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, May 8, 2000

President said that he plans to keep a majority of the Cabinet. "I hope the core of the current government will be preserved and the overwhelming majority of those present will carry on their work," he said. "We will not fuss around, but aspire to stability in the government and stability in the country."

Kasyanov Chosen As Acting Prime Minister

· Russian President Vladimir PUTIN on Sunday, just shortly after the conclusion of his inauguration ceremony, named First Deputy Prime Minister and Finance Minister Mikhail KASYANOV as acting Prime Minister. KASYANOV has long been viewed as the most probable candidate for prime minister. The Russian State Duma still must approve his candidacy. KASYANOV was educated at the Moscow Automobile and Road College in 1983, majoring in construction engineering. He served in the army and worked at the Soviet State Planning Committee, first as an engineer, later as a senior economist, chief expert and section chief. He became deputy finance minister in 1995 and was named finance minister in May, 1999. KASYANOV is known in the West as a financial expert and foreign debt negotiator. He successful negotiated the restructuring of Soviet-era debt and billions of dollars in debt forgiveness. Western analysts believe that KASYANOV's appointment indicates that the PUTIN administration will likely stick to a reformist path. PUTIN promised to serve Russians hoping for a "better life and for a prosperous and strong Russia." Short on economic understanding, the

Russian Federation

Politics

President Putin To "Take Care of Russia"

· The first peaceful transfer of power from former president Boris YELTSIN to Vladimir PUTIN was completed on Sunday, as PUTIN placed his hand on Russia's Constitution and took the presidential oath of office. YELTSIN and former Soviet leader Mikhail GORBACHEV attended the ceremony to symbolize the continuity of leadership and their role in creating a democratic Russia. Nearly 1,500 people, mostly deputies, jurists and diplomats, witnessed the ceremony, while the rest of the nation watched the clockwork progression of events on television. No heads of state were invited to attend the ceremony. The inauguration took place in St. Andrew's Hall of the Kremlin, followed by a 30-gun cannon salute, a blessing from the patriarch, a review of military troops, and a wreath laying ceremony at the Tomb of the Unknown Solider.

PUTIN, who has described himself as a democrat and a capitalist, gave a short speech emphasizing that his main task as president will be to "Take care of Russia." He said, "The establishment of a democratic state is a process still far from completion…We must safeguard what has been achieved, maintain and develop democracy, ensure that the authorities elected by the people work in their interests, defend Russian citizens everywhere, both inside and outside our country and sever the society." PUTIN added, "We want our Russia to be a free, prosperous, rich, strong, and civilized country, a country of which its citizens are proud and which is respected in the world."

Following the inauguration, PUTIN went straight to work, holding a Cabinet meeting and appointing Mikhail KASYANOV as acting Prime Minister. The

Today's News Highlights

Russia

IMF To Visit Russia In May

Gazprom Not To Be Divided

Tyumen Obtains Gas Licenses

European Republics

Latvian Government Approved

Five Navy Cadets Murdered

Estonian Trade Deficit Widens

South Caucasus & Central Asia

Georgian Political Infighting

PACE Conference In Strasbourg

Politics-Economics-Business

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Monday

May 8, 2000

Intercon's Daily

President has hired a special commission to draft a national economic program, to be released this month. The commission is advocating revamping the tax system, reducing state bureaucracy, and enforcing bankruptcy laws.

Economy

Ruble = 28.36/$1.00 (NY rate)

Ruble = 28.38/$1.00 (CB rate)

Ruble = 25.47/1 euro (CB rate)

IMF To Visit Russia In May

· An International Monetary Fund (IMF) mission is expected to visit Russia later this month. Media chief Thomas DAWSON said it was premature to comment on a new IMF economic plan for Russia since a new government under President Vladimir PUTIN has yet to be formed. The IMF is forecasting Russian growth of 1.5 percent this year, well below Russian forecasts of approximately 4 percent. DAWSON gave no reason for the discrepancy, but said governments revised forecasts more often than the IMF did. He added, "We have been impressed with the macro-economic stabilization and growth which has, in a fairly consistent manner, exceeded expectations," Reuters reported. The IMF has not paid out any money to Russia since it suspended a loan program last year, due to Russia's failure to implement agree upon structural reforms. In the first four months of this year, Russia paid about $1.3 billion out of $3.6 billion due to be repaid in 2000. As of March 31^st, Russia owed the IMF $13.85 billion.

Business

Gazprom Not To Be Divided

· Russia's gas monopoly Gazprom board chairman Viktor CHERNOMYRDIN said there is no question of dividing the company into extraction and transportation operations in the future. CHERNOMYRDIN on Saturday said, "there was no crisis between Gazprom and the United Energy System of Russia". "These are usual, normal relations between their leaders. It is bad that these relations spilt over the whole country," he said.

UES To Adjust Reorganization Plan

· Unified Energy Systems of Russia's (UES) Chief Executive Officer Anatoly CHUBAIS an

nounced that the firm will change its reorganization plan to take into consideration minority shareholders' concerns. The original plan, presented in March, called for the state-controlled utility to spin off power generators from the company that handles distribution and operates the world's largest electricity grid. Investors have said they're concerned UES may sell stakes in power plants across the country at a high discount. They have asked the company for more specifics on how the reorganization would work. CHUBAIS did not outline detail on how UES would adjust its plan. Last month, UES said it will offer shareholders a variety of options to sell or exchange their shares before a planned reorganization. UES plans to raise as much as $60 billion for the reorganization and upgrades of power plants. The company said it expects its market value to eventually grow to $60 billion from the current $8 billion.

Tyumen Obtains Siberian Gas Licenses

· Tyumen Oil Co. (TNK) on Friday received two significant natural gas exploration licenses in Eastern Siberia for the blocks Khanda and Yuzhno-Ust-Ku from the Russian Ministry of Natural Resources Commission. The two fields are directly adjacent to the giant Kovykta field being developed by Rusia Petroleum, which is owned by a number of Russian and foreign companies including BP Amoco. Tyumen Oil president Simon KUKES said, "We hope to approach BP Amoco, which has a major stake in the adjacent field, about the possibility of a strategic cooperation agreement. Given the expected results, we think that it would be economically advantageous to both companies to coordinate exploration efforts." TNK was awarded the licenses, in part, because the company has fulfilled its obligations on other projects and is expected to do so with this venture. TNK expects to find significant deposits of natural gas in the Khanda and Yuzhno-Ust-Kut blocks as they have total natural gas reserves of 10 trillion cubic feet and some 135 million barrels of gas condensate, according to a company press release. The licenses allow for the drilling of exploration wells and to conduct seismic surveys over five years. The company recently secured a $500 million loan guarantee from the US Export-Import Bank to modernize the Ryazan refinery near Moscow and to rehabilitate the Samotlor oil field in Western Siberia.

When you need to know it as it happens

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European Republics

Latvian Parliament Approves New Government

· On Friday the Latvian parliament, in a vote of 69 to 24, approved a new center-right government led by Andris BERZINS. The new Prime Minister has pledged to maintain the Baltic state's pro-reform, pro-West course. In a speech to assembled deputies before the vote, BERZINS said he was committed to the market economic policies adhered to by all of Latvia's governments since the country regained independence. BERZINS said he will push for Latvian membership in the European Union and NATO. The coalition includes all the parties that made up the previous government: BERZINS' centrist Latvia's Way and People's Party, and the right-wing Fatherland and Freedom¾plus the small, centrist New Party. Combined they have 69 seats.

The vote was delayed after virtually all the deputies, and BERZINS, gathered around television sets outside the parliament hall to watch the final minutes of a world ice hockey championship game between Latvia and Russia. Latvia was the victor beating the Russians 3 to 2.

Ukrainian Navy Cadets Mysteriously Murdered

· Five 19-year-old naval cadets were stabbed to death and a sixth wounded at their student hostel in the Ukrainian Black Sea port of Odessa on Saturday. A duty officer told Reuters the bodies had been discovered early on Saturday in one room in the city-center hostel. "All of them were 19 years old and were stabbed to death, but we have no more details," the officer said.

Estonia's Trade Deficit Widens

· Estonia's trade deficit widened from February to March, even though exports were growing faster than imports over the month. The trade deficit totaled 1.5 billion kroons ($86.2 million) in March, up from a revised 1.4 billion kroons the previous month. For the first three months of the year, the country's deficit totaled 3.6 billion kroons, compared with 3.1 billion kroons in the same period a year earlier, the Statistical Office reported. In 1999, the March trade deficit totaled 1.5 billion kroons, while the February deficit totaled 1.1 billion kroons. The country exported 4.5 billion kroons in goods during March, up 21 percent from a month ago, while it imported 6

billion kroons in goods, up 17 percent, Bloomberg news reported. For the year so far, 11.6 billion kroons in goods have been exported, while 15.2 billion kroons in goods have been imported. Estonia's biggest export market and main source of imports in March was Finland, with 30.6 percent and 29 percent of the total respectively. Machinery and equipment led both exports and imports, with 35.1 percent and 37.4 percent of the total respectively.

South Caucasus & Central Asia

Post Election Power Play Fails In Georgia

· The Citizens' Union Party of Georgia (CUG) has fallen victim to political infighting over President Eduard SHEVARDNADZE's selection of Kakhetian Governor Giorgi ARSENISHVILI to serve as the new State Minister. The President chose to reject the candidacies of businessmen Levan GACHECHILADZE and David GAMKRELIDZE, proposed by former state minister and one of the leaders of the Citizens' Union Party Niko LEKIVASHILI. ARSENISHVILI has no ties to the quasi-oligarchs of Georgian business. He has even stated that he will not accept the position if those who represent big business remain in the government. LEKIVASHILI told the President that ARSENISHVILI's appointment would cause problems in the parliament. As predicted LEKIVASHILI moved with his young associates in the parliament, while parliamentary chairman and speaker Zurab ZHVANIA was attending the Council of Europe Parliamentary Assembly in Strasbourg. In ZHVANIA's absence, LEKIVASHILI orchestrated the following events. Without consultation of the Citizens' Union leadership of the parliament, who were in Strasbourg, Committee chairman for Health and Social Issues GAMKRELIDZE and Committee chairman of Economic policy and reforms GACHECHILADZE, who are newly elected former businessmen pushed deputies to sign the resolution. The resolution called for an investigation of the executive branch of government for failing to fulfill the 1999 state budget. Many legislators assumed that ZHVANIA supported this action. This was not correct. ZHVANIA was unaware of the proposed resolution. During the last parliamentary session, negotiations occurred over a four month period before a decision was made to establish a commission to investigate corruption.

When you need to know it as it happens

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Upon returning to Georgia, ZHVANIA met with SHEVARDNADZE on Sunday night. The President stressed that the investigation proposal was a "conspiracy" against the President and the state itself [and by implication the new State Minister ARSENISHVILI's nomination]. ZHVANIA then met with the parliamentary leadership of the CUG and accused the deputies of actions uncoordinated with the leadership of the parliament and counterproductive to Georgian interests. Deputies, some of which were very embarrassed to be caught up in such a political scandal, submitted their resignations to ZHVANIA.

Today, eight parliamentary committee chairs resigned as a result of tension created in the governing of the CUG party, Prime News Agency reported. Chairman of the parliamentary faction Citizens' Union Mikhail SAAKASHVILI denied reports of opposition inside the party. He predicted that several deputies would leave the faction. President SHEVARDNADZE stressed that the CUG had acted "untactfully." He stated that he President of Georgia is more responsible for the under-fulfillment of the budget, than the ministers.

This evening SHEVARDNADZE held a successful meeting with the CUG leadership and committee chairmen. ZHVANIA is weighing whether to accept the committee chairs' resignations, but it is unlikely that he will accept all of them. However, it cannot be ruled out that a few of those who actively participated in this without ZHVANIA's knowledge may in fact be relieved of their positions. ZHVANIA and SHEVARDNADZE have reached a resolution, which shows that this "conspiracy" was more of a total misunderstanding and manipulation than a true attack on the President and his government. Intercon sources report that a joint statement will be release Tuesday concerning this affair.

It is clear that this political maneuver has failed to split the CUG party in the parliament and with the President. It has also failed to derail the nomination of ARSENISHVILI as the new State Minister. While

many will describe these events as an attack against both SHEVARDNADZE and ZHVANIA, others will describe it as a political power play by those business and economic interests, who seek to continue their cozy position with certain influential forces in the government. One expert described this scandal as the power struggle between the influences of those who desire for business and corruption as usual verses those who seek to remove the conflict of interest in government service, which is required for Georgia to succeed as a nation. This will require a fight against corruption and those powerful economic interests, which seek to keep government interest week. Sources indicate that the leadership of the CUG complained that such a dramatic and political move is one of last resort and certainly not to be contemplated without discussion, first with the President and secondly with the entire CUG leadership team.

Desire To Join Council Of Europe Grows

· The Council of Europe's Parliamentary Assembly (PACE) met in Strasbourg on May 5^th to discuss regional cooperation. Parliamentary chairmen from Georgia, Azerbaijan, Armenia attended the conference. Armenian President Robert KOCHARYAN on Saturday expressed his nation's desire to join the Council of Europe. He said, "European values are the foundation on which we are building our state." PACE's representative, Michael SPINDELEGGER, after a visit to Armenia, stressed the importance of constitutional changes in the judicial and legal system of the country as its fights against corruption. He also met with Armenian Justice Minister David ARUTYUNYAN and Interior Minister Gaik ARUTYUNYAN.

In addition, Azeri Parliamentary speaker Murtuz ALESKEROV discussed his nation's membership desire. The Azerbaijan Newsletter said PACE representative Jacques BOMMEL said that Azerbaijan is ready to join the Council of Europe assessed Azerbaijan's efforts to build an independent and democratic European state as "very impressive."

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

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