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

Monday, April 10, 2000

Russian Federation

Politics

Rebels Attack More Russian Checkpoints

· Once again demonstrating their ability to move around "Russia-controlled" Chechnya, rebels troops attacked Russian army checkpoints in Grozny and other parts of Chechnya on Sunday. Posts in the heavily guarded Grozny, came under attack at least six times, though there were no casualties, the Interior Ministry said. Russian checkpoints in southern Chechnya were also targeted. One border guard was wounded in attacks on three posts in the Argun Gorge. Several rebels were killed and the others were dispersed. The Federal command's press service said, "Bandits in groups of 10 to 15 people are testing the readiness of our units to rebuff their attacks." Russia claims to control the northern two-thirds of Chechnya, but rebels have attacked checkpoints and ambushed Russian troops deep in the north with apparent ease, keeping federal forces on the defensive, the Associated Press reported. Rebels have been setting up new bases in Chechnya's southern mountains and are intensifying operations in the Vedeno and Argun gorges. One Chechen commander eagerly said, "We cannot be subdued," by Russian forces. However, in the same breath he noted that the rebels have been suffering heavy losses and wounded fighters. He said, "Every third [militant] was wounded, but even those of us who were lucky are feeling sick." Russian fighter jets and helicopters bombed rebel hideouts near the villages of Kharsenoi, Tangi and Khatuni in the southern mountains. Federal forces claim that the killed 10 rebels and destroyed weapons, fuel and ammunition. On Thursday, the Council of Europe's parliamentary assembly passed a resolution withdrawing Russia's voting rights. It further threatened to suspend Russia's membership, if it fails to improve its human rights record in Chechnya.

Russia Has Not Yet Charged Pope With Spying

· The US State Department has not received information that Russian authorities have charged US businessman Edmond POPE with spying. POPE was arrested on Tuesday on suspicion of spying and is being held in Lefortovo Prison in Moscow. Russia's Prosecutor's Office said on Friday it had no information about any charges against POPE and a Federal Security Service (FSB) spokesman declined to comment on the investigation. US State Department spokesman James RUBIN said, "No formal charges have been filed against Mr. POPE. Russian authorities have advised the embassy that he is under investigation for violation of Article 276 of the Russian Criminal Code, which pertains to espionage." Russian authorities have assigned a lawyer to POPE, a retired US Navy captain with experience in naval intelligence. This case is the latest in a series of espionage scandals in Moscow in recent months.

Matviyenko To Pull Out Of Governors Race?

· Russian President-elect Vladimir PUTIN has asked Deputy Prime minister Valentina MATVIYENKO to withdrawn from the St. Petersburg's governor election to be held on May 14th. The latest opinion polls show 55 percent of St. Petersburg residents would vote for incumbent Governor Vladimir YAKOVLEV and 13 percent for MATVIYENKO. She said, "PUTIN asked me not to run because he wanted me instead to stay in government in Moscow." She added that PUTIN did not want her to run

Today's News Highlights

Russia

IMF Sure Of Market Reforms

Economic Indicators

European Republics

Ukraine Pushes Payment Of Bills

Lith. Economy Shrank In 4Q

South Caucasus & Central Asia

Shevardnadze Wins Big

Azeri Foreign Invest. Agency

CIS Security Chief Meet

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against YAKOVLEV. She did not say she would drop out of the race immediately, but is widely expected to. MATVIYENKO did not explain why PUTIN had reversed his earlier support for her candidacy. PUTIN backed MATVIYENKO for the governorship last month. Liberal leader Grigory YAVLINSKY told RTR he thought PUTIN's move to end MATVIYENKO's ambitions was "strange and unpleasant." "Politics in St. Petersburg is turning into a puppet show," he said, adding that his party Yabloko had been ready to cooperate with MATVIYENKO. A former ambassador to Greece and Malta, MATVIYENKO is one of a handful of women in the higher echelons of politics. PUTIN has also requested a meeting with her in the Kremlin to work on forming a new government.

Economy

Ruble = 28.66/$1.00 (NY rate)

Ruble = 28.61/$1.00 (CB rate)

Ruble = 27.51/1 euro (CB rate)

IMF Confident Russia Supports Market Reforms

· International Monetary Fund (IMF) Acting Managing Director Stanley FISCHER expressed his confidence in President-elect Vladimir PUTIN to continue market reforms, after meeting with him on Friday. He said, "Everyone I met in the government made it very clear that they want to continue market reforms...I am convinced that is the road that will be taken by the government." He noted that the Russian State Duma also supports the reforms. PUTIN has shown he's willing to pursue economic reforms recommended by the Fund, including decisions last week to break up the monopoly electric utility and order state companies and agencies to pay their electric, heat and gas bills. FISCHER said he did not discuss new loans for Russia during his visit. The IMF has been holding up the release of loans for Russia since last year, arguing that structural reform requirements have not been implemented. IMF member states have also expressed strong opposition to Russia's military campaign in Chechnya, allegations that previous loans were improperly diverted, and the government's continued failure to pass key legislation on bankruptcies, bank restructuring and taxes. Russia has said it needs some IMF financing this year to help cover $7 billion in foreign debt payments due. First Deputy

Prime Minister Mikhail KASYANOV said Russia was, "satisfied with the results," of FISCHER's visit.

Economic Indicators

· Russian foreign currency and gold reserves totaled a $15.5 billion on March 31st, the highest level since the government defaulted on $40 billion in Treasury debt and devalued the ruble in August 1998. The rise in reserves is in part due to soaring oil prices. The reserves rose $400 million in the week to March 31st, after climbing $100 million the previous week. The reserves last were at about $15 billion on August 14, 1998. Russian consumer prices rose 0.6 percent in March from February, as the government reduced spending, according to the State Statistics Committee. In February, consumer prices rose 1 percent from January. Since the start of the year, consumer prices have climbed 4.1 percent. The committee did not release annual inflation figures for March. The annual inflation rate was 36.4 percent last year, compared with 84.4 percent in 1998, after the government stopped supporting the ruble. Prices for services rose the most in March, gaining 1.5 percent from February. Non-food prices rose 1.4 percent in March from the month before. Russia's money supply contracted by 4.8 billion rubles ($167.5 million) in the week ending April 3rd, as commercial banks increased cash deposits at the Central Bank. The money supply, which includes cash currency in circulation plus required reserves, fell to 318.9 billion rubles from 323.7 billion rubles on March 27th.

Business

Rosneft-Sibur Sign MOI

· Rosneft, a state-owned oil producer, signed a memorandum of intent with Sibirsko-Uralskaya Neftegazokhimicheskaya Kompaniya, the Russia's number one gas refiner, also known as Sibur, to halt bankruptcy proceedings against Gubkinsky gas refinery, a subsidiary of Sibur. Rosneft may acquire a 50 percent stake in the gas refiner, which has debts of 100 million rubles ($3.5 million) to the oil company for gas. Rosneft and Sibur agreed to invest about $50 million in modernizing the Gubkinsky refinery. Rosneft earlier agreed with Gazprom, Russia's natural gas monopoly, to jointly build a gas pipeline in the Yamalo-Nenets region in Siberia.

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Sberbank Profits Rose 24.2 Percent In 1999

· Russia's state-controlled savings bank Sberbank's 1999 profits rose 24.2 percent compared with 1998 figures, totaling 8.2 billion rubles ($285 million). Bank President Andrei KAZMIN said that Sberbank reported 13.9 billion rubles pretax profit in 1999. The bank paid 5.6 billion rubles in taxes last year. Sberbank recently approved a $300 million loan to Tyumen Oil Co. (TNK), Russia's fifth-largest oil producer, and a $55 million loan to Unified Energy Systems (UES), Russia's electricity distribution monopoly.

Svyazinvest To Merge Companies Nationwide

· Svyazinvest, the holding company for Russia's regional phone operators, plans to create eight to 12 large companies on the basis of its existing 87 companies. General Director Valery YASHIN said some units are merging in the northeastern region; the Ural region companies will merge next. Later, Svyazinvest plans to merge companies in the south of Russia in the towns of Krasnodar, Stavropol, Rostov-na-Donu and Daghestan. YASHIN pointed out that it's too early to discuss the possible merger of Svyazinvest and Rostelecom, Russia's long-distance phone operator. Svyazinvest, 75 percent owned by the government and 25 percent by Mustcom Ltd., hopes to raise about $30 million in foreign investment this year.

Meanwhile, Svyazinvest has pledged to meet about $400 million of foreign debt payments this year. YASHIN, said "We understand the responsibility we have for repaying out debt, and we will live up to our obligations." Svyazinvest said it is working on a plan to improve collection of payments across the country, in line with government efforts to step up cash payments for utility services. "The most important thing is that customers should understand the services we provide are not free and that they must pay for it," YASHIN said. He added, "Customers will learn how to efficiently manage their use of the telephone."

of the power and oil and gas industries Yulia TIMOSHENKO said, "The payments should be made with cash only," not by other methods, such as barter, promissory notes, and bills of exchange, said, prime minister. She explained that using methods other than cash had constricted the economy and caused a breakdown in purchases and payments. The government will force all industrial consumers to buy electricity at the market price. Currently, many of the country's largest companies are paying "dumping prices" of 7.5 kopecks for 1 kilowatt-hour, compared with a market price of 11 kopeck, TIMOSHENKO said. There is an opportunity for companies to buy future supplies at the lower price until the deadline for paying overdue bills.

Lith. Economy Contracted In 4th Quarter

· The Lithuanian Statistics Department released a report showing that the economy contracted at a slower pace in the fourth quarter of 1999 than in the previous quarter. Lithuania's gross domestic product (GDP) contracted by 5 percent in the fourth quarter from a year earlier after a 6.7 percent drop in the third quarter. In 1999, GDP fell 4.1 percent from 1998, compared with 6.1 percent growth in 1998. GDP at current prices totaled 42.597 billion litas ($10.6 billion) in 1999, compared with 42.99 billion litas a year earlier.

South Caucasus & Central Asia

Shevardnadze Wins Re-election Decisively

· Eduard SHEVARDNADZE on Sunday won the Georgian presidential election decisively, winning 82 percent of the vote. His nearest competitor, Dzhumber PATIASHVILI of the Revival Party, garnered only 17 percent of the vote. Other contenders including Kartlos GARIBASHVILI, Avtandil DZHOGLIDZE, and Vazha ZHGENTI received less than one percent. The Central Election Commission has estimated voter turnout to be at least 70 percent of eligible voters. Final results are expected to be released later this week.

SHEVARDNADZE's opponents are already charging that the elections were rigged. An international election observer was ejected from the Martvili voting station by officials who said he exceeded his authority. PATIASHVILI acknowledged his defeat, but said the election had not been fair. "There were

European Republics

Ukraine Pushes Companies To Pay Bills

· The Ukrainian government warned the country's largest industrial companies to pay the balance due on electricity bills, or it will start cutting power to non-payers beginning April 25th. Prime Minister in charge

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gross violations of law and voting rules, and it was impossible to win under such conditions," he said. PATIASHVILI claimed there would have been a run-off, if Adjarian chairman Aslan ABASHIDZE had not withdrawn from the race, less than 24 hours ahead of the election. ABASHIDZE's move to quit the race had been rumored for weeks. Local observers said his candidacy appeared to be a device aimed at extracting financial and political concessions from the government. SHEVARDNADZE and ABASHIDZE held several hours of talks on Thursday, in which the chairman asked for more control over revenues from the province's port and customs facilities. ABASHIDZE did not give a reason for his withdrawal. Tengiz ASANIDZE, a jailed former mayor, also dropped out of the race ahead of the vote. He was running from prison, where he is serving an eight-year sentence for economic crimes. The President pardoned him last year; ABASHIDZE has refused to release him.

SHEVARDNADZE, the incumbent, served as the Soviet Union's foreign minister under Mikhail GORBACHEV before Georgia gained independence with the collapse of the Soviet Union. He has used his international reputation to win aid from the west, which will help develop Georgia's economy, create an efficient border guard service and support education and social programs. SHEVARDNADZE has been the target of two assassination attempts in 1995 and 1998. He has turned around the Georgian nation from the ruins of civil war, providing peace and stability. SHEVARDNADZE has pledged to use his second term of five years to resolve territorial disputes and crack down on corruption. He will also work to improve conditions for the almost 70 percent of residents living below the poverty level. His 60-page election manifesto pledges to improve education, attract foreign investment and improve tax collection. The economic growth from 2000 is projected to be 4.5 percent, with inflation remaining in the single digits. The President says Georgia's modern security and prosperity can be achieved only by full integration with Europe, international organizations and eventual NATO membership.

Azerbaijan Sets Up Foreign Investment Agency

· Azeri President Geidar ALIYEV on March 27th signed a decree establishing the Foreign Investment Agency of the Republic of Azerbaijan. The agency will work towards attracting foreign investment and creating a favorable investment climate in Azerbaijan, the Azerbaijan Newsletter reported. Establishment of this largely independent state body will simplify procedures for foreign investors. It is also expected to play a significant role in designing investment related state policies.

CIS Security Secretaries Meet In Dushanbe

· The Commonwealth of Independent States (CIS) Collective Security Pact Sunday vowed to set up an anti-terrorism center at the end of a two-day secretaries conference of the security committees of the pact held in Dushanbe, Tajikistan. Participants focused on measures to enhance the cooperation among the security committees in the CIS. They placed emphasis on drawing up anti-terrorism and anti-extremism regulations and an ordinance on establishing a joint anti-terrorism center. As for the international anti-drug issue, they agreed that illegal dealing in drugs threaten the social security of every CIS member. They decided to take more coordination measures to crack down on drug trafficking. Secretaries of security committees from Russia, Kazakhstan, Kyrgyzstan, Armenia, Belarus and representatives from Uzbekistan attended the conference. The CIS collective security pact was signed by the above six countries in Tashkent on May 15, 1992, but Uzbekistan dropped out last May. Tajik President Emomali RAKHMONOV, addressed conference, saying he was, "seriously concerned about the growing trend [of religious extremism, terrorism and separatism]...not only in individual countries, but in the region as a whole." The leaders say the extremists are funded by the same backers that aid rebels in Russia's Chechnya region. The US is concerned about the situation in the vast oil-rich area. Secretary of State Madeleine ALBRIGHT will visit Kazakhstan, Kyrgyzstan and Uzbekistan this week.

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

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