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

Thursday, May 11, 2000

for Security and Cooperation in Europe, the Council of Europe, and the European Union. It should be noted that while representatives have visited Chechnya and refugee camps, Russia has limited and restricted their access to other sites, including prisoner and filtration camps. Russia has established a commission to investigate human rights abuses and punish those found guilty. IVANOV said, "The Russian leadership does not absolve itself of responsibility. All human rights abuses…whoever perpetrated them¾are being thoroughly investigated and, if confirmed, the culprits will be punished." In a recent Congressional hearing, Senator Mitch MCCONNEL (Rep.-KY) quoted from a December 15, 1999, Russian National Security Council meeting summary that, "this region [Southern Chechnya] must be rendered devoid of life and the basis for the return of new bandits and terrorists must be eliminated forever." COMMENT: If this is true, then Russia has a great deal to hide.

Russia Proposes Further Nuclear Cuts

· After nearly seven years of delay and political wrangling, the Russian State Duma last month ratified the START II nuclear reduction Treaty. In 1997, US President Bill CLINTON and then President Boris YELTSIN agreed to a START III framework, which would reduce each side's arsenal by 1,000 warheads to between 2,000 and 2,500 warheads. Russia has further proposed to cut 1,000 warhead on top of that figure; a plan that the US Joint

Russian Federation

Politics

Ivanov Attends Council Of Europe Session

· Russian Foreign Minister Igor IVANOV today will attend the Council of Europe session of Foreign Ministers in Strasburg, which will focus on the war in Chechnya. The is the first meeting since its parliamentary assembly called on the ministers last month to initiate a suspension of Russia unless Moscow halted human rights abuses in the rebel Caucasus territory. Diplomatic sources said the ministers could insist on the need for a political settlement of the conflict and demand an independent inquiry into alleged human rights abuses in Chechnya. Council members appear unlikely to freeze Russia out of the committee of ministers because it wants to give the new administration a chance to turn things around.

IVANOV said, despite harsh initial criticism of the Chechen campaign, the 41-nation body was unlikely to adopt any sanctions against Moscow. "I did not feel any pressure. This bodes well for today's meeting," Reuters reported. In a Financial Times opinion piece "Russia Has Nothing To Hide in Chechnya," IVANOV complained that Russia is being subjected to "a torrent of accusations," and suggests some in the West are "taking advantage of the [Chechen] problem to bring political pressure on Russia." He warns that, "the West will eventually have to deal with many of the terrorists who have fled Chechnya in other trouble-spots around the world." He states that Russia is demonstrating openness and transparency on an issue that is "an entirely internal problem. IVANOV countered that Russia is cooperating closely with the UN High Commissioner for Refugees, the UN Development Program, Unicef, the World Health Organization, the International Red Cross, and the Organization

Today's News Highlights

Russia

New Economic Plan Due In May

Media-Most Raided By Police

European Republics

Estonian Lawmakers In Kiev

Ukraine Wants To Join EU

South Caucasus & Central Asia

Arsenishvili Wins Approval

CEPS On Stability Pact

US-Armenia On Opportunities

Wolf On Caspian Resources

Politics-Economics-Business

Page

Thursday

May 11, 2000

Intercon's Daily

Chiefs of Staff oppose. Admiral Richard MIES, commander of the US strategic nuclear force, on Monday told Pentagon and military leaders that the command needs about 2,500 warheads to execute its nuclear deterrence and war-fighting missions. The White House said that officials are `examining the implications of Russia's proposal." The Pentagon and White House also denied that there are any plans for President CLINTON to make a unilateral decisions to cut the US arsenals from its current levels, thereby circumventing the Congress, The Washington Times reported. Representative Curt WELDON (Rep.-PA) and senior members of the House Armed Services Committee said, "By negotiating an agreement with Russia they know they can't get through the Congress, they are causing a split between the United States and Russia. This president has no credibility to negotiating this kind of arms control agreement just to reinvigorate the failed Russia policies of this administration and to help Al GORE's presidential campaign."

In addition, the American Physical Society has said that the tests the Pentagon has conducted on the controversial anti-missile defense system "falls short of those required to provide confidence," in the system's technical feasibility. The system's cost is estimated at $60 billion. The group believes more tests are needed for the President to make an informed decision on whether to go ahead with the proposed plan.

Economy

Ruble = 28.4/$1.00 (NY rate)

Ruble = 28.29/$1.00 (CB rate)

Ruble = 25.51/1 euro (CB rate)

Economic Plan To Be Presented This Month

· Acting Prime Minister Mikhail KASYANOV on Wednesday said that he will present the government's economic program later this month. The Cabinet of the new government will discuss the plan, make adjustments, and implement it in June. The Russian nation has long been awaiting an economic program, which has been shrouded in secrecy. President Vladimir PUTIN has said little about what the economic plan entails and sidelined the topic during the presidential campaign. He has appointed several liberal economic advisers, including Andrei ILLARIONOV, German GREF, and

Alexei KUDRIN. This leads many to speculate that PUTIN adopted a strategy in which the technocrats will take care of the economy and he will concentrate on consolidating power. KASYANOV has called for greater freedom for business and overhauling the tangled tax system. The bureaucratic tape surrounding business in Russia has led to corrupt politicians and criminals who use its complexity to extort wealth. The current tax system stifles growth and encourages evasion. The new economic plan should also establish a system of land entitlement, create small and medium-sized businesses with skilled jobs, and enforce the closing of bankrupt enterprises. The Financial Times reported that the country has a large number of enterprises that care continuing to operation even though they are producing obsolete products of little value. Other needed changes include reforming the pension and banking system. ILLARIONOV is optimistic that Russia can fight the uphill battle back to a productive nation, forecasting growth at 5.2 percent. He said, "It only takes willingness to work towards that foal and, in particular, do things that form the point of view of both common sense and economics are absolutely normal: not to steal; not to print counterfeit money; to avoid a budget deficit; to do so without borrowing money; to serve debt; to refrain from over-regulation and so on.

Business

Media Most Raided By Armed Tax Police

· Russia Tax Police dressed in camouflage with ski masks and guns searched the offices of the Media-Most holding company today. In the police operation, dozens of investigators and police commandos entered the company's offices in downtown Moscow, searching through documents and taking down workers' personal data. Police officials withheld comment. The Prosecutor General's office, the Interior Ministry and the Tax Police conducted the search. Media-Most denounced the raid, calling it an, "act of lawlessness". It said the raid was an attempt to punish the company's media outlets for their critical reports of government corruption and incompetence, as well as the presidential campaign. Their owner, Vladimir GUSINSKY, who is critical of President Vladimir PUTIN, heavily influences Media-Most's news outlets. According to a company press statement, "The NTV televi

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

May 11, 2000

Intercon's Daily

sion station, the Echo of Moscow radio and the Segodnya newspaper have continuously reported about the facts of corruption in top echelons of the government. There is no doubt that today's action aims at blocking their professional activities." Itogi magazine is also published by Media Most. Itogi editor Sergei PARKHOMENKO said, "We had been saying for some time that sooner or later something bad would happen to us. They will find nothing in there, but it will make our work extremely difficult. There are so many things that could be behind this ¾ our coverage of Chechnya, the election, how PUTIN came to power." NTV speculated that the raid may have been triggered by a article in Segodnya that alleged wrongdoing by a high-ranking official in the Federal Security Service (FSB). An NTV news anchor said the raid, just four days after PUTIN's inauguration, showed how fragile democratic traditions were in Russia.

obtained in the next 10 years and 4 percent voted for 20 years. Some 20 percent of respondents said they did not want Ukraine to join the EU. The results have a margin of error of 2.2 percentage points.

Ukraine's Gas Debt Rises To $1.4 Billion

· Naftohaz Ukrayiny's, Ukraine's state-owned oil and gas distribution company, debt to Gazprom, for gas supplies increased by $650 million to $1.4 billion over the first quarter. Both countries are discussing an agreement over Gazprom debt payments. Ukrainian customers owe Naftohaz Ukrayiny about 20 billion gryvnia ($3.7 billion), the agency reported. Ukraine President Leonid KUCHMA vowed that the government will pay its natural gas debts and stop Ukrainian companies from illegally siphoning natural gas from Russian pipelines.

South Caucasus & Central Asia

Georgian Parliament Approves Arsenishvili

· The former Kakhetia governor Giorgi ARSENISHVILI was approved by the Georgian parliament to the post of State Minister. Intercon sources report that he won approval in a landslide vote of 156 to 9. The parliamentary faction of the opposition political alliance Revival of Georgia did not participate in the closed vote. ARSENISHVILI told the parliament it is necessary to take "strictest measures" for the increase of tax revenues. He added that tackling social problems and fighting corruption would be high on his agenda. He also promised to press ahead with economic reform and privatization of parts of the energy sector. "We should eradicate corruption in the country and after that we will be able to attract investment to Georgia," Prime News Agency reported. ARSENISHVILI is a mathematician who has worked as the dean of the mathematics faculty at Tbilisi State University.

President Eduard SHEVARDNADZE is expected to submit a list of his new government team to parliament for approval before Sunday, May 14^th. Local media has speculated that the President will nominate his aide for economic reforms Temur BASILIA to the post of Finance Minister. BASILIA has met with the President several time to discuss his possible responsibilities. Intercon sources report that it is uncertain whether the parliament will support his candidacy. One wing of the Citizens' Union

European Republics

Estonian Lawmakers Visit Kiev

· A delegation of Estonian lawmakers led by parliament speaker Toomas SAVI arrived in Kiev on Wednesday for a three-day visit to discuss interaction between the two countries in international organizations and bilateral economic issues. The sides will discuss bilateral and multilateral political, trade and economic issues, the Ukrainian parliament directorate of inter-parliamentary relations said. The discussion will focus on cooperation in the Council of Europe, the Organization for Security and Cooperation in Europe, the Council of the Baltic Sea States and other international organizations. The sides will also consider ways to increase bilateral trade turnover, which has shrunk in the last years. The delegation will have talks with President Leonid KUCHMA. Ukraine and Estonia have signed 40 interstate, intergovernmental and inter-agency documents.

Ukrainians Favor Joining EU

· Ukraine's Argumenty I Fakty reported that an opinion poll conducted by the Ukrainian center for economic and political research reveals that 57 percent of Ukrainians want their country to join the European Union (EU). About 44 percent of 2,000 people interviewed countrywide in April said they wanted Ukraine to join the EU during the next five years, while 9 percent said membership should be

When you need to know it as it happens

Politics-Economics-Business

Page

Thursday

May 11, 2000

Intercon's Daily

Party supports the candidacy of deputy Irakli CHUBINISHVILI for the Finance Ministry post. Other candidates living outside of Georgia who have also been suggested. Foreign Minister, Minister of healthcare and social security and heads of power ministries are to remain at their posts. Minister of refugees and settlement Valery VASHAKIDZE will also remain on the post.

Brussels Think-Tank On Caucasus Stability

· The Center for European Policy Studies (CEPS) has taken the lead on Turkish President Suleyman DEMIREL's calls for a Caucasus stability pact by drawing up a draft document. Program will be discussed with representatives from the Caucasus countries as well as the European Union, NATO, the US, Turkey, Russia, and Iran. CEPS said the pact would "transform the business climate of the region," and enable its oil and gas sectors to reach their full development potential, the Financial Times reported. The plan envisions a cooperative regime for the north and south Caucasus region, with the EU, US, and Russia sketching out a stability pact for the area. A contract group made up of Georgia, Armenia, Azerbaijan, Turkey, and Iran would develop the project. It also calls for the establishment of a South Caucasus Community to organize regional security and economic cooperation.

US-Armenia Discuss Economic Relations

· The Armenian-US working group for economic relations held its first meeting in Yerevan on Monday to discuss the development of economic relations between the two countries. Held behind closed doors, the meeting was co-chaired by Armenian Finance Minister Levon BARKHUDRYAN and US Department of State coordinator for assistance to Commonwealth of Independent States (CIS) states Bill TAYLOR. The agenda included ways to invigorate the activity of the private sector in the republic, remove obstacles to the development of small- and medium-sized businesses and combat corruption, as well as US assistance to the Armenian economy. The memorandum on the creation of the working

group was signed in Yerevan on January 27, 2000. It consists of five permanent representatives.

Air Defense Complex Arrives In Kazakhstan

· A Russian air defense complex C-300 has been delivered to Kazakhstan. The C-300 defense guns will be deployed at a military unit in the Karaganda region, Itar-Tass was told by the Kazakh Defense Ministry. The task of the defense complex, which will be kept in combat readiness, is to defend air space of the Kazakh capital Astana. Under existing bilateral agreements, Russia has supplied weapons to Kazakhstan since 1997.

Wolf Pushes For Turkmen Decision on Gas

· US advisor for Caspian energy issues John WOLF is urging Turkmenistan to make a decision on whether to export its gas reserves to Turkey and the West through the Trans Caspian Gas Pipeline. He said, "If there's not a sign of momentum [on Turkmenistan's decision], Turkey has other options. Delay in itself becomes an answer after awhile…Perhaps Turkmenistan prefers to yield the [Western] market to others who would like to move in." Turkey has stated that it would prefer to purchase Turkmen gas, but Russia and Azerbaijan has also expressed an interest in competing for the Turkish market. Turkish gas demand is now 13 billion cubic meters (BCM) a year but is seen topping 55 BCM by 2010 and 83 BCM by 2020. Turkey is looking to receive gas by late 2002 or no later than early 2003. WOLF stressed, "It won't be possible to get deliveries in that time frame unless something happens very quickly." He noted, "There's an excellent offer on the table that serves Turkmenistan and the purposes of Turkey, including Azerbaijan as a partner," WOLF said. "We hope for renewed momentum in that process." Turkmenistan's appears to be further delaying its decision until Russian President Vladimir PUTIN visits at the end of May. WOLF noted that the US would hold a London seminar on financing with governments, export credit agencies, and international financial institutions for regional pipelines.

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