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

Thursday, December 2, 1999

also conduct searches for wanted criminals and prosecute persons suspected of committing crimes, during preliminary investigation cases. They may also require inspection of transport vehicles. Under the new law, FSB bodies can also restrict or prohibit travel of citizens and means of transportation over separate areas and order citizens to stay or leave sections, if necessary to protect their life, health and property. Concerns are growing, since Russian officials use the term terrorism loosely and it is unclear who would decide whether a situation was serious enough to warrant the application of these expanded powers. Comment: These extraordinary measures expand the power and authority of the FSB to a new level. To those who champion the cause of civil liberties, this new law is another indication of a resurgent KGB.

Economy

London Club Talks Fail To Reach Agreement

· Two-days of negotiations between Russian Finance Minister Mikhail KASYANOV, Vneshekonombank president Andrei KOSTIN, and the London Club of creditors failed to reach an agreement on the restructuring of Russia's $32 billion defaulted Soviet-debt. The Finance Minister said little progress was made, but "differences" still remain. One European banker describing the situation said, "KASYANOV will continue talking to the banks a little longer to make sure that a majority of the banks don't voice a formal opposition or protest. It's a very

Russian Federation

Politics

NEWSFLASH

Russia Fires On Chechnya From Georgia

· Intercon sources report that the Russian Air Force for the third time, since the Chechen military offensive began, violated Georgian air space today and bombed Chechnya. Helicopters and fighter jets flew over Georgia and then fired rockets from the Georgian air space on Chechen positions.

Leberknight Ordered To Leave Russia

· The Russian Foreign Ministry on Wednesday handed over a note of protest to the US embassy in Moscow in connection with Cheri LEBERKNIGHT's alleged espionage activities in Russia. The protest orders the US diplomat to leave the country. On Monday, Federal Security Service (FSB) officers arrested LEBERKNIGHT for trying, "to obtain documents of military strategic nature that constituted a state secret," from a Russian citizen. The note voices strong protest over LEBERKNIGHT's activities, which they claim endangered Russia's national security. The FSB believes that LEBERKNIGHT, who worked in the embassy as second secretary of its political department, was also a Central Intelligence Agency (CIA) agent. They said she was carrying invisible ink and a pocket-size electronic spy device to prevent eavesdropping when FSB officers grabbed her in a wooded park outside Moscow.

Duma Grants FSB More Powers

· The Russian State Duma on Wednesday in a vote of 356 to zero approved a bill which expands the rights of the Federal Security Service (FSB), the successor of the Soviet KGB, in combating terrorism and mass disturbances. The bill allows the FSB to cordon off entire regions or facilities to prevent acts of terrorism or mass disturbances. FSB officers may

Today's News Highlights

Russia

Yukos-China Sign Oil Deal

MiG Designers Resign

European Republics

Illegal Aircraft Plant Discovered

Gryvnia Breaks Trading Corridor

South Caucasus & Central Asia

Rus-Georgian Visa Regime

Georgia Seizes Weapons

Injia To Seek Asylum In France

Armenia To Join Union?

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subtle game." KASYANOV added that Russia will fail to make payment coupon of cash and new bonds totaling $963 million due today. The date of the next round of talks has yet to be scheduled, but is expected to occur before the Christmas holiday.

Ruble = 26.75/$1.00 (NY rate)

Ruble = 26.68/$1.00 (CB rate)

Ruble = 26.85/1 euro (CB rate)

IMF Postpones Loan Decision

· The International Monetary Fund (IMF) has postponed at least until Friday its decision on whether or not the Russian government and the Central Bank are meeting requirements for a $640 million installment of a July $4.5 billion loan. Russia's envoy to the Group of Eight Alexander LIVSHITS, speaking at the Nixon Center in Washington, said, "Russia has complied with all the provisions, and with additional conditions," imposed earlier this year by the international lending community concerned about money laundering and alleged abuse of previous loans.

LIVSHITS stressed that it would is wrong to link new lending to Russia with its fighting in Chechnya, unless military spending threatens the budget agreed with the IMF. His comments come in response to IMF Managing Director Michel CAMDESSUS' statement that the IMF lending decision will take into account international political concerns over Chechnya. LIVSHITS pointed out that the war is being funded with extra revenues from oil sales abroad. He is scheduled to meet with CAMDESSUS on Friday. Russian Finance Minister Mikhail KASYANOV has not ruled out that the new installment will be granted before the end of the year.

The Financial Times reports today that with IMF lending to Russia totaling $20 billion, the relationship between the two sides is changing. More and more, the IMF is transforming from a credit institution to a debt collection agency. Augusto LOPEZ-CLAROS, a former IMF representative in Moscow and now an economist at Lehman Brothers, said that on a net basis the IMF will be taking money out of Russia for the foreseeable future. There is hope that this will force Russia to assume greater responsibility for its own economic future, by weaning itself off of its dependence on international loans.

Business

Yukos-China Sign Oil Deliveries Deal

· Head of the Russian Yukos Oil Company Mikhail KHODORKOVSKY on Wednesday in Beijing signed a memorandum with the management of the Chinese National Oil Corporation for annual deliveries to China of one million tons of oil and on "pushing a project of building an oil pipeline from the Tomsk Region to China, estimated at $2 billion." KHODORKOVSKY expressed an opinion that the topic of the oil pipeline would be raised at the coming informal summit between Russian President Boris YELTSIN and Chinese Chairman JIANG Zemin, as well as during a Chinese visit by Russian Prime Minister Vladimir PUTIN, scheduled for January. Construction on the oil 2,000 kilometers long pipeline has been discussed since 1994. It is expected to pump annually 20 million tons of oil worth between $2 billion or $3 billion. Construction of the project is planned to take "at least three years," the Yukos head said. China expressed readiness to draft a feasibility report along two routes: via Mongolia to Beijing and across the Russian-Chinese border¾to Daqing with its powerful processing facilities.

Six MiG Designers Send MAPO Into Tailspin

· Six MiG designers from VPK MAPO (Military Industrial Complex-Moscow Aircraft Production Organization) have resigned to protest the company's efforts to re-orient the firm from military to civilian production. The group of designers includes Chief designer Andrei GORLOV, Valery NOVIKOV and Eduard KOSTRUPSKY, designers of the MiG-29 and MiG-31, The Wall Street Journal reported. Fighter jets are the leading brands of the legendary Mikoyan-Gurevich design bureau, which makes up the core of MAPO. The group of designers are holding talks with the Directorate of Aviation Programs, a new private firm. The new company will soon to become MAPO's main competitor, as it plans to bid on contracts to modernize the MiG-29s and other Russian jet fighters, which is MAPO's major source of income. The resignations could irreparably harm the company, struggling to win military orders from the cash-strapped Russian Air Force. MAPO has not received a single contract from the Russian government for over six years. MAPO's Deputy General Director Alexei MALYGIN defended the company's policy saying, "In Soviet times, MAPO

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employed 25,000 people, but our production units are currently working to 20 percent capacity. We have two choices: to cut production further and sack everyone, or take on civilian projects." Reuben JOHNSON, a US aviation expert, pointed out that, "This is a knockout blow for MAPO. It now no longer has enough skilled designers to produce an airplane from front to back¾meaning there'll be no new aircraft with the MiG label on it."

Meanwhile, MAPO is successfully fulfilling a contract to deliver two MiG-29 fighters to Bangladesh. Two combat-training MiG-29UB planes are on the way this month. The contract will be completed early in 2000, with the delivery of four more MiG-29 fighters. A group of approximately 60 pilots and technicians from Bangladesh are receiving training in Krasnodar.

Gryvnia Breaks Exchange Corridor

· Ukrainian Deputy Prime Minister Sergei TYHYPKO last week called for an end to the gryvnia's dollar trading corridor. He said, "It is clear to me that we need to change the policy we have today¾firstly because it is not realistic, it in effect does not exist." The former banker added, "I don't think [the corridor] is an effective policy because banks and the real sector will quickly find other solutions which the Central Bank and government have no influence over, this is, they will achieve what they want through the shadow economy." The gryvnia exchange rate at the close on Wednesday stabilized at 4.95 to 4.97 gryvnias to $1 at the interbank currency exchange. This is well outside the exchange corridor of 3.4 to 4.6 gryvnia to $1 that was set by the government in February. The Ukrainian currency is not likely to return to the corridor. One dealer said, "Earlier the corridors were declared only for foreign investors. But now there are virtually no foreign investors on the market. As for domestic dealers, they have long ceased to believe in any corridor." TYHYPKO did not say what kind of policy he favored in place of the corridor, but said any policy would probably be ineffective without long-awaited economic reforms. The Ukrainian 2000 budget has been based on an exchange rate of 5 gryvnias to $1.

South Caucasus & Central Asia

Georgia-Russian Visa Regime Criticized

· Commonwealth of Independent States' Executive Secretary Yuri YAROV has called the proposal by the Russian leadership to impose a visa regime with Georgia "not the best solution," claiming that other ways of settling emerging problems can be found. In an interview with Georgian television, he noted that implementation of this proposal will make relations within the CIS more difficult and will create additional "difficulties and obstacles" for Russian and Georgian peoples. YAROV said if the question on introducing a visa regime between Russia and Georgia is put on the agenda of the coming CIS summit, he will support Georgia's stand. He expressed hope that things would not go that far and that "Russia will find some other ways of settling conflicts and difficulties, existing in interstate relations with Georgia." Georgian President Eduard SHEVARDNADZE believes that the introduction of visa regime will not answer the interests of Georgia and Russia. At a

European Republics

Secret Aircraft Accumulator Plant Discovered

· An illegal shop producing aircraft accumulators was discovered by agents of the Ukrainian Security Department in the Lugansk region. Security agents found almost 3,000 nickel pieces, stamps, labels, special packings and blank forms stamped at the Lugansk Accumulator Plant, which exists legally. The accumulators produced by a handicraft method were meant to be sold outside of Ukraine, predominantly in Russia. Three dealers involved in the illicit business detained in Lugansk declared that they did not have time to sell any of the accumulators yet, which aroused strong doubts at law enforcement agencies. Recently, the Lugansk Accumulator Plant has received over ten complaints from Russian aviation enterprises which bought accumulators via third party companies and claimed a refund from the Lugansk plant. However, it was established that the Lugansk Plant had not sold any of the accumulators for which a refund was demanded, to Russia. A search for the other links has yielded no results. Leads have only turned up dummy or short-lived companies. The Artyomovskaya District Prosecutor's office has instituted criminal proceedings into the case of illicit accumulator production. Investigators are trying to establish whether any of the detained dealers are mixed up in the refund claimed by Russian aviation enterprises.

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press conference on Monday, SHEVARDNADZE said that Russian Prime Minister Vladimir PUTIN, may have been, "misled by his staff," which suggested the idea, Prime News Agency reported. In addition, Azeri President Geidar ALIYEV has said that a visa regime between his nation and Russia will not be introduced. He said a visa regime cannot be introduced because the two countries have many economic and political contacts.

Georgia Seizes Anti-tank Weapons

· Georgian law enforcement officers on Wednesday in Tbilisi detained a captain in charge of the supply department from the Defense Ministry's 11th brigade for transporting a large anti-tank weapons without proper documentation. The officer has confessed to stealing the ammunition from his unit's depot. The military prosecutor's office has launched an investigation. Police found more than 30 anti-tank shells, 170 rounds of ammunition for a submachine gun, six camouflage uniforms, etc. in his automobile. They have not determined for whom the shipment was intended. Intercon sources report that the officer claims that he was not selling the ammunition but giving them to some friends.

Injia Seeks Political Shelter In France

· Former Communications Minister and member of the Labor Party's executive committee, Fridon INJIA, currently visiting Strasbourg, may ask for political asylum in France to avoid prosecution in Georgia. INJIA and his brother David are wanted for instigating violence and a riot in the election committee headquarters in Martvili, Western Georgia after the October 31st parliamentary elections. INJIA real motivation for the parliamentary seat has been described by reliable Intercon sources as a way to gain deputies' immunity from charges of corruption and abuse of his position as Communications Minister. While in office sources claim, INJIA used his position to establish partial ownership in certain telecommunication and mobile communication companies in Georgia. He also reportedly accepted money from foreign investors and built himself a huge home,

complete with an indoor swimming pool while Minister. He was also under investigation by George BARAMIDZE's parliamentary anti-corruption committee. INJIA was defeated in the parliamentary election, but challenged the results. His supporters fought with local authorities during the recount. Approximately 100 people stormed the election board after the election. Deputy chairman of the Labor Party Avtandil TKEBUCHAVA said, "If the investigation determines that Prosecutor General's office has instituted proceedings against the INJIA brothers for political persecution, then the former Minister of Communication will use his right and decide to stay in France." While in Strasbourg, INJIA is expected to file a complaint over parliamentary elections results to the European Court for Human Rights, Prime News Agency reported.

Turkey Extradites Golubchikov To Georgia

· Turkey on Friday extradited Boris GOLUBCHIKOV, a Georgian citizen, who was charged with embezzling $200,000 five years ago. As general director of a Tbilisi company and a deputy chairman of the observer council of a local bank in the early 1990s, GOLUBCHIKOV took the money as a short-term credit in 1992. He was arrested in Turkey by Interpol officers and after negotiations sent to Georgia.

Armenian Deal To Join Union Discovered

· Russian State Duma speaker Gennady SELEZNYOV claims that Armenian speaker Karen DEMIRCHYAN during talks in Moscow in October pledged that Armenia would join the Rus-Belarus Union, RFE\RL Newsline reported. DEMIRCHYAN met with SELEZNYOV in Moscow one week before he was assassinated on October 27th . The Russian speaker said DEMIRCHYAN promised to initiate a parliamentary debate on accession to the union. Armenian opposition parliamentary deputy Shavarsh KOCHARYAN on Tuesday strongly rejected SELEZNYOV's statement. KOCHARYAN, who accompanied DEMIRCHYAN on the visit, said the speaker undertook only to set up a working group to study the possibility of Armenia's accession.

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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