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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, February 18, 2000

interview is consistent with a document Intercon sources provided in December 1999, which related the results of the December 15th meeting of the Russian Security Council. An order, issued at the meeting, called for the destruction of all cultural and historical sites in the mountainous regions bordering Georgia and the relocation of all Chechens who have not be liquidated to the northern plans of Chechnya. Looking for any sign of hope, DOK asked, "What is America and the West doing about this?" Georgian officials are very concerned that as the Spring approaches and the snows melts, the flood of refugees will be well beyond their ability to cope.

Russian Federation


Zhirinovsky Rejected From Registration

· Leader of the Liberal Democratic Party of Russia (LDPR) Vladimir ZHIRINOVSKY will not be allow to participate in the early presidential elections on March 26th. The Central Election Commission (CEC) on Thursday rejected ZHIRINOVSKY's application to run for president. The Commission said he failed to report all his assets, which include a small apartment belonging to his son. Candidates have to report on their family members' financial standing, as well as their own. The LPDR leader said he would appeal the decision to the Supreme Court. He argued that the apartment represented only one percent of his assets. He said, "Do I cite 99 percent and conceal 1 percent in order


Georgian Border Guards Arrest Chechens

· Georgian Border Guard units, operating on foot under extremely difficult conditions along the Omalo-Daghestan border, arrested 28 Chechen refugees who were illegally crossing the border. There was no resistance offered by the Chechen men. Only one Makarov handgun was seized. Everything was conducted in an efficient and courteous matter. The Chechens were transported by helicopter to a Georgian detention center in the Kheti region to be processed. From there, they will be turned over to the Security Ministry and finally put in prison. The Chechen refugees said that they would rather be in prison than killed in Chechnya. They were traveling, through the snow covered region at heights of 4,000, with only bread and cheese. The Border Guards are continuing to run successful patrolling operations. They are working with the cooperation of the mountain villagers who functions as eyes and ears for the guards.

The leader of the group of refugees Amagov DOK, a Chechen member of parliament from the village Tazbichi in the Etum-Kolinsky region, in an exclusive interview with Intercon, explained his plight. He said that the group could only travel at night, when the temperatures are typically below zero. He added that if they were seen during the day they were shot at by people in Russian helicopters. One of the individuals in the group had been traveling under those conditions since February 3rd. According to DOK, the Russians are liquidating the villages along the Georgian border. Those men able to flee are attempting to reach the Georgian border and accept jail as a preferable alternative. Russian mercenaries are slaughtering people. He said not only were they slaughtering people¾men, women, and children, but cattle as well. DOK pointed out that they were destroying all historical and cultural sights. This

Today's News Highlights


Swiss Bribery Probe Expands

Sibneft-LogoVAZ Buy Smelters

European Republics

WB May Loans Kiev $200M

Ukrainian GDP Up 3.4 Percent

South Caucasus & Central Asia

Kehler To Visit Georgia In March

Aliyev Undergoes Surgery In US

Kyrgyz Test Of Democracy

Kazakh GDP Up 1.7 Percent




February 18, 2000

Intercon's Daily

to harm myself? I'm not seeking a ticket to a rest home...but aspire to occupy the highest post in the country." Last Fall, the CEC rejected the LDPR's candidate list for the Russian State Duma elections after it discovered that two of the party's top candidates had provided false information about their assets. ZHIRINOVSKY is the second of 15 applicants to be rejected. The CEC approved a fifth candidate Thursday: Konstantin TITOV, the reformist governor of the Samara region of central Russia. The Commission has already registered acting President Vladimir PUTIN, Communist Party leader Gennady ZYUGANOV, leftist Alexei PODBERYOZKIN and Aman TULEYEV, the hard-line Kemerovo region governor. Recent polls, cited by the Itar-Tass news agency show PUTIN in the lead with 60 percent and ZYUGANOV with 20 percent.

Merkata Offered Borodin Bribes

· The Financial Times reported today that the Swiss international arrest warrant for former Kremlin property manager and current Rus-Belarus Union secretary Pavel BORODIN is base in part on bribes from Merkata Trading, a Swiss construction firm. Le Temps newspaper reported that documents traced payments from Merkata to offshore company accounts held by BORODIN and others. It is estimated that BORODIN accepted $60 million in bribes for Kremlin contracts worth about $500 million. Merkata Trading is run by Victor STOPOLVSKIKH, former Moscow agent for Mabetex, another Swiss construction company suspected of offering bribes to BORODIN along with other suspicious activity. BORODIN and the others involved have denied all the allegations against them.

Third BONY Suspect Pleads Not Guilty

· Former Bank of New York administrative assistant Sventlana KUDRYAVTSEV, the third suspect linked to the $7 billion money laundering scheme, pleaded not guilty in a New York court on Thursday. She is charged with lying to Federal Bureau of Investigation agents. On Wednesday, former Bank of New York executive Lucy EDWARDS and her husband Peter BERLIN of Benex International pleaded guilty to charges of setting up an illegal wire-transfer operation to launder billions of dollars through the bank. EDWARDS admitted that she paid KUDRYAVTSEV $500 per month to monitor and deal with problems in the wire-transfer operation, after

EDWARDS was transferred to London in 1996. KUDRYAVTSEV allegedly received $30,000 in payments from EDWARDS, BERLIN, and a third Russian , Aleksey VOLKOV, who has also been indicted.

Meanwhile, Chairman of the US House of Representatives' banking committee Jim LEACH said he would seek a summons for EDWARDS and BERLIN to testify before Congress. He said, "The question about whether illegal capital flight is a cause of the disassembly of the Russian economy, as well as an apparent abuse of the American and international banking system, demands review by Congress."


Ruble = 28.79/$1.00 (NY rate)

Ruble = 28.83/$1.00 (CB rate)

Ruble = 28.37/1 euro (CB rate)

Aug Sep Oct Nov Dec Jan Feb

WB Loans Could Reach $150M

· Vadim VORONIN, deputy head of the World Bank's Moscow Office on Monday said that the World Bank may lend Russia up to $150 million. The loan would be distributed in two installments. A $50 million installment will be disbursed after a control mechanism is in place for distributing bank funds to the workers of coal mines that are to be closed. A $100 million installment may be transferred after the completion of a World Bank audit of the bidding for 75.6 percent of stock in the Krasnoyarsk Coal Company that took place on February 11th, VORONIN said. In December, the World Bank released $100 million to help the Russian government reform the coal industry.

When you need to know it as it happens




February 18, 2000

Intercon's Daily

January Industrial Output Up 10.7 Percent

· Russian industrial output soared in January. The rise was led by petrochemicals companies as well as steel, glass and paper producers that have continued to benefit from a weak ruble. January output rose 10.7 percent from January 1999, after an annual growth of 11.1 percent in December. Production of steel was up 27 percent, chemicals and petrochemicals 25 percent from the same period last year. Russian producers have benefited from the ruble's plunge, which made imports more expensive and reduced foreign competition. Rising oil prices last year helped boost oil and metals exporters' dollar earnings while the weakening ruble lowered their domestic costs. In 1998, industrial production tumbled as the ruble plunged about 70 percent against the dollar in the second half of the year. Output surged 8.1 percent in 1999 from a year earlier, the biggest rise since the collapse of the Soviet Union.

Gold, ForeEx Reserves, Money Supply Figures

· The Central Bank released figure showing that Russia's gold and foreign exchange reserves rose $300 million to $13.4 billion in the week ending February 11th. First Deputy Prime Minister Mikhail KASYANOV predicted that the gold and foreign exchange reserves will rise to $14.5 billion by year's end. He did not that the government will have to dip into the funds sometime in March to help repay foreign debts but did not plan to do so in February. Russia has to pay about $3 billion in foreign debts in the first quarter of this year. KASYANOV said Russia should not count on significant support in the first or second quarters from the International Monetary Fund (IMF), which has put on hold a $4.6 billion loan program for Russia, pending implementation of structural reform obligations. Under the 2000 budget, Russia can borrow a total of 30 billion rubles from the Central Bank. The government reached an agreement with the IMF on a limit of borrowing in March to 15 billion rubles.

Russia's money supply grew by 7 billion rubles ($244 million) in the week ending February 14th. The money supply, which includes cash currency in circulation plus required reserves, rose to 307 billion rubles on February 14th from 300 billion rubles on February 7th. The Central Bank has been printing rubles to buy dollars so it can lend them to the government to cover billions of dollars in foreign debt payments in the first half of the year.


Alfa Plans For Expanding Retail

· Russia's largest private bank, Alfa Bank, announced ambitious plans to expand its retails stores. Bank President Peter AVEN told Reuters in an interview that Alfa would have 40 branches outside Moscow and 30 inside Moscow, up from 24 and 19 respectively, by the end of this year and plans to establish itself as a national presence. "Before the financial crisis, we believed that we could develop ourselves as an investment structure, after the crisis, we had to change this strategy completely," AVEN said. In exchange for a 25 percent stake in Alfa, the bank last year received $40 million from the Russian Agency for Restructuring Credit Institutions (ARCO) to expand its regional branch network, which the restructuring agency believed to be a more effective way of providing services than direct support. Small and medium business clients have grown 60 percent from pre-crisis levels to 26,000 accounts. Alfa Bank hopes to grow its deposit base from $700 million at present to $1.0 billion by the year-end.

Sibneft-LogoVAZ Buy Aluminum Stakes

· Boris BEREZOVSKY and Roman ABRAMOVICH, Russian State Duma deputies and businessmen with close ties to the Kremlin, have acquired three important Russian aluminum smelters in eastern Siberia. BEREZOVSKY confirmed that LogoVAZ and Sibneft Oil Company have purchased stakes in Krasnoyarsk Aluminum Plant, Achinsk Alumina Combine, the Bratsk and Novokuznetsk Aluminum Plants, and the Krasnoyarsk Hydropower Station. It is believed that Sibneft and LogoVAZ purchased 59 percent of Krasnoyarsky Aluminum Plant and 66 percent of Bratsk Aluminum Plant. Russian daily Vedomosti reported that the assets are worth $500 million. The acquisition of the Bratsk, Krasnoyarsk and Novokuznetsk Plants will give BEREZOVSKY and ABRAMOVICH nearly full control over the country's aluminum industry. The plants together account for two-thirds of Russia's 3.4 million ton aluminum output.

European Republics

WB Could Loan Ukraine $200 Million

· After holding two weeks of talks with the Ukrainian government, a World Bank mission said that recent

When you need to know it as it happens



Friday Intercon's Daily February 18, 2000

administrative reforms may help the country get a $200 million loan to help it reduce its bureaucracy even more. The team, which met with Prime Minister Viktor YUSHCHENKO, Deputy Prime Minister Yulia TYMOSHENKO, and Economics Minister Serhiy TIHIPKO, said advances in trimming the size of the government could allow the loan to be approved, though not before the International Monetary Fund (IMF) decides to restore its own loan programs. World Bank local spokesman Dmytro DERKATCH said, "Approval of the loan is likely to be postponed until the IMF resumes lending" to the country. To qualify for the loan, Ukraine needs to approve a law limiting the size and power of the Cabinet and work out a strategy to further decrease bureaucracy at government institutions, DERKATCH said. The IMF team is expected to complete current talks with Ukraine on February 22nd and announce whether the fund will resume lending to the country, which was postponed last September due to lack of reforms.

Ukraine Increases By 3.4 Percent Growth

· The Ukrainian State Statistics Committee has reported that Ukraine's gross domestic product (GDP) in January 2000, increased by 3.4 percent, compared with January 1999. Last month's inflation was 4.6 percent. The government predicts that GDP in 2000 will increase by 1 percent, while inflation will not exceed 15.9 percent.

South Caucasus & Central Asia

Maglakelidze Resigns From Customs Dept.

· Prime News Agency reported that Chairman of the Customs department of the Tax Revenues Ministry of Georgia Tamaz MAGLAKELIDZE officially resigned from the post Thursday. He said his resignation will be turned in to the Tax Revenues Minister Michael MACHAVARIANI and Georgian President Eduard SHEVARDNADZE. MAGLAKELIDZE's first deputy David MEGRELADZE was appointed acting chairman of the customs department.

EBRD President To Visit Caucasus Region

· President of the European Bank for Reconstruction and Development (EBRD) Horst KEHLER will visit Georgia, Azerbaijan and Armenia for the first time in late march. The aim of his visit is to get a

better idea of the economic situation in those countries and of the work of EBRD offices there, as well as to outline prospects of further cooperation. While in Georgia, KEHLER will meet with Georgian President Eduard SHEVARDNADZE, Chairman of Parliament Vazha LORDKIPANIDZE, and other top-ranking officials from the legislative and executive bodies. EBRD has granted credits to Georgia to a total sum of 162 million euro since 1994. Aside from that figure, Georgia received a five-million-euro grant.

Aliyev Undergoes Eye Operation In The US

· Azeri President Geidar ALIYEV underwent surgery in the US, this time having nothing to do with his heart condition. Azeri State Television reported that, "The main clinic of the John Hopkin's medical center in Washington on Thursday operated on the president to remove a cataract. The operation was successful and the President feels well." Last April, ALIYEV underwent heart surgery at the Cleveland Clinic in Ohio. Sources have said he was expected to return to the clinic for check-ups during his trip to the US. The health of the 76-year-old leader is of concern to major foreign oil companies which have signed deals worth about $50 billion in potential investment to develop Azerbaijan's resources.

Armenian NPP Open Until 2010

· Varatan MOVSESYAN, head of the republican Energy Commission, said the Armenian nuclear power plant will operate until 2010. The plant, according to a previous agreement between Armenia and the European Union signed last December, was to be closed in 2004. The plant's director, Duren AZATYAN, said that the station is a major component in the republic's energy complex and its closure would create a major problem for the country. He stressed that over the past four years "considerable work" has been done to improve the plants' reliability and safety. Additional repairs and modernization are planned for this year. The plant contributes about 50 percent to 18 million kilowatt hours produced in Armenia.

WB To Lend Kyrgyzstan $164 Million

· The Kyrgyz government said that the World Bank will lend their nation a total of $164 million in 2000 to 2001 to improve its infrastructure. According to a government statement, "In 2000 and 2001 the




February 18, 2000

Intercon's Daily

World Bank plans to release eight credits totaling $164 million, of this five credits worth $99 million will be allotted in 2000." The World Bank noted that there were conditions on the funds. The money is intended for land registration procedures, improving urban transport, irrigation and rural development, water and sewage systems. The projects in 2001 will focus on health care and agriculture. The loans were approved days after the International Monetary Fund released a $29 million Poverty Alleviation Credit for the tiny mountainous state of 4.6 million people. World Bank representative Kyushi KODERA warned that Kyrgyzstan still needed to boost tax collection and reduce its budget deficit to get the credits. Lower inflation, regular wage and pension payments and speedy privatization of the energy sector are other loan conditions, he told reporters after a meeting with President Askar AKAYEV. The World Bank is one of the main lenders to Kyrgyzstan, approving $500 million of credits since the country gained independence in 1991.

Kyrgyz Parliamentary Election: A True Test

· Kyrgyz citizens and candidates are preparing for parliamentary elections to be held on Sunday. Election officials have pledged to international observers to keep the elections free and fair. Central Election Commission Chairman Sulaiman IMANBAYEV told observers, "Your participation in our elections in 2000 will ensure that they will be completely open and transparent." The Organization for Security and Cooperation in Europe (OSCE) will send a full mission to monitor the election in the country of 4.5 million. Six long-term observers have already arrived while about 100 observers will be deployed on election day. These elections are viewed in the West as a key test for Kyrgyzstan's democracy, political development and its economy. A total of 14 political parties will contest a small number of seats in the bicameral parliament for the first time in the former Soviet republic's nine years of independence from Moscow. According to constitutional changes made in a 1998 referendum, the upper Legislative Assembly chamber will have 60 seats after Sunday's

election and the People's Assembly lower chamber 45 seats. Kyrgyzstan's election commission has registered a total of 600 candidates. A candidate winning more than half the votes in single-mandate constituencies is declared elected. Otherwise the top two go through to a runoff. Nygmat BAZAKOV, a parliamentary hopeful who represents ethnic Uighurs in Kyrgyzstan welcomes the introduction of a multi-party vote. "This is an important step. Parties represent the people and are prepared to take up the fight against corruption and crime," he said. Parliament is considered stronger in Kyrgyzstan than in other former Soviet Central Asian states, although Kyrgyzstan's President Askar AKAYEV still dominates the political stage. The opposition, however, points out that AKAYEV is being influenced to abandon his reforming ideals. Western concerns are growing that AKAYEV will follow its Central Asian neighbors in tightening his grip on power and clamping down on the opposition. AKAYEV is likely to run for re-election in a December presidential vote. Kyrgyz's status of the "Switzerland of Central Asia" may be in jeopardy.

Kazakh 1999 GDP Rose 1.7 Percent

· Chairman of the Kazakh Statistical Agency Alikhan SMAILOV today announced that Kazakhstan's gross domestic product (GDP) in 1999 totaled 1.7 percent. He said this resulted mainly from the improvement of the situation in the foreign markets, a large harvest of grain in Kazakhstan and the floating of Kazakhstan's currency, the tenge. Under the impact of these three factors the economic situation, after a prolonged recession, has confidently overcome the crisis. The growth of GDP in the third and fourth quarters of last year was around 6 percent. SMAILOV said the situation improved in Kazakhstan's industry. Its output grew 2.2 percent in comparable prices. "The mining and processing industries mainly ensured the growth," he said.

The Daily Report on Russia and FSU

will not be published on February 21st

in observance of Presidents' Day

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When you need to know it as it happens