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

Wednesday, February 2, 2000

Lecha DUDAYEV, were killed in the strategic retreat. Rebel fighters have fled to the southern mountains of Chechnya, but have vowed to return and fight. "We have conducted a tactical withdrawal from Grozny similar to the tactical withdrawal of 1996...We pledge however to return and to liberate the capital just as we did in the first war of 1996," according to a rebel website. Their withdrawal marks the beginning of what acting President Vladimir PUTIN called "third phase" of federal operations in Chechnya. Military spokesman Lieutenant Colonel Alexander SAPRONOV today claimed the Russians have seized strategic heights in the south, at the mouth of the Argun gorge and in the Itum-Kalinsky district close to the Georgian border. Comment: One should not rule out that the withdrawal is part of the Chechen army attempt to regroup and attack Russian troops as they enter the city from the rear.

Albright-Putin Talk On Arms And Chechnya

· For three hours today, US Secretary of State Madeleine ALBRIGHT and acting President Vladimir PUTIN debated arms controls issues and the situation in Chechnya. PUTIN said, "Russian-American relations have a global nature and Russia views the United States as its main partner." ALBRIGHT described the new leader as a "problem-solver." PUTIN pledged to push for ratification by the Russian parliament of the START II 1993 treaty, which calls for reducing the US and Russian arsenals of long-range nuclear warheads to 3,000 to 3,500 apiece. Russia is against US appeals to amend the Anti-Ballistic

Russian Federation

Politics

Parliamentary Election Results Falsified?

· Speculation is rising that the results of the December 19th Russian State Duma elections were falsified. Citing a confidential source the Johnson Report said that such allegations should be further investigated. According to the source, there were major inconsistencies in the reporting of official verses actual percentages.

PARTY OFFICIAL ACTUAL

Communists 24 percent 33 percent

Zyuganov

Unity 23 percent 14 precent

Kiriyenko

Fatherland-All Russia 12 percent 21 precent

Luzhkov/Primakov

Union of Right Forces 9 precent 3.4 precent

Stepashin

Yabloko 6 precent 12 percent

Yavlinsky

Zhirinovsky Bloc 6 percent 4.5 percent

Troops Say Resistance Is Fading

· Russia's federal troops report that resistance in the Chechen capital is fading, since rebel troops withdrew from Grozny. Approximately, 2,000 fighters escaped Grozny this week. Russian military commanders predict that it will take a few days for troops to assume full control of Grozny. Russian forces continued to pound the ruined city today, saying rebel stragglers remained trapped. Rebel troops confirmed that warlord Shamil BASAYEV had been wounded in the leg during the withdrawal. BASAYEV dismissed reports that he lost his leg when his car hit a mine during the escape from Gronzy. In addition, three other rebel commanders, Khunkarpasha ISRAPILOV, Aslambek ISMAILOV and Grozny mayor

Today's News Highlights

Russia

Russia-US Sign Food Aid Agmt.

Inkombank Declared Bankrupt

European Republics

Ukraine Revises 2000 Targets

Rebel Parliament Picks Speaker

South Caucasus & Central Asia

Georgia Calls For Higher Fees

Armenia's Foreign Debt Rises

Kazahk Rejects CIS Visas

Tajik Explanation In Doubt

Politics-Economics-Business

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Wednesday

February 2, 2000

Intercon's Daily

Missile Treaty of 1972. The US wants to develop a $6.6 billion anti-rocket system to shoot down missiles launched from rogue nations. ALBRIGHT appealed in the meeting and an earlier in a speech, for Russia to do more to control its export of nuclear technology.

PUTIN described Russia's approach to Chechnya as resolute. The military campaign against Chechen terrorists has been deeply criticized by the West for it indiscriminate use of force, which it describes as excessively brutal and counter-productive. The US appealed to Russian leaders to end the conflict and negotiate with the Chechnya separatists. ALBRIGHT said, "As long as the fighting continues it will serve as a magnet for extremism that could one day risk the stability of the entire region...A commitment to political solution empowers the peacemakers; military operations encourage the extremists." ALBRIGHT earlier held talks with Foreign Minister Igor IVANOV on bilateral and regional issues. ALBRIGHT and IVANOV jointly chaired Tuesday's Middle East multi-lateral talks, focusing on cross-border issues such as the environment, economic cooperation, arms control, water, and refugees. Before taking off from the World Economic Forum in Davos, ALBRIGHT expressed concerns on the welfare and freedoms of ordinary citizens in former Soviet republics. She said, "A majority of citizens in these countries have come to equate democracy with inequality, insecurity and the unraveling of the social fabric...We are concerned that in many countries, the arrival of electoral democracy has been accompanied by economic expectations that are, as yet, unfulfilled."

Economy

Ruble = 28.6/$1.00 (NY rate)

Ruble = 28.71/$1.00 (CB rate)

Ruble = 28.07/1 euro (CB rate)

Finance Ministry Releases January Figures

· The Finance Ministry today released economic figures indicating that Russia posted a January budget deficit of 300 million rubles ($10.5 million), or 0.1 percent of gross domestic product (GDP). Budget revenues were 116.3 percent of a target set at 61.1 billion rubles, or 16.1 percent of GDP, while spending amounted to 61.4 billion rubles, or 92.9 percent of plan. Tax collection in January totaled 38.1 billion rubles, or 10 percent of GDP, which was

125.9 percent of the target. The State Customs Committee collected a further 19.6 billion rubles, 5.2 percent of GDP, over target by 1.5 percent. National defense spending amounted to 13.7 billion rubles or 99.7 percent of plan, while law enforcement activities were fully financed with 6.7 billion rubles. The government sent 24.2 million rubles in subsidies to help restore the economy in the southern region of Daghestan, which suffered after a military conflict in August and September last year. The Finance Ministry did not release comparative figures for December 1999.

Russia-US Sign Food Aid Agreements

· The US and Russia signed two agreements Tuesday in the White House under which Russia will receive 220,000 tons of food aid this year. The volume offered, however, is far short of what Russia requested. The agreements cover donations of 20,000 tons of seeds and 200,000 tons of commodities ready for consumption. The 200,000 ton package is classified as humanitarian aid and will be given directly to eight public voluntary organizations. A further package of 300,000 tons of wheat is still being negotiated, Reuters reported. Deputy Prime Minister Vladimir SHCHERBAK believes this agreement will be signed this week. Even if that deal goes through to reach a total of 520,000 tons of aid, it still will not meet Russia's need. The country has suffered from exceptionally poor grain harvests in each of the last two years. First Deputy Agriculture Minister Anatoly MIKHALYOV said recently he expected this year's harvest to improve to between 60 and 65 million tons, and SHCHERBAK said on Tuesday he had set a target of 75 million tons. "I think the economy is improving fairly dramatically because of oil revenues," Patrick STEEL of the US Department of Agriculture's Foreign Agricultural Service said last month. "We want to see how the Russian economy progresses before we move additional commodities into that market," he added.

Business

Inkombank Declared Bankrupt

· A Moscow court today declared Inkombank, Russia's second-biggest commercial bank until it collapsed in 1998, bankrupt. The court also rejected the Central Bank's petition to have Yuri KIREYEV appointed Inkombank's receiver. Instead, Vladimir ALEKSEYEV, the current court-appointed manager

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of the bank, was named as acting receiver. ALEKSEYEV said Inkombank's, as of January 26th had more than 121,000 individual creditors whose claims are worth 4.6 billion rubles ($161 million). Another 11,000 legal entities have entered claims worth 32.3 billion rubles. Many of Russia's largest banks were unable to meet the withdrawal demand after the government defaulted on most of its Treasury debt in August 1998 and abandoned its defense of the ruble.

Meanwhile, a major shareholder of Russia's defunct Menatep bank said it has formed a new team to accelerate the bank's stalled bankruptcy proceedings. A Moscow arbitration court declined an appeal by Menatep on Monday to halt bankruptcy proceedings and upheld the September 2nd ruling to liquidate the bank. Menatep, which began defaulting on its obligations in 1998, said it owed at least 40 billion rubles ($1.6 billion) and had access to no more than 7 billion rubles.

PLYUSHCH of the Popular Democratic Party as their speaker in a vote of 255 to one. PLYUSHCH said that deputies must do everything they can to prevent a dissolution of parliament and early elections. Viktor MEDVEDCHUK of the Social Democratic Party (United) became first deputy speaker and Stepan HAVRYSH of the Revival of Regions caucus deputy speaker. The alternative parliament also elected heads to the 21 parliamentary committees. In a vote of 236 to seven, the deputies also voted to strike the anniversary of the 1917 Bolshevik Revolution from the list of holidays. A motion to abolish the May 1 Workers' Day holiday¾a favorite for warm weather picnics¾failed.

The alternative parliament has been holding regular meetings in the Ukrainian House exhibition hall. Ukrainian President Leonid KUCHMA has backed the alternative parliament and claims that the remaining lawmakers are blocking key reforms. Ukraine's Justice Ministry has said that votes by the splinter parliament, which includes more than half of deputies, will be considered valid. But supporters of leftist Speaker Alexander TKACHENKO say laws are only valid if he signs them. The leftist minority has launched a hunger strike.

South Caucasus & Central Asia

Georgia Calls For An Increase In Transit Fee

· Georgia has called for an increase in the transit fee for the transport of oil from the Caspian to Turkey from 3 US cents a barrel offered by Azerbaijan and Turkey to at least 7 US cents a barrel, the Financial Times reported, citing a Georgian official. Georgia has said that the transit fee is crucial to its decision. In addition, financing for the $2.4 billion to $3 billion Baku-Ceyhan pipeline project cannot be completed until the transit fee dispute is resolved. Representatives of Georgia, Azerbaijan, and Turkey are scheduled to continue negotiations in Ankara Monday. Georgian officials argue that the transit fee for a shorter pipeline from Baku, Azerbaijan to the Georgian port of Supsa is 20 US cents a barrel, and claim Turkey and Azerbaijan did not consult Georgia before proposing the terms. The Azerbaijan International Operating Co., which would use the pipeline to deliver oil to Ceyhan, hopes to have the pipeline working by 2004.

European Republics

Ukraine Revises 2000 Targets

· Ukraine's Cabinet lowered its economic growth forecast for this year, saying it expected gross domestic product to expand just 0.5 percent, compared to an earlier target of 2.0 percent. Industrial production is predicted to increase by 3.2 percent. Inflation was set at 15.9 percent. "Completing work on the draft budget for this year, the Economy Ministry made more precise its forecast for 2000 economic and social development," government spokeswoman Natalya ZARUDNA said Tuesday. She declined to outline reasons for the change in the GDP forecast. In 1999, Ukraine's economy declined by 0.4 percent. The 2000 budget has not yet been adopted, due to political bickering which has split Ukraine's legislature into two independently operating sessions. The Cabinet formulated seven main principles of budgetary policy, which will be submitted to the parliament. It pledges to implement a zero-deficit budget in 2000, strictly observe budgetary discipline, accept budget payments in monetary form only, and revoke some tax privileges.

Rebel Parliament Elects Speaker

· Ukraine's rebel parliament, consisting of 250 center and right-wing deputies, elected Ivan

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Armenia's Foreign Debt Rises

· Armenia's aggregate foreign debt grew by 13 percent in 1999 and now stands at $876 million, slightly less than half of the gross domestic product (GDP), RFE/RL Newsline reported. The authorities estimate that the figure will rise to $938 million by the end of this year. The Armenian government and Central Bank will spend a total of $78 million on external debt servicing in 2000. That figure is roughly one fifth of projected revenues. Last year, a total of $61.6 million was spent on external debt servicing.

European Tobacco Inc. Modernization Finished

· After spending $50 million on a modernization project, investors in the sole tobacco plant in Azerbaijan held ceremony to celebrate the re-opening of the plant on Tuesday. European Tobacco Inc. won a 92.5 percent stake in the tobacco factory last August through voucher and cash auctions of the company's shares. European Tobacco's Baku director, Nabil AL-ASFAR, said that by mid-February the factory will be working at full capacity producing. The plant will produce one million cigarettes a day and would satisfy demand in the Azeri market. Production at the plant before the renovations had fallen to 12,000 tons of tobacco a year down from 60,000 tons in Soviet days.

Kazakh Selects Ernst & Young As Adviser

· Kazakhstan's Finance Ministry on Tuesday announced that it has chosen the accountants at Ernst & Young as the advisors for the tender of a stake in Mangistaumunaigaz Oil Company. The consortium, IDEY Ltd., also includes Petroconsult, a subsidiary of IHS Energy Group and Denton Hall Valdez Krug Company Ltd., and was chosen after a tender last year. "The evaluating commission placed emphasis on the companies' experience of privatization in the Commonwealth of Independent States or Kazakhstan...the timetable and strategy for privatization." Kazakhstan is offering 30 percent of Mangistaumunaigaz and 25.2 percent of another key oil concern, Aktubemunaigaz. Mangis-taumunaigaz is 60 percent owned by Central Asian

Petroleum Corp., an Indonesian firm. The government is seeking advisors for tenders in a titanium works and copper smelter Kazakhmys.

Kazakhstan To Disregard CIS Visas

· Effective Tuesday Kazakhstan stopped recognizing transit visas issued to foreigners by other Commonwealth of Independent States (CIS). Kazakhstan hopes this measure will boost border security. According to a Foreign Ministry statement, "The transparent borders which exist at present are being used by criminal elements as a transit corridor for narcotics and arms...This has caused a worsening of the security situation in the CIS in general and Kazakhstan in particular." Kazakhstan's decision follows similar measures implemented by Uzbekistan and Russia. It is a further indication that the CIS, created after the Soviet Union's collapse, is gradually weakening. Last week, Kazakh President Nursultan NAZARBAYEV voiced concern that the conflict in Chechnya could spill over into Central Asia. He said smugglers were trying to use Kazakhstan to transport arms from Afghanistan to Chechnya.

Tajik Explosion Explanation In Doubt

· On Saturday in Dushanbe, an explosion in an apartment block injured eight people, with three in serious condition. The damage was widespread and police are investigating the cause. Khnushnud RAKHMATULLAYEV, head of the press service of the former Soviet republic's Interior Ministry said, "According to preliminary investigation, this was a gas explosion." Tajikistan's Emergencies Ministry said a large gas cylinder had been kept in the apartment where the explosion occurred. Independent experts, however, are doubting such an explanation. They claim that explosives were likely behind the blast in view of considerable damage to nearby buildings. Bomb attacks on apartment buildings in Moscow and other Russian cities killed nearly 300 people last September and have been blamed on Chechen rebels. New evidence is being presented, pointing experts to believe that the Russian Federal Security Service planted the bombs, themselves.

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

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