rovno Nuclear power plant on December 22nd to 24th, after the planned repairs.

IMF Approves Standby Loan For Latvia

· The International Monetary Fund (IMF) on Friday approved a $45 million standby loan for Latvia, to support the government's economic plan for 2000. The IMF said Latvia has pledged to draw on the loan only as a last resort should it run into liquidity problems. IMF deputy managing director Shigemitsu SUGISAKI said the Latvian government is committed to pursuing a tight monetary and fiscal policy in 2000, while it implements a series of structural reforms. IMF officers have encouraged Latvia to continue privatizing the remaining state enterprises by the end of next year.

South Caucasus & Central Asia

Disinformation Campaign Targets Tevzadze

· Russia's disinformation campaign, meant to damage Georgia's reputation in the world community and destabilize the Caucasus region, has seems to have selected a new target. The Russian news agency Itar-Tass on Saturday reported that Georgian Defense Minister David TEVZADZE resigned

due to criticisms that the Defense Ministry had misused funds from the budget. Defense Ministry spokesman Koba LIKLIKADZE said there is no truth to rumors circulating in Tbilisi that Defense Minister David TEVZADZE intends to step down. Today, Georgian President Eduard SHEVARDNADZE that he learned about TEVZADZE's alleged resignation from Georgian media services. According to President, he met with the Georgian Defense Minister last weekend, but the meeting focused on Georgia's national security issues, not the resignation of TEVZADZE. SHEVARDNADZE described David TEVZADZE's work as Defense Minister as "active and fruitful."

In addition, the Georgian Foreign Ministry issued a statement declaring information that military formations are fleeing Chechnya and finding safety in Georgia as "absolutely unfounded." It said, "The Ministry of Foreign Affairs of Georgia categorically denies such notices, considering them to be completely groundless and declares that Georgia as a sovereign state has never allowed anybody to use its territory for military operations in connection with the ongoing conflict in the neighboring country and will not allow it in future." The US State Department deputy spokesman James FOLEY said, "We strongly support the sovereignty and territorial integrity of Georgia. The recent comments by Russian Prime Minister Vladimir PUTIN pledging respect for those principles are crucial to avoiding any spill over of the conflict beyond the borders of Russia." The European Council also issued a statement following their summit stating that it is, "deeply concerned at the threat the continuing conflict poses to the stability of the Caucasus region and possible spill-over from the fighting in Chechnya to Georgia and the effects on her territorial integrity."

WB Offices Discuss Aid To Georgia

· World Bank vice-president Johannes LINN arrived in Tbilisi on Sunday to review Georgia's economy. A meeting today with Georgian President Eduard SHEVARDNADZE, State Minister Vazha LORDKIPANIDZE, and Finance Minister David ONOPRISHVILI will focus on general parameters of aid programs to Georgia.

Baku-Ceyhan Negotiations Open In Tbilisi

· State Oil Company of Azerbaijan (SOCAR)

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president Natik ALIYEV, Azerbaijan International Operation Company (AIOC) president Rif DIGGINS, and Georgian International Oil Corporation (GIOC) president Giorgi CHANTURIA will participate today in negotiations for the final details of the agreement for the building of the main pipeline Baku-Tbilisi-Ceyhan, initialed in Istanbul November 18th. Representatives of coinciding committees of parliament and of ministries and departments of Georgia also participate in the Tbilisi round of negotiations. Georgia will express its concern regarding its sole responsibility for possible pipeline damages on its territory caused by natural calamities, CHANTURIA said. According to GIOC president, payment for transit of Caspian oil by Baku-Tbilisi-Ceyhan pipeline will also be discussed. At the November 18th signing ceremony, President Eduard SHEVARDNADZE said that Georgia would be interested in receiving part of the oil transported through its territory, instead of payments for transit. The talks, lasting until December 15th, will focus on generating an accord between potential investors and the Georgian government.

Azerbaijan Holds First Municipal Elections

· The Azeri Central Election Commission has reported that 52.6 percent of Azerbaijan's 4.3 million electorate cast their votes in municipal elections on Sunday. Those elections should have been held in 1997. The minimum required turnout was 25 percent. More than 36,000 candidates, half of them nominally independent, were contesting 22,000 seats on local councils. Thousands of domestic observers as well as contingents from the Organization for Security and Cooperation in Europe (OSCE) and the Council of Europe monitored the poll. Azeri President Geidar ALIYEV said that the municipal elections held at proper level will boost Azerbaijan's integration with European organizations. He also stressed that this was an important steps for consolidating democratic institutions. Two of the country's three main opposition parties, the Azerbaijan Popular Front and the Musavat Party, fielded candidates, while the Azerbaijan National Independence Party boycotted the poll to protest procedural violations during the cam

paign. Opposition parties have already issued a laundry list of election violations, including ballots which were already completed and filed before people came to the polling station. International observes have noted violations in previous Azeri elections, including the presidential election last year, which re-elected Geidar ALIYEV with 76 percent of the vote.

Turkmen Parliament Elections: High Turnout

· Turkmen officials have announced that approximately 99 percent of Turkmenistan's registered voters cast their ballots in the parliamentary elections on Sunday. A total of 104 candidates, almost all of them members of the Democratic Party of Turkmenistan, which is the only legally functioning party in the country, contested the 50 seats in the new legislature. The Organization for Security and Cooperation in Europe (OSCE) declined to send any monitors on the grounds that, "the legislative framework is inadequate for even a minimally democratic election." President Saparmurat NIYAZOV on Thursday termed the poll, "an important step in the history of Turkmenistan," according to Reuters. Free watches were distributed to first-time voters.

Uzbek-Russia Firm Up Strategic Relationship

· Uzbek President Islam KARIMOV and Russian Prime Minister Vladimir PUTIN signed an accord of military technical cooperation on Saturday in Tashkent. PUTIN stressed that the objective of the treaty is to maintain, "order and stability in this region and a friendly Uzbekistan." The agreement will include joint military exercises, military personnel training and cooperation in the military-technical sphere. PUTIN described Uzbekistan as, "Russia's strategic partner for many, many years." The two sides also signed several agreements to step up weapon trade, a long-term deal to swap Uzbek cotton fiber for some Russians goods, and two protocols on contacts between the two states' customs services. PUTIN and KARIMOV also worked on preparations for a meeting between the Uzbek leader and Russian President Boris YELTSIN in Moscow in 2000.

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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