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

Tuesday, April 11, 2000

Russian Federation

Politics

Russian State Duma To Debate START II Treaty

· Russian President-elect Vladimir PUTIN has urged the Russian State Duma to debate the long-delayed ratification of the START II nuclear arms reduction treaty, stating that reducing the nuclear arsenal does not mean becoming weaker. Today, the Duma decided to schedule debate and vote on the treaty for this Friday. Deputies believe there is a good chance that the treaty will meet quick approval, since the composition of the parliament changed after the December elections. Several Duma committees had already recommended the chamber ratified the treaty. The treaty would halve each side's nuclear arsenals to about 3,000 to 3,5000 warheads by 2007. The US Senate ratified the treaty in 1996. Government officials said that aging missiles must be soon dismantled anyway, and the treaty would allow Russia to preserve a nuclear balance while freeing substantial sums of money now spent on maintaining the weapons. Foreign Minister Igor IVANOV is to travel to the US on April 24th to discuss arms control issues. The government hopes to have the treaty ratified before his trip, the Associated Press reported. Ultranationalist Vladimir ZHIRINOVSKY opposes the treaty, but predicted it would be quickly endorsed by lawmakers. "Many will vote on command without thinking of their historical responsibility," he said. Russia remains concerned over US plans to modify the 1972 Anti-Ballistic Missile (ABM) treaty, for the development of a defensive shield to intercept incoming nuclear missiles. Passage of the treaty would be seen as a major political triumph for PUTIN.

Putin Ventures Westward

· President-elect Vladimir PUTIN is planning his first trip West since taking over from Boris YELTSIN

on December 31, 1999. PUTIN will arrive in London late Sunday and on Monday will hold a one-on-one talk with Britain's Prime Minister Tony BLAIR. The agenda will focus on Russia's economy, Chechnya, the upcoming G-8 summit, the Balkans, cooperation in fighting crime and drug trafficking, and defense. The British government pointed out that it was chosen for the first foreign trip because it servers as a bridge between the US and Europe. One BLAIR spokesman said, "It says something about the importance of the relationship PUTIN attaches to us that he wants to have this visit now." PUTIN will also meet with Foreign Secretary Robin COOK, Queen Elizabeth, and industrial leaders. PUTIN's visit follows a trip by BLAIR to St. Petersburg last month. Britain is interested in building a new relationship with Russia rather than isolate it over its military offensive in Chechnya. "We will express, as we did in St. Petersburg, our concerns [regarding Chechnya]. But equally we believe the best way to express those concerns is engagement rather than isolation," the spokesman said. PUTIN's visit is ahead of an international conference and business forum "Russia 2000: A New Reality" to be held in the Queen Elizabeth II Conference Center in London. Conference speakers include Anatoly CHUBAIS, Sir John BROWNE, Petr AVEN, Viktor CHERNOMYRDIN, Boris NEMTSOV, and Ronald FREEMAN. PUTIN is also expected to visit Belarus and Ukraine.

Economy

WTO Russia Talks To Resume In May

· Head of the trade policy and multilateral nego

Today's News Highlights

Russia

Rostelecom Restructures Loan

Kraft To Build Coffee Plant

European Republics

IMF Reviews CB Audit

Estonia-Latvia To Buy Weapons

South Caucasus & Central Asia

Demirel Cancels Kazakh Visit

Rus-Uzbek Strategic Partners

Special Election Report

OSCE/ODIHR Election Report

Politics-Economics-Business

Page

Tuesday

April 11, 2000

Intercon's Daily

tiations at the Russian Trade Ministry Alexander ORLOV announced that the next session for the working group on Russia's accession to the World Trade Organization (WTO) is scheduled for May in Geneva. He said this upcoming session would cover the development of economic legislation, technical barriers to trade and other issues. The Russian delegation plans to discuss subsidies for industry and tariff policies, ORLOV said. Russian President-elect Vladimir PUTIN discussed Russia's economic program in a meeting last week with IMF Acting Managing Director Stanley FISCHER.

Ruble =28.58/$1.00 (CB rate)

Ruble = 27.43/1 euro (CB rate)

Rostelecom Restructures $100M Bank Loan

· Rostelecom, Russia's dominant phone company, said it restructured a $100 million loan with a group of international banks. The loan, which Rostelecom received in 1997, will be split into two parts, with $33.5 million to be denominated in foreign currencies and to mature in four years. Another $66.5 million to be denominated in rubles is to mature in five-and-a-half years. Rostelecom has now completed its restructuring obligations to foreign creditors. Rostelecom shares rose 1.6 percent, or 6 cents, to $3.86.

Gov't To Sell 30B Rubles Debt To CB

· Russia's government has ordered 30 billion rubles ($1.0 billion) of GKO-OFZ ruble debt to be sold to the Central Bank this year to raise funds for debt payment and servicing. The statement on April 3rd said the Finance Ministry had been ordered to sell securities with a tenor of at least three months and maturing before January 1, 2001. Yields should correspond to the current level of inflation. Government officials see consumer inflation this year between 15 and 20 percent. Russia's 2000 budget allows the government to borrow from the Central Bank up to 30 billion rubles this year. The government also said it was formally putting into operation the 2000 budget, which foresees revenues of 797.2 billion rubles, spending of 855.1 billion rubles and a deficit of 57.9 billion rubles. The budget also forecasts a primary surplus, calculated before debt servicing costs, of at least 3.18 percent of gross domestic product, it said.

Business

Oil Cos. To Pay Gas Tax

· Russian oil companies will start paying excise duty on gas production starting July 1st. Most gas producers will pay a tax equivalent to 15 percent of the value of gas sales in Russia and Belarus and 30 percent on sales outside the countries. Itera will suffer the most from the new tax because it will have to start paying duty on the 40 billion cubic meters gas it has been selling tax-free on behalf of Gazprom, as a payment to the Yamalo-Nenets autonomous region. Gazprom and several other gas producers already pay excise duty on gas production.

Railway Invests In Telecommunications

· The Russian Railways Ministry said it will lay thousands of kilometers of digital fiber-optic cable across the nation over the next two years as part of a $533 million expansion into telecommunications, The Moscow Times reported. The ministry hopes to use the new lines to monitor the movement of freight on the lines and improve services. The fiber-optic infrastructure also could be used for Internet access or international telephone calls. The state-owned railways is the third biggest monopoly in Russia after Gazprom and Unified Energy Systems.

Kraft To Build Coffee Plant In Russia

· Kraft Foods, a subsidiary of Philip Morris Cos., the world's largest tobacco company by sales, will sign an agreement with Russia's Leningrad region to begin construction of a $10 million coffee processing plant. The plant is expected to begin production in early 2001, and produce Jacobs and Maxwell House coffee brands for the local market. The plant's manufacturing director, Mikhail SOKHNOV, said the start up of local production will allow the company to lower costs and increase profits. Philip Morris is close to completing investments of nearly $500 million in tobacco manufacturing in Russia, as well as another $340 million in tobacco production in Kazakhstan in Central Asia.

European Republics

IMF To Study CB Audit Before New Lending

· The International Monetary Fund (IMF) has started to review the results from an audit of Ukraine's

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday

April 11, 2000

Intercon's Daily

Central Bank. The audit, by PricewaterhouseCoopers, examines whether the bank used IMF loans to invest in high-risk, high-yield government bonds in apparent contravention of IMF agreements. Results of a comprehensive audit have not been made public, but a limited audit released last month showed no wrongdoing. The IMF has already accused the Ukraine of misrepresenting hard currency reserves in 1997 to 1998 in order to win new loans. Ukraine's $2.6 billion loans have been suspended since September, 1999, after Ukraine failed to implement reforms. Julian BERENGAUT, the IMF mission head to Ukraine, declined to comment on the audit Monday or when the lending program could be revived. "It's too early to say," he said. BERENGAUT suggested the fund might renew the loans if Kiev implements all terms of the frozen loan package and if the IMF board is satisfied with the audit results.

The government has already asked parliament to adopt a new set of 34 economic laws to revitalize ties with the IMF. First Deputy Prime Minister Yuri YEKHANUROV said, "Today this [parliamentary support] is critically important to implement preliminary conditions and work further with the International Monetary Fund...First of all, this will be a [2000] privatization program, a draft law on the cash sell-off of [telecoms monopoly] Ukrtelekom and a set of laws reducing the number of units which are not liable to privatization." Last year the parliament, then dominated by left-wing factions, turned down the privatization program for this year and rejected a plan to sell Ukrtelekom. YEKHANUROV said the cabinet of reformist Prime Minister Viktor YUSHCHENKO would also press on with the sale of electricity distributing firms and demand the abolition of heavy export duties on exports of sunflower seed, hides and skins. The IMF mission met President Leonid KUCHMA and talked with ministers about privatizing key energy and telephone companies on Monday. The mission is expected to stay in Kiev until Saturday.

Ukraine, which hopes to restructure a total of $500-700 million of debts it owes to the Paris club of sovereign lenders, needs renewed IMF financing to win creditor confidence. The country also needs renewed financing to pay off a total of $650 million of previous IMF loans. Ukraine's scarce currency reserves total only $1 billion.

Meanwhile, US Secretary of State Madeleine ALBRIGHT will meet with officials Friday in Kiev to encourage economic reform in Ukraine. ALBRIGHT changed her schedule, making Kiev the first stop on a trip that will take her to Kazakhstan, Kyrgyzstan and Uzbekistan. She had planned to visit Ukraine April 20th to 21st on the way home.

Estonia-Latvia To Buy Weapons

· Latvian Foreign Minister Indulis BERZINS was in Estonia on Sunday and Monday and met with his counterpart, Toomas Hendrik ILVES, to discuss various bilateral issues, including the joint acquisition of military arms. ILVES said following the meeting that "as we have similar tasks in defense, we should promote cooperation in weapons and other purchases as buying in bulk is cheaper," ETA reported.

South Caucasus & Central Asia

Ballot Stuffing Marrs Georgian Election

· The Georgian electorate on Sunday overwhelmingly voted for President Eduard SHEVARDNADZE to serve a second five-year term. SHEVARDNADZE garnered 80 percent of the vote, with his nearest competitor Dzhumber PATIASHVILI only earning 16.6 percent. Georgian Opinion Research Business International (GORBI) and Broadcasting Company Rustavi2 conducted the first ever exit-poll survey across Georgia, with methodologies from internationally recognized exit-poll standards. In Tblisi, exit-polls indicated SHEVARDNADZE won 50.2 percent, PATIASHVILI 25.1 percent, no answer 21.7 percent. In Kutaisi, SHEVARDNADZE won 60.1 percent, PATIASHVILI 12.6 percent, no answer 23.3 percent. In Rustavi, SHEVARDNADZE won 46.6 percent, PATIASHVILI 32.5 percent, no answer 17.8 percent. Analysts have also determined that SHEVARDNADZE won 70 percent in Adjarian, after its Chairman Aslan ABASHIDZE withdrew from the election on Saturday. It appears that ABASHIDZE pulled out of the race after realizing that he did not have a chance to win nationally. He also pointed out that PATIASHVILI's announcement to run for President had not been sanctioned by the Revival Party. SHEVARDNADZE's strong support in Adjaria underlines the hopeful feeling that Adjaria and Georgia will seek better relations.

When you need to know it as it happens

Politics-Economics-Business

Page

Tuesday Intercon's Daily April 11, 2000

While the results of the vote are not in question, observers have criticized the election for many irregularities. The candidates did not instill enthusiasm in the election; nor did they pose a real threat to the incumbent. The candidates have accused the state media of bias toward the incumbent. The European Institute for the Media (EIM), partly funded by the European Commission, released a statement saying, "The allegiance of the state media to the incumbent, the weak position of the print media, and the difficulties in running commercial media companies in general, combined in this election to frustrate the ability of voters to receive a full, fair, and balanced accounting of the choices available to them." It added, "State TV and Radio company in particular failed to live up to the standards set for its coverage dictated by Georgian law and international agreements...which Georgia is party to."

Matyas EORSI head of the Council of Europe observer mission said, "The Presidential election held in Georgia April 9, 2000 were a useful, and, not surprisingly, difficult exercise in Democracy." A Council of Europe statement also noted, "the delegation was pleased to note that the voting was conducted in an orderly fashion, albeit marred by some instances of extensive ballot stuffing eye-witnessed by the delegation." A pre-election concern was that voter apathy would prevent the necessary 50 percent voter turnout. It is believed that local officials stuffed the ballot box to ensure the 50 percent turnout, preventing the need for another expensive round. The Council of Europe strongly suggested that Georgia should take steps to improve its democratic process. Their request echoes calls for new election reform legislation.

Demirel Cancels Kazakhstan Visit

· Kazakh Foreign Minister Yerlan IDRISOV made the announcement today that Turkish President Suleyman DEMIREL has canceled his official visit to Kazakhstan scheduled for April 12th. The visit, "was in the schedule of international summits." However, in the beginning of April, the visit was postponed at the Turkish leader's request. Kazakh President Nursultan NAZARBAYEV and DEMIREL held bilateral negotiations during the recent Turkic summit in Baku. The Turkish parliament has rejected constitutional amendments proposed by the ruling party, which would have allowed DEMIREL

to run for re-election. He is set to resign on May 15th. This is one of the reasons for canceling the visit. Kazakhstan and Turkey successfully develop trade and economic relations. Kazakhstan ranks third among other CIS states¾after Russia and Ukraine¾in terms of trade turnover with Turkey. Negative trends in the regional economies has caused trade turnover to drop from $296.6 million in 1998 to $148.4 million in 1999.

Turkmen Airline Buys Boeing Plane

· Turkmenistan's national carrier, Turkmenkhovaellari airline, has plans to purchase a Boeing 757-200 aircraft at $69 million to add to its existing fleet of six Boeings. "According to a resolution signed by the president, the department responsible for modernizing our fleet, will buy a long range Boeing 757-200 for $69 million," a company spokesman said. He added a $48.3 million credit agreement with the Turkmen Vneshekonombank will help finance the purchase. The State Fund for Transport and Communications will make the 20 percent advance payment to Boeing. Turkmenkhovaellari owns three Boeing-757 planes and three Boeing-737 and flies to London, Moscow, Birmingham, New Delhi, Istanbul, Abu Dhabi and Karachi. It plans to start flights to New York and Dacca soon.

Russia-Uzbek Strategic Partners

· Russian presidential aide Sergei YASTRZHEMBSKY said his country considers Uzbekistan not only as a strategic partner but as an ally. After a meeting with Uzbek President Islam KARIMOV on Monday, YASTRZHEMBSKY told reporters that their discussion focused on "the evolving situation in Central Asia, bilateral relations, as well as interaction primarily in the fight against international terrorism, religious extremism and narcobusiness." He added, "Russia and Uzbekistan are living through a special period. [Russian President-elect] Vladimir PUTIN's visit to Uzbekistan in December of last year gave a special impetus to this process. Since then numerous contacts have been made at a relatively high level between the governments, the security councils and power structures." "We are ready to jointly repel the challenges coming from international terrorism," YASTRZHEMBSKY said.

Politics-Economics-Business

Page

Tuesday Intercon's Daily April 11, 2000

OSCE/ ODIHR Election Observation Mission Presidential Election

April 9, 2000

Georgia

Statement Of Preliminary Findings And Conclusions

Tbilisi April 10, 2000

The OSCE/ODIHR Election observation Mission concluded that considerable progress is necessary for Georgia to fully meet its commitments as a participating State of the OSCE. Fundamental freedoms were generally respected during the election campaign and candidates were able to express their views. However, improvements are necessary in the legal framework, the performance of the State media and the implementation of counting and tabulation procedures. Regrettably, voting did not take place in Abkhazia and in Taskbinvali region/South Ossetia.

Eleven candidates, two of them in detention, applied for registration to the Central Election Commission. Seven party nominated and independent candidates were registered through a procedure that was not fully transparent. Two of the candidates, who were refused registration, appealed to the Supreme Court, which upheld the original decision. The Laborist Party together with a number of smaller political parties boycotted the election. The National Democratic Party invited the electorate to vote against all candidates.

Only two candidates, incumbent President Eduard Shevardnadze and Jumber Patiashvili, campaigned actively, organizing numerous meetings with supporters. However, the tone of the campaign occasionally went beyond acceptable limits. The authorities did not behave impartially and gave strong support for the election campaign of the incumbent. There was no clear dividing line between State affairs and the incumbent's campaign. Also, opposition candidates complained that visits of foreign dignitaries were used, at times openly, for campaign purposes. The campaign of the other candidates was low key. Aslan Abashidze, Chairman of the Supreme Council of Adjaria did not use his free airtime and Tengiz Asanidze, who has been in pre-trial detention, was unable to do so. Both withdrew on April 8th, although Tengiz Asanidze's withdrawal was not accepted by the Central Election Commission.

Outside the free airtime allocated to registered candidates for political advertising, the State media failed to fulfill their obligations to provide balanced reporting on the candidates and gave the incumbent a clear advantage. Similarly, the regional Adjaria television channel clearly favored Aslan Abashidze. The coverage of candidates in the private media was more balanced, although the incumbent again received highest amount of coverage, both in time, space, and quality of coverage.

Substantial amendments to the electoral legislation were adopted less than three weeks before election day, causing confusion among the election administration and some political parties, in

Politics-Economics-Business

Page

Tuesday

April 11, 2000

Intercon's Daily

particular those entitled to appoint new members to the election commissions. While the amendments addressed a number of concerns raised previously by international observers, other concerns were remedied only partially or not at all. Further, the amendments enhanced the powers of the Chairpersons of the election commissions at all levels, thus creating new concerns.

Despite amendments stipulating the inclusion of additional representatives of the parliamentary minority in election commissions at all levels, the parliamentary majority retained to a large extent its dominant position in the election administration. In fact, the implementation of the amendments was delayed past legal deadlines, thus frequently preventing the new members from fully participating in the administration of the election process. In addition to facing difficulties in the implementation of the election legislation due to late amendments, on a number of occasions the Central Election Commission applied the legal provisions selectively.

Other important concerns relate to the accuracy and transparency of vote lists, location of election commission premises in local government buildings and a number of ambiguous, vague, and sometimes contradictory procedural provisions of the election legislation.

On election day, observers reported that voting was conducted in a generally calm atmosphere and polling stations were not crowded. The quality of polling varied across the country. While problems were reported in Imereti, Kvemo Kartli, and Samegrelo regions, polling in adjaria marked progress. However, observers reported series of identical signatures on the voter lists, group voting and presence of unauthorized persons, including police and local officials, in the polling stations.

The election process deteriorated after the close of polls. Counting and tabulation procedures lacked uniformity and, at times, transparency. While in some polling stations the law was properly implemented, in others it became apparent during the counting that ballot box stuffing had taken place. Instances of protocol tampering were reported as well.

Regrettably, in a few cases domestic and international observers were impeded in their work. The OSCE/ODIHR Election Observation Mission calls upon the Georgian authorities to vigorously investigate breaches of the criminal code, related to election violations. The OSCE/ODIHR will monitor the follow-up to the above concerns, and stands ready to continue the dialogue with the Parliament, the Government and other authorities of Georgia with a view to addressing these concerns.

*This statement of the Organization for Security and Cooperation in Europe (OSCE) Office for Democratic Institutions and Human Rights (ODIHR) Election Observation Mission (EOM) for the April 9, 2000 Presidential Elections in Georgia is issued prior to completion of the tabulation of results, the resolution of complaints, and appeals and the publication of the final results. The ODIHR will issue a comprehensive report in about a month.

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

available for non-profit institutions.

Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 2000, Intercon International, USA.

When you need to know it as it happens

Politics-Economics-Business

Page