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, April 18, 2000

POLYAKOV, a writer, and Mikhail KOZHOKHIN, chief editor of Izvestiya. Many believe this move was meant to appease the west and defuse the controversy surround his visit. Britain welcomed the proposed commission because it would be a "non-governmental body with independent people on it." President-elect Vladimir PUTIN defended Russia's actions in Chechnya to British journalists, saying, "The actions of Russia are a struggle against extremism. They are directed entirely against international extremism and terrorism." However, PUTIN also warned that if Europe assisted the US in developing an anti-ballistic missile shield, Russia would not feel bound to treaty obligations to cut the country's nuclear arsenal, the Financial Times reported. PUTIN said, "Should the deployment take place in European territory, Russia will consider itself not bound by the provisions of START II."

Iraq Defense Min. Concludes Russian Visit

· Iraqi Newspapers reported that, "Defense Minister General Sultan Hashim AHMED visited Moscow between April 14th and 16^th." The Iraqi News Agency INA said AHMED discussed with his Russian counterpart, Igor SERGEYEV, "bilateral relations on military aspects, the unjust (UN) embargo and continuous US and British air aggression against Iraq." Russia was Iraq biggest supplier of weapons before the 1991 Gulf War when a US-led international force ejected Iraqi occupation troops from Kuwait. Russia, along with France and China, has advocated an early lifting of UN sanctions imposed on

Russian Federation

Politics

Rebels Regroup; Russian Forms Commission

· Russian commaders sent reinforcements to Chechnya's southern mountains today, while rebels were regrouping in Vedeno ahead of a new attack. Rebel spokesman Movladi UDUGOV from a telephone in an undisclosed location told Reuters, "The rebels will stick to the tactics of mobile defense which involves blocking Russian troops." Russian authorities said on Monday the Chechen capital Grozny was open again to refugees returning to their homes, but it was unclear how many would go back to a city reduced largely to rubble. RTR state television showed troops checking documents of people hoping to enter Grozny as the new regime took effect. "We have stepped up passport controls to prevent undesirables from entering the city. But those with the right of abode will now have the chance to resettle here," said Vasily PRIZEMLIN, Grozny's military commander. Many of Grozny residents have lost their documents amid the confusion of the bombing campaign, which drove hundreds of thousands of people to seek shelter in neighboring regions. First deputy interior minister Valery FEDOROV noted that, "The bandits are doing everything they can to undermine civilians' faith in the federal force and the leadership of our country." He said the Interior Ministry and special police were doing everything to secure the safety of those returning to Grozny.

Meanwhile, PUTIN showed his dove-and hawk-sides in Britain on Monday. He announced the formation of an independent commission to investigate alleged human rights abuses in Chechnya. The panel of the commission includes Pavel KRASHENINIKOV, a former justice minister, Ella PAMFILOVA, a former presidential candidate, Pavel

Today's News Highlights

Russia

S&P Raises Two City Ratings

Russia Mobile To Issue ADRs

European Republics

Putin-Kuchma Define Relations

Latvia Changes Oil Tender

South Caucasus & Central Asia

Turkish Delegation In Tbilisi

Albright Visits Tashkent

Kyrgyz Elects New Speaker

Politics-Economics-Business

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Tuesday

April 18, 2000

Intercon's Daily

Iraq for its 1990 invasion of Kuwait. US and British planes continue to patrol no-fly zones over southern and northern Iraq established after the war.

Rus-US Summit Planned For June

· The White House announced on Monday that US President Bill CLINTON and Russian President-elect Vladimir PUTIN will hold their first summit on June 4^th and 5^th, since Russian presidential elections on March 29^th. CLINTON will also make stops on his May 30^th to June 6^th trip to Portugal, Germany, and Ukraine. According to a White House statement, CLINTON will meet, "a broad spectrum of Russian leaders who are building new democratic institutions, civil society, and a market economy." The statement also congratulated PUTIN for the Russian State Duma's approval of the START II Treaty. Officials said the two sides at the summit would discuss START III, Russia's actions in Chechnya, economic reform, and the US desire to modify the 1972 Anti-Ballistic Missile Treaty to be able to deploy a national missile defense. CLINTON is nearing a decision to go ahead with a limited system and wants PUTIN's approval. START II was signed in January 1993 and ratified by the US Senate in 1996. Under START II, the US and Russia agreed to cut the number of nuclear warheads to no more than 3,500 from 6,000 on each side by 2007. Russian and American negotiators are scheduled to meet for two days in Geneva this week to discuss launching START III negotiations on deeper cuts. The US has suggested limiting the number of warheads on each side to between 2,000 and 2,500. Russia has suggested a lower number.

The Duma today decided it would vote on ratifying Comprehensive Test Ban Treaty (CTBT) on Friday. Head of the Duma's International Affairs Committee, Dmitry ROGOZIN said, "If this treaty is ratified now, Russia will have a clear advantage at the international conference," sponsored by the UN on halting the spread of nuclear weapons. CLINTON failed last October to persuade the Senate to ratify the CTBT. The US President will also express his deep concern over alleged human rights abuses by Russian federal troops in Chechnya. CLINTON has met PUTIN twice since former Russian President Boris YELTSIN promoted him to prime minister in August 1999.

Economy

Ruble = 28.6/$1.00 (NY rate)

Ruble = 28.71/$1.00 (CB rate)

Ruble = 27.22/1 euro (CB rate)

S&P Raises Russian City Ratings

· Standards & Poor's (S&P) raised the foreign currency rating in the City of Moscow from CCC- to CCC+, with a stable outlook and raised the City of St. Petersburg's foreign and local currency rating from CCC to CCC+, with a positive outlook. The lifting of ratings was in part due to a decreasing risk of bond defaults by the cities. An S&P analyst Elena OKOROTCHENKO said, "The first factor in these moves was the upgrade of the local currency rating of the Russian Federation to CCC+," on February 15^th. She added that improved economic conditions and financial situations in both cities factored into the change in ratings. St. Petersburg has $300 million of international bonds due to mature in 2002, while Moscow has $500 million in bonds maturing on May 31^st. Moscow has already taken steps to pay off some of the bonds ahead of time, the Financial Times reported.

Moscow To Buy Back Eurobonds

· The city of Moscow said it wants to buy back more of its Eurobonds due in May. Moscow Mayor Yuri LUZHKOV said on Friday the city will announce the details of the transaction this week. The city plans to buy back about $90 million of the $280 million of Eurobonds that mature May 31st. Moscow said in December it will repay its Eurobond due in May 2000 on time, after it bought back $219 million of the bonds; the city has been meeting all of interest payments on its Eurobonds.

Business

Rosneft To Increase Stakes

· Rosneft, Russia's state-owned oil company, plans to increase its stakes in oil producing and refining subsidiaries to between 50 percent and 75 percent. Initially, Rosneft will boost its holding to 50 percent in the Tuapse Refinery, which exports 98 percent of its refined oil products. The oil company then plans to increase its holding in Sakhalinmorneftegaz and Purneftegaz, both oil producing subsidiaries, and the Krasnodarnefteorgsintez Refinery. Rosneft earlier

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April 18, 2000

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said that it will resist LUKoil Holding's plans to take control of Arkhangelskgeoldobycha, an Arctic oil producer in which Rosneft holds 25.5 percent.

Russia Mobile TeleSystems To Issue ADRs

· Mobile TeleSystems Co. (MTS), Russia's biggest mobile communications operator, wants to list American depositary receipts (ADRs) on the New York Stock Exchange this summer. The size of the issue has not been disclosed. MTS was founded in 1993 by a Deutsche Telekom unit and Russian financial and industrial group Sistema. A Russian lawmaker said earlier this year that he would seek changes to securities laws that have allowed managers of Russian companies that issued ADRs to gain influence in shareholder votes.

earlier, after no growth in the third quarter and contracting in the previous three quarters. GDP fell by 1.5 percent in 1999 from a year earlier, according to preliminary estimates.

Latvian Privatization Agency On Oil Sale

· Latvia's Privatization Agency said it will change the process of selling a government stake in the Ventspils Nafta oil terminal because it believes the April 28th auction of a 5 percent stake will fail. The agency will prepare plans to sell 43.6 percent of state-owned Ventspils Nafta because it became clear the auction price of 1.94 lats is too high and the stake being offered is too small. The market share price is at 0.75 lats. The Privatization Agency wants to sell the company, with the exception of 5 percent reserved for the 37 percent owner, in one tranche simultaneously on local and international markets at the end of September or beginning of October. A tender for an adviser will likely be announced in May. The agency's supervisory council said 5 percent has to be sold on the Riga Stock Exchange by May 1^st, and 7 percent on international markets till June 1^st. Ventspils Nafta has an equity capital of 201.9 million lats. The second-biggest shareholder is SIA Latvijas Naftas Tranzits.

South Caucasus & Central Asia

Turkish Defense Delegation Arrives in Tbilisi

· The Turkish General Staff delegation, led by Serafeddin TELIAZAN, director of the General Staff finance department, arrived in Tbilisi today for a two-day visit. The Georgian Defense Ministry said that the sides are to sign a document on the awarding of a grant of $4 million to the Georgian Defense Ministry. A considerable part of the Turkish grant is to be used for measures connected with the reorganization of the Georgian army's 11th Brigade and the establishment of an infrastructure which would be up to NATO standards. Two years ago Turkey gave the first grant of $5 million to the Georgian Armed Forces. Last year, Turkish financial aid to the Georgian Defense Ministry ran at $3.8 million.

Armenia Releases Two Azeri Prisoners

· Armenia on Monday releases two Azeri prisoners, captured during fighting over the Nagorno-Karabakh conflict. The prisoners identified as Rovshan

European Republics

Putin-Kuchma Form New Relationship

· Russian President-elect Vladimir PUTIN today met with his Ukrainian counterpart Leonid KUCHMA in Kiev, announcing that the bilateral relationship should be raised to a new level. In their talks, the two leaders discussed the Black Sea Fleet and problems related to Ukraine's $1.4 billion debt for gas to Russia and other questions. PUTIN stressed that a solution to the issue, "should help to bring our peoples closer and bring our relations to a qualitatively better level than the one which existed until now." Gazprom chief Rem VYAKHIREV accused Ukraine last week of stealing gas. KUCHMA promised he would crack down on Ukrainian companies, which he conceded had been illegally tapping Russian gas from pipes. KUCHMA and PUTIN's predecessor, Boris YELTSIN, used to hold, "no-necktie" meetings to resolve bilateral issues, but a leading Ukrainian politician warned last month that the PUTIN era could come as a "cold shower" for cash-strapped Kiev. Russia's Foreign Minister Igor IVANOV, Defense Minister Igor SERGEYEV, and other top ministers accompanied PUTIN to Kiev. The US announced on Monday that President Bill CLINTON will visit Kiev on June 6^th.

Estonia's Economy Expands In 1^st Quarter

· Estonia's economy probably expanded 4.5 percent in the first quarter, the Finance Ministry forecast. Estonia's gross domestic product (GDP) grew by 1.9 percent in the fourth quarter from a year

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GUSEINOV and Akhmed RAKHMANOV have been held for over a year and a half. With the assistance of the International Committee of the Red Cross they took a special flight to Baku. The Red Cross said that Armenia is still holding 11 Azeri soldiers. The Azeri National Security Ministry's spokesman Araz GURBANOV said 783 Azeris¾including women, children and elderly people¾were still being held. Armenia rejects the Azeri figures and says around 100 Armenians remain in detention in Azerbaijan. Azerbaijan claims to have freed all Armenian prisoners. Talks between leaders of the two countries have made some progress, but have recently become deadlocked.

Albright Continues Central Asian Tour

· US Secretary of State Madeleine ALBRIGHT in the third leg of her Central Asian tour visited Tashkent and the US embassy there. She reiterated warnings that the fight against narcotics and terrorism must not involve human rights abuses. ALBRIGHT also noted that Uzbekistan is, "not yet producing what we want in terms of democracy and market systems." ALBRIGHT also pledged $10 million in aid for counter-terrorism and border guard training and to combat drug smuggling, the Associated Press reported. She also urged the Uzbek government to act with restraint in order to provide stability. She criticized the crackdown on Muslims, after the February, 1999 bomb attack. The assassination attack on the President, killed 16 people and lead to a mass arrests of innocent civilians. The Uzbek authorities have said 128 people have been prosecuted over the bombings, but independent regional experts say the number arrested after the incident was up to 5,000. ALBRIGHT said, "One of the most dangerous temptations for a government facing violent threats is to respond in a heavy-handed way that violates the rights of innocent citizens. It can turn civilians who have never been interested in politics into extremists…For instance, it would be a terrible mistake for any government to treat peacefully practicing Muslims as enemies of the state."

She is scheduled to meet with President Islam KARIMOV, who has ruled Uzbekistan with an iron hand and said harsh secular rule is needed to prevent fundamentalists from taking over. ALBRIGHT has said that the best defense against religious fundamentalists is economic and democratic reform. The nation's economic development has been hampered by Soviet-style state controls, which include government regulation of the currency rate. Uzbekistan has rich natural resources, but the majority of the population lives in poverty, struggling to survive on an average monthly salary that barely reaches $20. ALBRIGHT recommended that Uzbekistan make its sum currency convertible to help in talks with the International Monetary Fund and World Bank.

During her visit, she toured the ancient cities of Bukhara and Samarkand. ALBRIGHT said those visits would help to, "underline the importance of cultural traditions to the history of this region and the important role they play in our understanding of modern-day Uzbekistan."

Erkebayev Elected New Kyrgyz Speaker

· At its first session of the Kyrgyz Legislative Assembly on Friday, deputies elected as their chairman Abdygany ERKEBAYEV, who previously chaired the lower chamber of parliament, RFE/RL's Newsline reported. ERKEBAYEV, one of the leaders of the pro-government Union of Democratic Forces, received 38 votes, while his rival, Communist Party chairman Absamat MASALIEV, garnered only 13. ERKEBAYEV is a member of the Academy of Sciences and a former deputy prime minister and governor of Osh Oblast. In a message to the session, President AKAYEV termed the parliamentary poll, "a useful lesson on the road to democracy," and said that the new legislature should work, "in a manner of true democracy...in a civilized constructive way in order to strengthen the rule of law and facilitate social and economic progress," Reuters reported.

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

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