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

Tuesday, December 7, 1999

Russian Federation

Politics

Russia Issues Warning To Grozny

· Russian helicopters on Monday dropped thousands of leaflets issuing an ultimatum to the residents of Grozny to leave or be annihilated. The United Press International reports that the leaflets said, "You are surrounded, all roads are blocked. You have lost....and the Russian command is giving you one last chance. Until December 11th, a corridor will remain open to the village of Pervomaiskoye. Those who will leave Grozny via that route will be offered housing, food and medicine, and¾most importantly¾life. There will be no further negotiations. All those who do not leave the city will be destroyed. Persons remaining in the city will be considered terrorists and bandits and will be destroyed by artillery and aviation." Russian officers have stated that this is not an ultimatum, but merely a warning. Russians estimate that residents remaining in the Chechen capital to be 40,000, but those who have escaped believe the figure is closer to 50,000. Approximately 100,000 Russian troops are in the region and continue to shell the city. Civilians lines the streets on the way out of town. Refugees are pleading with authorities to postpone the deadline because many residents had not seen the leaflets issuing the threat due to bad weather. Others were too frightened by the continued bombing to come out from their basements and bunkers. Russian forces are planning to use RSC bombs which contain 200-pounds of ignitable gas to destroy the nuclear bunkers in Grozny where the remaining defenders are believed to be hiding. The ultimatum elicited a strong reaction from US President CLINTON. He said, "That means that there is a threat to lives of the old, the infirmed, the injured people and other innocent civilians who simply cannot leave or are too scared to leave their homes." "Russia will pay a heavy price

for those actions, which each passing day, sinking more deeply into a morass that will intensify extremism and diminish its own standing in the world," he added. Many experts have expressed concern over the impending air raids, which do not conform with international war laws. Prime Minister Vladimir PUTIN repeated today that Russia will not seek a political solution with the Chechens, as the West has been urging. He said Chechnya must first turn over militant leaders who invaded Russia and have been taking hostages since the war.

Zhironovsky Calls For Postponing Elections

· Liberal Democratic Party leader Vladimir ZHIRONOVSKY has issued an appeal to the Russian Supreme Court demanding the postponement of parliamentary elections. Russian television reported that he proposes rescheduling the December 19th election to June 4, 2000, which would coincide with the presidential elections. ZHIRONOVSKY said it is necessary to push back the elections due to violations by the Central Electoral Commission (CEC). The CEC has barred some political blocs in the country from the elections, including some of ZHIRONOVSKY's candidates and supporters. One Supreme Court judge did not comment on the proposal, but did say in that case the Duma will continue to function until June. He reacted most positively. ZHIRONOVSKY was also interviewed for ten minutes on Boris BEREZOVSKY's state-run Channel 1, lending state support for the proposal. This suggests that something is brewing in Moscow drawing on

Today's News Highlights

Russia

IMF Decision Postponed

Media Most To Sell Stakes

European Republics

Lith. Reform Minister Resigns

Yeltsin-Kuchma Meet In Moscow

South Caucasus & Central Asia

Financial Abuses Discovered

Warrants Issued For GSC

Kazakh-Chevron Fail To Agree

Kyrgyz-Uzbek Sign Gas Agmt.

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fears that the Duma may be lost to the Moscow Mayor Yuri LUZHKOV and former prime minister Yevgeny PRIMAKOV's bloc Fatherland All-Russia and the Communist Party.

Fatherland Asks For Election Computer Check

· The Fatherland All-Russia bloc (OVR) has requested that an independent group of experts inspect computers used by the Central election Commission to tally election results. Russian State Duma Deputy Oleg MOROZOV has expressed concern that tampering with the results of the December 19th parliamentary elections would be relatively easy. He proposed that the group be approved by the Central Election Commission and the Federal Agency for State Communications and Information. When asked whether he had reason to expect tampering, MOROZOV, who is secretary of the OVR Coordinating Council, replied that, "we have reason to believe that we are at war on all sides." He added, "it does not take a genius to understand that nobody would access the system to change the outcome in favor of the OVR," RFE\RL Newsline reported.

Economy

Ruble = 26.84/$1.00 (NY rate)

Ruble = 26.88/$1.00 (CB rate)

Ruble = 27.56/1 euro (CB rate)

IMF Delays Installment Decision

· After meeting with Russian presidential envoy to the Group of Seven Alexander LIVSHITS on Friday, International Monetary Fund (IMF) Managing Director Michel CAMDESSUS on Monday decided to postpone a decision on the $640 million installment of a $4.5 billion loan agreed in July, citing that, "required structural measures that have not been met." IMF external affairs chief Thomas DAWSON said that, "the broad macro-economic performance of the economy has been satisfactory, but there are a number of structural issues," which are "largely in the financial sector relating to transparency and governance." Stanley FISCHER, first deputy managing director of the fund, said that, "unless a date for the IMF board meeting is determined next week, this issue will not be considered this year." Russian Prime Minister Vladimir PUTIN said, "The formal pretext [for the delay] is a supposed failure to implement certain obligations. We do not think so." First Deputy Prime Minister Viktor KHRISTENKO said he

believed the IMF had taken a political decision. "The IMF's status as a non-political organization is in question. It proves political circumstances were instrumental in taking the decision." David KRAMER of the Carnegie Endowment, in a Financial Times Op-Ed piece said that previous Fund decisions had gone through under political pressure from the West, despite Russia failing to meet economic criteria. He cites three examples: "In March 1996 (three months before Russia's presidential election; in July 1998 (with Russia on the verge of economic collapse); and in April 1999 (during NATO's campaign against Kosovo, which Russia opposed." Clearly he notes that the difference in this situation is that, "the Fund would be suspending, not releasing, funds for political reasons." KRAMER adds that, "it would be naive if not unprincipled, to suggest that IMF decisions should be made in a political vacuum." He called on the CLINTON Administration to demonstrate moral leadership by withholding the next IMF installment and delaying a $500 million loan to Tyumen Oil Company from the Export-Import Bank, a US government trade promotion agency.

Business

Dzhabrailov To Run For President

· Umar DZHABRAILOV, managing director of the Radisson-Slvyanskaya Hotel, flanked by about a dozen bodyguards and aides, today announced that he will run in June's presidential elections. DZHABRAILOV, an ethnic Chechen, declined to outline his election only saying that he supported private property and foreign investment. He expressed confidence in winning the election, despite his slim chances. "I don't see any competition. So far, I have not seen a single person, a single party...who think in the same way as I do," DZHABRAILOV said. He is the former partner of American Paul TATUM, who was murdered in 1996. Prior to his death, TATUM had accused DZHABRAILOV of being the leader of the Chechen Mafia and started legal proceedings against him. In November, TATUM's family filed a $36 million law suit in an Arizona court against Moscow Mayor Yuri LUZHKOV for protection TATUM's killers and failing to launch a thorough investigation. DZHABRAILOV did not comment on the death of his partner or the civil law suit.

Media Most To Sell Assets For Protection

· Russia's biggest private media company Media

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Most headed by business tycoon Vladimir GUSINSKY is planning to sell a stake of about 12 percent to Russian gas monopoly Gazprom. Gazprom already holds 30 percent of Media Most's prized asset, television network NTV. GUSINSKY explained that the move will help relieve the company's heavy debts, but dilute its ownership. Media Most group has debts totaling more than $550 million. By selling minority stakes to Gazprom, Media Most is cementing ties with Russia's largest politically potent company, the Associated Press reported. Media Most is also scrambling to find a buyer for stakes in NTV and regional television system THT. It is negotiating with a US and European investment fund for about 5 percent of these assets. On Friday, a Moscow court ordered the media group to repay a $42.2 million loan to state-owned Vneshekonombank or face seizure of its assets. GUSINSKY has accused the Kremlin of using, "economic levers," as part of a "purely political campaign." Vneshekonombank denies any political motives, stating that it simply wants its money back. The media mogul adds that the Kremlin is trying to muzzle independent voices ahead of parliamentary and presidential elections. He said, "The Kremlin thinks that we should no longer be a media organization, but should turn into instruments of agitation and propaganda."

Tuesday Tid-Bit

Admirals Sell Navy Transport Ship To Norway

· Two Russian Navy Admirals are facing charges of abuse of office for allegedly selling a state-owned Navy transport ship to a Norwegian front company called Anadyr Ltd. The ship was built in a Finnish shipyard in 1988 for $86 million. In 1994, the year it was sold the vessel had appreciated in value to $107 million. The two officers sold it for just $21.3 million. However, Anadyr said it paid $44 million for the transport ship. This is the latest in a series of corruption allegations against high-ranking military officers. Illegal sale of military equipment ranges from officers filching vehicles and boats to draftees selling their rifles and ammunition for vodka.

Minister Sigitas KAKTYS, who left amid a controversy over his property deals. His resignation came after weeks of refusing to issue it. The Minister has been under intense pressure from the media and other politicians, including the President. KAKTYS is accused of inaccurately reporting income declarations and the acquisition of an expensive piece of land. Local tax authorities reprimanded KAKTYS for violations in the way he declared the property purchase and a special commission determined that he had inappropriately acquired real estate in Vilnius. KAKTYS maintains his innocence, nevertheless his resignation was immediately accepted. Justice Minister Gintaras BALCIUNAS has been temporarily appointed to the post.

Yeltsin-Kuchma Strengthen Relations

· Russian President Boris YELTSIN left his hospital bed on Monday to meet with visiting Ukrainian President Leonid KUCHMA. The visit is part of a tour for KUCHMA after wining re-election, which includes the US and western Europe. YELTSIN and KUCHMA discussed a variety of issues including bilateral relations and the debt problem. KUCHMA said, "We have reached an agreement in principle on the restructuring of the Ukrainian debts. The problem was discussed in the presence of the Russian Prime Minister [Vladimir PUTIN]. Negotiations on the problem are going on." Ukraine owes Russia some $3 billion, $1.4 billion of which is in unpaid gas bills. They also discussed plans to implement a joint Russian-Ukrainian aircraft-building project for passenger and cargo planes. KUCHMA said in his inauguration speech last week that he would pursue economic reforms to spark growth in Ukraine. He pledged to foster ties with Russia and the US. Rus-Ukraine relations have been stained in the post-Soviet era by disputes over energy debts, trade, and the Black Sea Fleet.

Chernobyl Reactivated After Minor Leak

· The Chernobyl Nuclear Power Plant reactivated the plant's only working reactor on Monday, after a minor malfunction. It is now working at 75 percent of capacity. Ukraine's nuclear power authorities on Thursday shut down Chernobyl's reactor due to a tiny hole in the reactor's backup cooling system. The reactor had been restarted just five days after lengthy repairs. A spokeswoman for Energoatom said radiation levels remained normal after a cooling system

European Republics

Lithuanian Reforms Minister Resigns

· Lithuanian President Valdas ADAMKUS and Prime Minister Andrius KUBILIUS on Monday accepted the resignation of Administrative Reforms

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leaked and shutdown. The plant is the site of the disastrous April, 1986 meltdown, which spewed a radioactive dust cloud over Ukraine, Belarus, Russian and much of Western Europe. A Chernobyl spokesman said that the latest incident was not an issue of major concern. Ukraine had promised the Group of Seven industrial nations in 1995 to close Chernobyl by the start of 2000. Funding delays and electricity shortages has pushed back the timeline to later sometime next year. Ukraine estimates that it needs $1.2 billion to finish construction of two new reactors to replace the output that would be lost by closing Chernobyl.

South Caucasus & Central Asia

Corruption Discovered In Defense Min.

· Georgia's Military Prosecutor Davit BITSADZE has followed up on accusations that unnamed senior military officials are misappropriating budget funds. His investigation into the Defense Ministry has uncovered four instances of unsanctioned expenditures totaling 5 million lari (some $2.7 million), Caucasus Press reported. All four cases involved the purchase of uniforms, fuel, and food for the Union for the Support of the Georgian Army, which is headed by the brother of Defense Minister David TEVZADZE. The newspapers also reported that Deputy Culture Minister Razhden MIKABERIDZE has been charged with misappropriating 150,000 lari. BITSADZE pointed out that the incidence of such thefts is currently greater than under former Defense Minister Vardiko NADIBAIDZE. TEVZADZE blames his ministry's chronic financial problems on the non-receipt of budget funds. On November 17th, a Defense Ministry official noted that army personnel have not been paid for six months. He said the 2000 budget allocates only 42 million lari ($20 million) for the armed forces instead of the necessary minimum of 98 million lari.

Proceedings Begin Against Shipping Criminals

· Deputy head of the department of inquiry of Geor

gian Prosecutor General's office Zurab TSINTSADZE said that the Supreme Court of Georgia has issued arrest warrants for officials wanted for financial violations in the Georgian Shipping Company. The investigations has found evidence which would force the lifting of immunity for several deputies in the Georgian parliament. TSINTSADZE did not give out the names of those officials. Georgian deputy Aslan SMIRBA has presented a document which proves that he received $120,000 from London office of GSC intended for the repair of damaged vessels when he was director general of Georgian Shipping Company. He stressed that investigation is now studying computer documentation, faxes sent from Tbilisi to London, accounting documentation and other materials. Investigators are working to confirm whether funds intended for the repair of vessels have been misused. Specifically, it is believed that the difference between the amount paid for the repair of vessels at Croatian factory Victor Leinz and the amount outlined in the documentation is $1 million, Prime News Agency reported.

Kazakh-Chevron Fail To Reach Oil Deal

· Kazakh President Nursultan NAZARBAYEV held talks in Almaty on Monday with Richard MATZKE, president of Chevron Overseas, but the two men failed reach an agreement on terms for the sale of part of Kazakhstan's 25 percent stake in the joint venture to develop the Tengiz oil field. Chevron is the senior partner in that consortium, with a 45 percent stake. The proposed sale has generated serious disagreements within the Kazakh leadership causing many resignations, RFE\RL Newsline reported.

Kyrgyz-Uzbekistan Sign Gas Supplies Agmt

· Kyrgyzstan and Uzbekistan last Tuesday reached an agreement on gas supplies to Kyrgyzstan. Director of the state Kyrgyzgaz company Latypjan SAGYNBAEV said deliveries will be resumed soon. Uzbekistan halted supplies two weeks ago in retaliation for Kyrgyzstan's failure to pay for earlier supplies. Kyrgyzstan has since paid about 75 percent of its estimated $4 million debt.

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

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