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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, May 24, 2000

stand against Russia. The responsibility for a Russian attack on Afghanistan will be on our neighbors because without their help Russia cannot attack us," the Financial Times reported. He specifically named Uzbekistan and Tajikistan. MUTTMAIN said that although Afghanistan recognizes the Chechen government, it does not provide training camps for Chechen guerrillas nor does it send fighters to Chechnya. Relations between the Taleban and Russia have remained tense since 1979 when Soviet troops invaded Afghanistan, prompting a bloody war. Pakistani Foreign Ministry spokesman Iftikar MURSHID warned that strikes against Afghanistan will have, "a destabilizing effect" on the region.

Swiss Authorities Hand Over More Evidence

· Swiss judicial authorities today handed over more documents to Russian prosecutors on a series of investigations concerning alleged fraud, bribery, and money laundering. The Russian deputy prosecutor Vassili KOLMOGOROV and judicial officials Sergei ARISTOV and Vladimir LYSEIKO discussed, during a three-day meeting, the state of affairs in such probes as the Mabetex, Forus/Andava, and Bank of New York case. Mabetex is denying allegations it has paid bribes to obtain lucrative government contracts for the renovation of the Kremlin. The case also involves payments to former President Boris YELTSIN's family and some of his close associates. Pavel BORODIN, who headed the Kremlin's property empire at the

Russian Federation


Tensions Rise Between Russia-Afghanistan

· Russian Defense Minister Igor SERGEYEV and Foreign Minister Igor IVANOV have confirmed statements made by Kremlin spokesman Sergei YASTRZHEMBSKY that Russia may consider launching air strikes against Afghanistan's ruling Taleban, who have been accused of training Chechen rebels. Lawmakers earlier had tried to down play YASTERZHEMBSKY's comments, saying the spokesman gave his own personal opinion. But YASTRZHEMBSKY responded that, "personal opinions are not expressed on such issues." Moscow's threat came after it obtained information that representatives of Chechen President Aslan MASKHADOV met with representatives of Saudi fugitive and suspected terrorist Osama BIN LADEN in Afghanistan and signed an accord on manpower, ammunition, and weapons. SERGEYEV said that such attacks could be viewed as a real possibility. He said, "In the current situation, the important thing is to show our resolve to conduct decisive actions against the bandits…If the relevant political decision is taken, the strikes would follow immediately." He stressed that only air strikes had been considered and not ground troops. Russian media last month reported that Head of Russia's Security Council Sergei IVANOV met with allies in Central Asia discussing possible military actions against BIN LADEN. Russia has long described its military actions in Chechnya as a campaign against terrorism. By linking high profile terrorist BIN LADEN to the rebels, Russia hopes to limit foreign criticism of the conflict.

On Tuesday, Taleban spokesman Abdul Kai MUTTMAIN countered that, "If they [Moscow] attack, we will defend ourselves and all Afghans will

Today's News Highlights


Inflation Forecast At 12 Percent

AvtoVAZ Offices Raided

Yukos To Enter Int'l Markets

European Republics

CST Nations Meet In Minsk

Surgut To Invest Minsk Refinery

Sweden To Fund Plant Closure

South Caucasus & Central Asia

60 Minutes Exposes Corruption

Tajik Media Chair man Murdered




May 24, 2000

Intercon's Daily

time, is denying allegations he took any bribes. Financial companies Forus Services and Andava are denying allegations they were involved in diverting hard currency from the Russian airline Aeroflot. Russian investigators suspect $600 million were smuggled. A former executive of the Bank of New York Lucy EDWARDS and her husband Peter BERLIN pleaded guilty in February for operating a money-laundering scheme in the US on behalf of Russian banks. Swiss authorities froze CHF26 million in bank accounts suspected of being linked to Russian businesses and individuals, who allegedly laundered billions of dollars through the Bank of New York. The Swiss statement said the investigators would meet again in Russia next year.

Seven Prosecutor Offices To Be Established

· Russia's Prosecutor General Vladimir USTINOV has ordered seven regional offices to be established in the administrative zones created by President Vladimir PUTIN. USTINOV said the new offices would give the Kremlin a powerful tool to bring in line regional governors whose policies are deemed to contradict federal law. Local prosecutors have demonstrated in the past their loyalty to the region's governor over the Kremlin. PUTIN has appointed special Kremlin enforcers to the new administrative zones to tighten Moscow's control over the regions. The President has argued that restoring strong federal control over regions is essential for fixing the moribund economy and ensuring equal rights for all. Five of the seven representatives are generals with the army, police, or intelligence services. The administrative zones coincide with the command structure of Russia's Interior Ministry troops.


Ruble = 28.3/$1.00 (NY rate)

Ruble = 28.3/$1.00 (CB rate)

Ruble = 25.73/1 euro (CB rate)

Russian Inflation Forecast

· Russian consumer price inflation will not exceed 12 percent this year, far below the 18 percent budget target and last year's 36.5 percent, Finance Minister Alexei KUDRIN said Tuesday. "According to our calculations, this year inflation will not be more than 12 percent, and for 2001 we are using 10 percent to 11 percent inflation in our preparatory

work." Official forecasts for 2000 inflation vary widely but have recently been close to 15 percent.

CB To Lower Refinancing Rate, Ruble Rate?

· Russia's Central Bank Chairman Viktor GERASHCHENKO said on Monday that the bank would consider lowering its key refinancing rate in June. He said, "Inflation is improving and the market situation is calm. It gives us reason to think about a further lowering of the refinancing rate." He declined to say by how much the rate would be cut. The Central Bank has already cut the rate twice in March: from 45 percent to 38 percent on March 7th and from 38 percent to 33 percent on March 21st. The government has said the rate might fall to 20 percent by the end of 2000.

On Tuesday, GERASHCHENKO said that the ruble should not be artificially lowered to help the government meet its budget obligations. The Central Bank Chairman instead believes that the ruble should be allowed to fluctuate smoothly. GERASHCHENKO was responding to a statement last week by Prime Minister Mikhail KASYANOV that a further strengthening of the ruble was not in the best interests of the economy. "I understand the position of KASYANOV, with his responsibility for the budget, but essentially to finance budget spending by artificially lowering the ruble is ineffective," he said.


AvtoVAZ Offices Raided By Tax Police

· Tax police on Tuesday raided the Moscow offices of Russia's leading carmaker, AvtoVAZ. A tax police spokesman noted that similar raids took place in 26 of Russia's 89 regions and that documents were seized in 42 of the company's regional outlets. Russian state-owned RTR Television showed tax police searching an AvtoVAZ office in Moscow, with one officer taking bundles of dollars out of a company official's briefcase. AvtoVAZ has previously denied allegations of tax evasion. Last year, AvtoVAZ, which is based in Togliatti in the Samara region in southern Russia, became the subject of police investigation, but a fire in Samara police headquarters in a February 1999, destroyed files related to the probe. An official investigation said negligence was the cause of the fire, which killed 67 people. AvtoVAZ, part owned by business tycoon Boris BEREZOVSKY, builds Lada and Niva

When you need to know it as it happens




May 24, 2000

Intercon's Daily

cars. For two years, the company has been in talks with General Motors (GM) to form a joint venture.

Gazprom Calls For More Foreign Ownership

· Russia's gas monopoly Gazprom has called on the government to raise the amount of shares, which investors abroad can hold. The government has set a ceiling of foreign ownership at 20 percent. Gazprom and the Russian government are examining a proposal to sell new American Depositary Receipts (ADRs) worth $2 billion over the next three years, based on the latest ADR price, to foreign investors. The company is seeking approval to sell 14.52 percent to raise foreign ownership to the 20 percent legal limit from a combined 5.48 percent stake now. "The program is supported by the management and board of directors, it will be finally approved by the company board," said Gazprom Deputy Chief Executive Sergei DUBININ. Gazprom is looking to sell more shares to foreign investors, as its equity traded abroad is more than double the price of domestic shares and it needs to raise cash for its projects, Bloomberg News reported. The government wants to sell Gazprom shares for a price higher than the value of its outstanding ADRs, which fell 0.86 percent on Monday, or 5 cents, to $5.78. The ADRs have lost about 50 percent since mid-January, when Gazprom's proposal for the sale was first reported. Gazprom also wants a government resolution that would allow domestic shareholders to sell a 5.13 percent stake to foreign banks. The gas company plans to organize a tender to select shareholders, which will sell their shares to foreign investors.

Yukos Hopes To Enter International Markets

· The head of Russia's second biggest oil producer Yukos, Mikhail KHODORKOVSKY, expects his company to start tapping international capital markets within the next three years. "We are reducing production costs, improve marketing and become more efficient. Are we doing this in order to tap sources of capital? Yes, but not tomorrow. In two to three years," Yukos chief executive Mikhail KHODORKOVSKY said. Investors have long been put off Yukos by fights over profits and controversial share issues, but the company's fortunes have been on the rise since it promised last year to play by Western rules. Yukos, which produced 895,000 barrels per day (bpd) of crude oil last year, plans to double investments this year to $350 million. The

company's shares closed down 5.4 percent at 18.250 on the Moscow stock market.

European Republics

CST Nations Meet In Minsk

· The presidents, foreign, and defense ministers of Russia, Belarus, Armenia, Kazakhstan, Kyrgyzstan and Tajikistan, members of the Collective Security Treaty (CST), Tuesday met in Minsk to discuss how to adapt post-communist military cooperation to perceived new threats from terrorism, Islamic extremism and drug and arms smuggling. Central Asian republics have been feeling especially vulnerable to the spread of radical Islam from Afghanistan. The talks are expected to end with the adoption of documents on boosting security ties. Belarus Foreign Minister Ural LATYPOV said, "It is vital to join forces to respond to new threats to collective security," Reuters reported. Vladimir ZEMSKY, General Secretary of the Collective Security Council linked to the 1992 pact, told the daily Sovietskaya Belarussia participants would adapt to new conditions _ "the intensification of international terrorism, the influx of drugs and arms trading and religious, ethnic and other extremism." He said some ex-Soviet states had been wrong to suspend participation in recent years on grounds that the treaty had failed to solve regional conflicts on former Soviet territory. He predicted they would now show renewed interest. Russian President Vladimir PUTIN said he was satisfied with the results of talks. "A mechanism has been worked out to make the Collective Security Treaty a viable instrument capable of reacting with the dynamically changing world," PUTIN said. "One can say without exaggeration that the treaty is directed into future."

Surgut To Invest In Belarus Refinery

· Surgutneftegaz, Russia's number three oil producer, is considering investing in an upgrade of the Naftan Refinery, Belarus' state-owned largest refinery. Surgut supplied 1.3 million tons of crude to Belarus through April, or about 32 percent of oil delivered from Russia in the first four months. Last year Surgut supplied 2.6 million tons of oil to Belarus. Mitsui & Co. Ltd., Japan's biggest company by sales, is also in talks with Belarus authorities to upgrade the Naftan Refinery to increase output of light petrol products.

When you need to know it as it happens



Wednesday Intercon's Daily May 24, 2000

aware that certain Cabinet ministers have been engaged in various smuggling operations, including oil, cigarettes, petroleum etc. The hope remains that they have made enough money and that these practices will now cease. However, many remain skeptical. While these operations and corrupt practices have not been linked directly to SHEVARDNADZE, they have been linked with relatives and Ministers. Georgian citizens are becoming weary of the difficult economic conditions as well as corruption and broken promises; they are now seeking real change after the recent elections. The Georgian "60 Minutes" program has been a force to expose the society to information on corrupt practices and the personalities involved.

One such investigative program has received a strong reaction. GOGICHAISHVILI allegedly revealed serious financial violations at the Writers' Union. The Chairman of the Writers' Union Tamaz TSIVTSIVADZE a close personal friend of President SHEVARDNADZE complained to the President that the accusations were untrue. SHEVARDNADZE responded by requesting a review of any information, which the government might possess. The intent was to assess the truth or falsity of the Rustavi-2 investigative report. Georgian Prosecutor General Jamal BABILASHVILI then claimed there was nothing to the story and supposedly even warned GOGICHAISHVILI to leave the country or risk being murdered. The mere request for information has put the President in a difficult situation. SHEVARDNADZE's request, along with the response of his Prosecutor General has been interpreted by some as smacking of interference with the free press.

This was further complicated by the open letter to SHEVARDNADZE in Dilis Gazeti, by TSIVTSIVADZE wrote on April 14th. In it, the head of the writers union claimed that a covert action plan was underway to destroy Georgia. This plan was being carried out with the witting or unwitting help of the young reformers in the Parliament and the media. TSIVTSIVADZE quotes from a known KGB document disinformation from the Soviet period, which refers to the political strategy of former Central Intelligence Agency (CIA) director Allan DULLES [DULLES political will] to destroy

Sweden Offers Lithuania Funds To Close Plant

· Swedish Prime Minister Goran PERSSON on Tuesday announced that Sweden will donate some 50 million crowns ($5.3 million) for the decommissioning of one of the two reactors at Lithuania's Soviet-built Ignalina nuclear power plant. Ignalina was built in the 1980s on the same design as Ukraine's disastrous Chernobyl plant. Its safety has been a cause of concern for Lithuania's Nordic neighbors and the European Union. Lithuania has promised to close the plant's first reactor by 2005 as long as the West helps finance the effort. It plans to host an international donor conference in June to raise additional funds. Sweden, for which environmental spending in the Baltic region is a priority, has already put some 400 million Swedish crowns into increasing the safety of Ignalina's reactors. The European Union has promised about 20 million euro a year to help finance the first five-year stage of decommissioning, which will cost an estimated $200 million, and as Denmark has committed 100 million Danish crowns ($13.5 million). Ignalina supplies almost 80 percent of Lithuania's electrical power making it one of the world's most nuclear-dependent countries.

South Caucasus & Central Asia

Georgian 60 Minutes Exposes Corruption

· A conflict between the Georgian Prosecutor General's office and the media has erupted after a series of sensational investigative reports were aired on the Rustavi_2's "60 Minutes" news television program. The author of the program Akaki GOGICHAISHVILI has lately prepared reports accusing certain high officials in the Georgian government, heads of the Union of Writers of Georgia, and Georgian President Eduard SHEVARD-NADZE's relatives of corrupt practices. The reports are very detailed, name names of corrupt individuals in and out of the government. It also outlines the connections between particular oligarchs and government officials. The program has attacked the new government of SHEVARDNADZE because of the failure to institute any significant changes. SHEVARDNADZE had pledged to root out corrupt officials from the government. So far some of those Cabinet Ministers, who are perceived as corrupt have remained in the new government. Georgian society is well




May 24, 2000

Intercon's Daily

the Soviet empire. TSIVTSIVADZE claims that this strategy was adopted by the US and West and is now being applied to Georgia. It promotes moral corruption inside the targeted government and society to destroy it. It is unclear how any government could actually carry this out. The DULLES forgery states, "Gradually, we will advocate corruption and lawlessness in the government bureau-cracy…Sincerity and decency will become useless and archaic traits of society…Hypocrisy, drug and alcohol addiction, animal fear of each other, nationalism, rivalry between the nations will prevail… all this will be artfully cultivated by us…Only the few will notice what's going on. We will manage to put them in unfavorable position…We will put our efforts to corrupt young generation and make spies and cosmopolites out of them." Critics are skeptical as to why the government would order an investigation of the Writers' Union. No other controversial "60 Minutes" reports were supposedly investigated. Now it appears that no actual investigation was ordered.

Members of the Student Self-Government Organizations staged a protest last week near Tbilisi State University to demand that the government refrain from putting pressure on Rustavi-2 Television and especially its journalist, Akaki GOGICHAISHVILI. Representatives of nearly 27 Non-Governmental Organizations (NGOs) took part in a protest on Monday demanding the resignations of Prosecutor General Jamal BABILASHVILI and his deputy Anzor BALUASHVILI. The two officials are accused of threatening GOGICHAISHVILI. BABILASHVILI has denied that his office threatened the journalist. Many in Georgia claim that the country needs a prosecutor general with integrity and who is independent of the oligarchs and any corrupt practices. For now, the pressure will focus on the prosecutor's office. The NGO demonstrators also demanded that SHEVARDNADZE make a personal announcement on the riff between the Prosecutor General's office, GOGICHAISHVILI, and the media. Presidential press secretary Kakha IMNADZE told Prime

News Agency that SHEVARDNADZE clearly announced his stand Saturday, supporting the initiative of a group of journalists on starting an independent journalistic investigation of the given issue. He added that the Georgian President's resolution is that "the freedom of speech and press is the main value of our state." Today, approximately 300 demonstrators in support of Rustavi-2 journalist GOGICHAISHVILI protested outside the Georgian State Chancellery. Participants demanded that SHEVARDNADZE dismiss BALUASHVILI.

One diplomat pointed out that if this disinformation campaign continues to fuel debate among Georgian society, it may manifest itself with violent actions. If forces are attempting to orchestrate such a strategy to either divide society or intimidate investigative efforts to expose corruption, then any violent actions against this new figurehead of reform and anti-corruption, GOGIVHAISHVILI, would be devastating. This may be the reason President SHEVARDNADZE has ordered protection for the journalist. Any action against GOGIVHAISHVILI would certainly create tremendous turmoil within the society and with Georgia's relations to the outside world.

Tajik Media Chairman Murdered

· Six gunmen dressed in camouflage uniforms opened fire with a submachine gun killing chairman of Tajikistan's State Radio and Television Committee Saifullo RAKHIMOV as he car neared his house Saturday night. Interior Minister Khumdin SHARIPOV said RAKHIMOV died from hits to the chest and head. SHARIPOV said, "We regard this as a contracted terrorist act." An investigation has been launched and law-enforcement agents worked late into the night at the crime scene gathering evidence and eyewitness accounts. RAKHIMOV was appointed chairman of the media committee two years ago. He also held membership in Tajikistan's Union of Writers and Union of Journalists. RAKHIMOV's relatives said he had received no threats prior to his death.

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

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When you need to know it as it happens