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

Thursday, December 16, 1999

December 31, 1994. Russian troops suffered heavy losses, undermining domestic support for that war. Within five days of the attack more than 2,000 Russian troops were killed in house-to-house fighting. The Russian media followed the government's line in its reporting of the conflict, with little coverage of civilian casualties. Last night's clashes may indicate a new Russian strategy in seizing Grozny, but it risks public support if casualties are high. The rebels' overnight victory has boosted their confidence that they can again hold out against Russian federal troops.

Paid Wage Arrears Ahead Of Elections?

· Russian Prime Minister Vladimir PUTIN today has pledged to pay off wage arrears to government workers by April 15, 2000. According to him as of November 1st, wage debts totaled 7.3 billion rubles ($272 million). Wages are being paid regularly only in seven regions in the country. The regions with the highest level of indebtedness are the Republics of Altai, Tuva, and Kalmykia as well as Omsk Oblast and Koryak Autonomous Okrug. PUTIN emphasized that the problem of liquidating the wage debt could not be solved by the center alone and that local authorities have already agreed to allocate some 40 percent of their own financial resources to resolving the problem. However, on average, regions are only allocating some 33-35 percent for wages. First Deputy Finance Minister Aleksei KUDRIN declared PUTIN's goal realizable because federal transfer to the regions were increased this year from 33 billion

Russian Federation

Politics

Rebels Repel Russian Attack

· Russian top officials are scrambling to combat media reports that federal troops attempted to storm Grozny, the Chechen capital, last night and were violently repelled by Chechen militants. Reuters and Associated Press reporters separately confirmed that rebels engaged in several hours of street fighting in the capital with Russian troops. One reporter described Minutka Square, located about 2 miles from the city's center, as being covered with 115 Russian soldiers' bodies, seven blackened Russian tanks and eight armored personnel carriers. It is believed that hundreds of Chechen fighters fired rocket-propelled grenades and machine guns as the armored column entered the city. Russian forces shelled Grozny through the night and into this morning. At Mozdok, a major Russian military airfield just outside Chechnya, pairs of Russian warplanes were taking off every few minutes. Military officials said the planes were heading toward Grozny on bombing raids. Russian Defense Minister Igor SERGEYEV denied reports that Russian forces attempted to storm the Chechen capital Grozny. He said, "Reports about the defeat of a Russian armored column by the rebels in Grozny's Minutka Square are lies and misinformation...There was no assault and there will be no assault on the city." He added that, "no Russian armored vehicles have entered the city." Other Russian military officials do not rule out that federal troops had been involved in reconnaissance missions. The government has called the Western media reports part of a disinformation campaign aimed at discrediting the Russian government ahead of elections.

Wednesday night's attack is reminiscent of the major offensive against the Chechen capital launched on

Today's News Highlights

Russia

No Date Set For London Talks

Interros Barred From Tender

European Republics

Estonia Passes 2000 Budget

Lith. Trade With Russia Drops

South Caucasus & Central Asia

OSCE On Rus-Georgian Border

Injia Appeals For Political Shelter

Nazarbayev To Visit Washington

Kyrgyz Passes 2000 Budget

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December 16, 1999

Intercon's Daily

rubles ($1.2 billion) to 44 billion rubles because of unexpected revenues, RFE\RL Newsline reported.

Economy

Ruble = 26.78/$1.00 (NY rate)

Ruble = 26.75/$1.00 (CB rate)

Ruble = 27.20/1 euro (CB rate)

MDM Bank Expands Throughout Russia

· Moscow Business World Bank (MDM Bank) announced plans to open 100 small retail branches throughout Russia in 2000, The Moscow Times reported. Each branch will provide 10 retail services, including monthly utilities payments, currency exchange and money transfers. MDM Bank's corporate clients include Russia's largest metals and oil companies, the State Customs Committee, and Moscow-based car dealers. MDM Bank's expansion plans are seen as a positive step for the banking sector, which has suffered heavy loses. Many of Russia's largest banks shut down after Russia defaulted on $40 billion in Treasury bills in August 1998, which represented a large part of their portfolios.

No Date For And No Progress On London Talks

· Russian Finance Minister Mikhail KASYANOV Tuesday stressed that Russia is interested in seeking a restructuring deal with the London Club of private creditors at the next round of Soviet-era debt talks. However, he said that neither side appears ready to reach a deal and no date for negotiations has been set. Both sides said that they need to analyze earlier proposals before the next round. There were still "two to three differences of opinion on principal questions," KASYANOV said. "We would like to meet creditors only after we have agreed on these matters so that at the next meeting we can reach a final agreement on debt restructuring terms, not simply listen to opinions," he added. Russia and the Club are in difficult negotiations over restructuring $32 billion of Soviet-era debt, PRINs and IANs bonds and want to reach a deal by the end of the year. Talks have dragged on for months. Russia wants an easier repayment schedule in exchange for awarding the debt a higher Eurobond status. Analysts have said Russia may bypass London Club banks and go straight to bondholders but KASYANOV rejected the idea. "We are ready to listen to advice and recommendations of all creditors, but we think the banking committee was set up with the express aim of

reflecting, in a condensed form, the opinion of all holders of debt of the former Soviet Union," he said.

Vneshekonombank Chairman Andrei KOSTIN believes a new round of talks will not happen in 1999. He said, "Given the forthcoming holidays and the work load of the Ministry of Finance, it is difficult to expect it by the end of the year." He added, "We continue to think that an agreement is possible and we understand that debts need to be repaid. We understand that negotiations should not be drawn out by political events...We do not agree with statements that Russia is heading towards political and financial isolation."

Business

US Ex-Im Bank To Vote on Tyumen Loan

· The US Export-Import Bank is set to vote on the controversial $500 million loan for Tyumen Oil Company on Friday. The package to be considered consists of a $292 million loan for US oil service Halliburton Co. to develop the Tyumen Oil field and a separate $198 million for Lummus Global, part of ABB Ltd., to upgrade the refinery's equipment. If approved the loan money will be issued directly to the companies and then Tyumen would pay the bank back with revenues from oil sales on the world market. Pressure has been placed on the bank not to approve the loan due to Russia's military campaign against Chechen rebels and shareholder rights' violations regarding the sale of Chernogorneft, a subsidiary of Sidanko, to Tyumen. The Export-Import Bank has stressed that it will make loan decisions based on sound economic and investment outlooks and not politics.

Interros Prevented From Bidding On Tyumen

· Russian financial and industrial group, Interros, which controls oil company Sidanko, has accused the government of barring it from bidding in an auction for 49.8 percent of rival Tyumen Oil Company. Interros said the Anti-Monopoly Ministry failed to sign documents allowing it to bid for Tyumen, Russia's fifth largest oil producer. Interros President Vladimir POTANIN said, "The Russian government should state its position regarding the activities of certain officials who administered this process." Novy Holding, which owns the majority of Tyumen, has made a bid for the stake. Analysts predict that the

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government will favor Tyumen's internal management in the tender. Stephen O'SULLIVAN, director of research at Moscow-based brokerage United Finance Group, said, "The requirement that the bidder buys shares, for example in the Ryazan refinery [is] difficult to achieve unless the bidder has the support of the company management." The government will announce the results of the Tyumen auction on December 22nd. It set the starting price at $252 million, including $66.7 million in cash and $185.3 million in investment.

less down from 23.7 percent for January to October, 1997. The overall trade deficit for the first 10 months was 5.85 million litas, slightly narrower than the 6.74 million litas gap the previous year. Analysts say exports to the Europe Union, which accounted for 49.3 percent of all goods shipped out of the country, could have been even higher had it not been for the strength of the dollar against the euro. The litas currency is pegged at four-to-one against the dollar, meaning the country's competitiveness erodes each time the euro weakens.

South Caucasus & Central Asia

OSCE To Monitor Georgian-Russian Border

· The Permanent Council of the Organization for Security and Cooperation in Europe (OSCE) on Wednesday approved a decision to dispatch an observer mission on the Chechen portion of Georgian-Russian border. Georgian President Eduard SHEVARDNADZE has requested that observers be deployed along the border to ensure that only genuine Chechen refugees, and not militants, cross into Georgia from Chechnya. According to the head of OSCE mission in Georgia Jean-Michel LACOMBS, the financing for the mission has already been allocated and many European countries have expressed readiness to send their representatives to Georgia. The first stage of the monitoring operations will be conducted by a helicopter patrol, which will either be rented from Georgia, or specially delivered from Europe. Later, four OSCE observers will permanently work in the village of Shatili, which was bombed by Russia in November. LACOMBS said that the objective of the planned monitoring is to observe situation at the border and to provide objective information in case of the violation of the border.

Georgia has denied Russian media reports that OSCE observers saw Chechen gunmen in Shatili during a visit on Monday. Director of public relations department of Georgian foreign ministry Avtandil NAPETVARIDZE noted that OSCE mission and foreign ministry representatives visited Shatili on Wednesday for a more detailed inspection of the situation at that border point. He stressed that representatives did not detect any armed Chechen gunmen on Georgian territory either on December 13th or 15th, Prime News Agency reported. The reports are described by Foreign Ministry officials as

European Republics

Estonia Passes 2000 Budget

· Estonian lawmakers on Wednesday passed the 2000 budget by a vote of 53 to 34. For the first time, the budget combines the social budgets, resulting in a balanced total of 28.53 billion kroons ($1.84 billion). Estonian law requires a balanced budget. The government gave priority to education, defense, and culture in next year's budget. Even though lower-than-expected gross domestic product results for the third quarter resulted in lower estimates of tax revenues in 2000, the government increased the predicted amount of revenue from privatization. The Estonian parliament also passed a new income tax law by a 52 to 38 vote. That law provides for the abolition of corporate income tax and states that reinvested profits will be exempt from income tax. However, dividends will be taxed as usual, RFE\RL Newsline reported.

Lithuanian Trade Shifts Away From Russia

· Lithuanian exports to Russia over the first 10 months were down by two-thirds. Russia is continuing to lose its trade-dominance over the Baltic states. The statistics department today released January-October data showing exports to Russia fell 66.6 percent over the previous year, while imports were off by 20.8 percent. It added that Lithuania's foreign trade deficit with Russia was 2.548 billion litas for the 10-month period with total exports at 742.5 million litas and imports at 3.3 billion litas. Prior to the 1998 financial crisis, Russia was Lithuania's largest trade partner. Accounting for 7.3 percent of total exports, it now ranks third as a destination for local goods behind Germany at 15.8 percent and Latvia at 12.9 percent. Over the same period in 1998, Russia topped the list at 18.6 percent, which was nonethe

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a provocation by the Russian press. The Russian and Georgian sides have started negotiations for the return of refugees from Georgia to their homes.

Meanwhile in a letter to the UN Secretary General Kofi ANNAN, President SHEVARDNADZE has asks for maximal activation of measures taken by the UN for provision of humanitarian aid to Chechen refugees in Georgia. According to SHEVARDNADZE, humanitarian aid provided by the UN and other international organizations is not enough, due to the increasing number of refugees. He described the situation as, "close to a humanitarian catastrophe."

Labor Party Seeks Shelter For Injia

· The Georgian Labor Party today issued appeals to the governments of Austria, Holland, Finland, Germany, and France for political shelter for the member of the executive council of the party, former minister of post and communication Fridon INJIA. Chairman of Labor Party Shalva NATELASHVILI said, if INJIA, who is in Strasbourg, returns to Tbilisi he will be arrested by Georgian law enforcing bodies. The Georgian Prosecutor General's office on Tuesday circulated a statement that if INJIA fails to return for questioning connected to organizing a disorderly rally in the Martvili region during parliamentary elections, he will be legally forced to do so. INJIA's brother, David, has already been detained on the same charges. NATELASHVILI described accusations against the INJIA brothers as absurd and accused Georgian authorities in political repression, Prime News Agency reported.

CIS Secretary Continues Tour In Turkmenistan

· The Commonwealth of Independent States' (CIS) Executive Secretary Yuri YAROV arrived in Ashkhabad, Turkmenistan on Wednesday as part of a Caucasus and Central Asian tour. He will meet with Turkmen President Saparmurat NIYAZOV to discuss CIS reforms and preparations for the upcoming leaders of the CIS leaders scheduled for January 20 to 21st, 2000 in Moscow. YAROV and NIYAZOV will formalize the agreement reached at the Organization

for Security and Cooperation in Europe's summit in Istanbul to hold the next CIS summit in Ashkhabad in May, 2000.

Kazakhstan President To Visit US

· Kazakh President Nursultan NAZARBAYEV departed today for an official visit to the US. Presidential press secretary Asylbek BISEMBAYEV noted that NAZARBAYEV will attend the Kazakhstan-US Commission meeting on economic cooperation. During his week-long visit, the Kazakh President will meet with US leaders and UN Secretary General Kofi ANNAN. His visit will focus on the development on small and medium-sized business, large projects extracting energy resources, and their transportation. The Kazakh President is expected to sign a package of bilateral documents. Tonight, he is staying in Spain for a brief visit with their Prime Minister.

Tajik-Kazakh To Sign Bilateral Agreements

· A package of intergovernmental agreements regulating bilateral relations in the taxation and banking sectors and aimed at strengthening cooperation and interaction in the military sphere and in customs affairs are to be signed as a result of Tajik-Kazakh talks being held in Dushanbe today. Kazakh Prime Minister Kasymzhomart TOKAYEV will be received by Tajik President Emomali RAKHMONOV ahead of the signing ceremony. On Friday, TOKAYEV will attend a meeting of the Prime Ministers Council of the Central Asian Economic Community, which joins together Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan.

Kyrgyz Parliament Approves 2000 Budget

· Kyrgyz legislators on Wednesday approved the amended budget for 2000 in its final reading, RFE/RL Newsline reported. The revised budget envisages revenues of 9.7 billion soms (about $215 million) and expenditures of 9.5 billion soms, resulting in a modest surplus equivalent to 0.3 percent of gross domestic product (GDP). GDP growth is projected at 3 percent to 4 percent and annual inflation at 20 percent.

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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