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, May 9, 2000

Russian Federation

Politics

Russia Celebrates 55^th Anniversary of WWII

· Russia's newly inaugurated President Vladimir PUTIN, his predecessor Boris YELTSIN, Defense Minister Igor SERGEYEV and former Soviet leader Mikhail GORBACHEV standing on a podium at the doors of the mausoleum reviewed the military parade in Red Square to mark the 55th anniversary of the end of World War II. PUTIN, who has pledged to return national pride and honor to Russia's military, reinstated the Soviet-era tradition of large military parades, which were held today in almost all Russian major cities. About 6, 000 servicemen and veterans of the Great Patriotic War, including veterans from Commonwealth of Independent State (CIS) countries and the Baltic republics, took part in the Victory Parade in Moscow. Ahead of each marching column, the banners of the fronts, used during the Victory Parade in the Red Square in 1945, were carried. In contrast to the Soviet parades, no tanks or cruise missiles on lorries trundled across Red Square; a rebuilt church blocks its entrance. Addressing the troops participating in the military parade, PUTIN congratulated all Russian citizens, particularly servicemen and veteran soldiers. The President said, "Years will pass, but the memory of the Great Patriotic War will continue to inspire all those living, and give a warning to those who have chosen terror and violence as their main weapon." He added, "Our people have gone through many wars. We therefore know the price of peace. We know that peace means¾above all, a strong economy and well-being of the people¾the basic components of Russia's internal and external strength, and of its defense capability and security. We shall pass this main military secret over to our children."

SU-24MR Missing, Rebels Issue New Threat

· The Russian Air Force is uncertain of the whereabouts of a military Su-24MR plane that went missing during reconnaissance a mission over Chechnya on Sunday. The fate of the crew of the Su-24MR is still unknown. A search for the plane and its crew is underway despite bad weather conditions. The Russian military is declining to disclose the area where the plane disappeared, claiming it would complicate the search and rescue effort. Commanders are beginning to consider whether Chechen rebels shot down the aircraft. Chechens claim the plane had been bombing the villages of Zhanni-Vedeno and Belgatoi in the southern mountains and was downed by a shoulder-fired Igla anti-aircraft missile. The Chechen rebel website displayed pictures of fighters holding up pieces of the plane. The picture's authenticity has yet to be determined.

Su-24 bombers and Su-25 attack planes flew 16 combat missions on Sunday, attacking rebel targets in southern and southeastern Chechnya, mainly in southern parts of Argun and Vedeno gorges. Russian forces claimed Monday to have killed 20 Chechen guerrillas in artillery and air strikes on rebel bases. Russian forces have boosted security around major cities and inside Chechnya today, fearing serious rebel attacks would coincide with the 55th anniversary of the end of World War II celebrations. Despite claims that Russia controls more than two-third of Chechnya,

Today's News Highlights

Russia

Fitch Raises Eurobond Rating

Zhirinovsky 's Computer Warfare

European Republics

Yushchenko Visits US

Where Are The Critics?

South Caucasus & Central Asia

CUG Meeting Satisfies President

Azeri Police Break-Up Protestors

OKIOC To Drill Further

Tajik Accident Kills Guards

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May 9, 2000

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rebels continue to break through federal troops' lines and inflict harm through successful ambush attacks.

Rebel warlord Shamil BASAYEV issued a new threat today, claiming that rebels would spread the war into other regions of southern Russian, if federal troops were not withdrawn by the end of the month. The rebel website quotes BASAYEV as saying, "We will declare jihad [holy war] across the whole of the Caucasus, everywhere where the `aggressor' is." Meanwhile, Russia's Chechnya commander Colonel-General Gennady TROSHEV appealed to the rebels to lay down their arms under a government amnesty, which runs out on May 15^th. "People are tired of war, they want peace and a normal life, therefore take advantage of the amnesty…Take a sober look at the situation, consider your actions and lay down your arms."

Economy

Ruble = 28.36/$1.00 (NY rate)

Ruble = 28.38/$1.00 (CB rate)

Ruble = 25.73/1 euro (CB rate)

Fitch Raises International Bond Ratings

· Fitch, IBCA, the international rating agency, on Monday raised Russia's credit rating for international bonds from CCC to B minus, with a positive outlook. This is the first upgrade since the election of Vladimir PUTIN as President. Analysts believe this reflects an improving fiscal performance and an increase in foreign exchange reserves. The Financial Times reported that the agency said, "The risk of default on Russian Federation Eurobonds has diminished significantly over the past 18 months on the back of economic recovery, rising foreign exchange reserves, and progress towards regularizing relations with creditors." The Fitch rating is in line with similar rating agencies such as Moody's and Standards & Poor's. The Russian economy is estimated to have grown at a rate of 6.8 percent in the year to the end of March.

Fitch noted that the transfer of power from Boris YELTSIN to PUTIN, "is likely to herald a period of domestic political stability." The ratings agency also welcomed the appointment of Mikhail KASYANOV as acting prime minister, which the Russian State Duma is expected to approve later

this week. The agency warned, "Russia's public finances and balance of payments remain fragile and vulnerable to domestic and external shocks. Until the severe institutional and structural deficiencies that bedevil the Russian economy are addressed, investing in...Russian assets will remain subject to very considerable credit risk."

Business

Surgut Shareholders Approve New Stock Swap

· Surgutneftegaz, Russia's third largest oil producer, said shareholders approved changes to the company's charter, allowing it to begin swapping $3.6 billion of new stock to take over its parent Surgutneftegaz Oil Company. Surgut plans to issue 12 billion new shares this week, swapping 1,000 for each of the parent's common shares. It also will exchange 300 new shares for each of the parent's preferred shares, Bloomberg News reported. Shareholders of the parent company also voted to change its charter, pay a dividend of 20 rubles per share, and name seven members to its board. Surgut reported that in the first-quarter net income rose almost six- fold to 19.6 billion rubles ($691.1 million) from 3.4 billion rubles last year. Revenue rose to 37.4 billion rubles from 11.3 billion rubles in the first quarter of 1999. Both Surgut and its parent company said their boards will review an agreement that would allow the oil producer to use the parent company's shares held in the subsidiary as "strategic stock." Surgut plans to use the stock to acquire other companies or assets. Surgut's crude production rose 9.8 percent to 9.8 million tons in the first quarter. Over the same period, the company's gas production increased by 7 percent to 2.9 billion cubic meters of gas.

Tuesday Tid-Bit

Out With Bond; In With Computer Warfare

· Ultra nationalist Vladimir ZHIRINOVSKY today touted computer viruses as Russia's latest weapon against the West. He said a computer virus could be a useful tool for Russian foreign policy. "The era of detective stories and James BOND has long been over. Now there is a different era¾the era of computers and the Internet. And we can bring the entire West to its knees with our Russian computer specialists. Let us put viruses into their secret programs like we did recently, and they will not be

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able to do anything," Kommersant Daily reported. He added, "we must track computer viruses more. Thanks to us, the West will soon suffer enormous losses."

MERS and Trade Representative Charlene BARSHEFSKY. One administration official said, "We firmly believe he represents the best chance Ukraine has had since independence." YUSHCHENKO has even been labeled in the Ukrainian press as "Washington's man." CLINTON is due to visit Ukraine on June 6^th.

Where Have All The Critics Gone?

· The US State Department on Monday once again urged Belarus to account for the mysterious disappearance of three outspoken critics of President Alexander LUKASHENKO, Reuters reported. US State Department spokesman Richard BOUCHER said former interior minister General Yuri ZAKHARENKO vanished while walking home on May 7, 1999. He has not been heard from since. He resigned from his post in 1995 to protest the abuses of LUKASHENKO's "dictatorial rule." In September, Belarus opposition leader Viktor GONCHAR, the deputy speaker of a parliament disbanded by LUKASHENKO, and his associate Yuri KRASOVSKY also disappeared mysteriously. GONCHAR disappeared after calling his wife on his way home. BOUCHER said, "The United States again urges the Belarus authorities to account for the disappeared and assures the ZAKHARENKO, GONCHAR and KRASOVSKY families that they and their loved ones are not forgotten."

South Caucasus & Central Asia

Shevardnadze Satisfied With CUG Meeting

· Georgian President Eduard SHEVARDNADZE said he was satisfied with the results of the 3-hour meeting Monday night with the leaders of the Citizens' Union of Georgia (CUG), which hold a parliamentary majority. The basis for the talks was the political infighting in the CUG. Part of the CUG led by Niko LEKIVASHILI is reported to be responsible for a resolution calling for an investigation into the executive branch for failing to fulfill the 1999 state budget. Many deputies followed LEKIVASHILI and his close associates, Committee chairman for Health and Social Issues David GAMRELIDZE and Committee Chairman of Economic Policy and Reforms Levan GACHECHILADZE, on the belief that the chairman of the parliament Zurab ZHVANIA also supported the resolution. This was not the case. Eight chairmen of parliamentary committees

European Republics

Yushchenko Seeks Support In US

· Ukrainian's Prime Minister Viktor YU-SHCHENKO is visiting Washington this week to bolster his nation's financial reputation after damaging audit reports. A PricewaterhouseCoopers audit conducted on behalf of the International Monetary Fund (IMF) shows that the Ukrainian Central Bank misled the Fund on the amount of the nation's foreign reserves by $713 million in 1997. YUSHCHENKO, at the time of the misrepresentation, was chairman of the Central Bank. YUSHCENKO said that he will tell Washington officials that the false reports were accounting errors not deliberate lies. "I think the first task for today is to draw a clear-cut watershed between the past, to which the issues of the audit belong, and the present." He wants to convince the IMF that Ukraine made an honest mistake to avoid returning the loan funds immediately. However, YUSHCHENKO said Ukraine will return the $200 million it received based on the misleading information if the IMF makes it a condition for resuming loans under a stalled $2.6 billion program. Ukraine is ready to do whatever it takes to get, "the renewal of the cooperation" with the IMF, YUSHCHENKO stressed. The IMF executive board has yet to determine how it will punish Ukraine. The Prime Minister is hoping that the Fund will take his arguments into consideration.

Ahead of his visit, Ukraine`s government has rushed to pass economic reforms. It has annulled 259 decisions by the previous Cabinet on special tax privileges and benefits, drafted a new tax code, banned payment of taxes in barter, pledged again to cut out bureaucratic fat _ trimming the work force by 300,000. YUSHCHENKO said, "We have made great strides in budget, fiscal, and structural issues. I am convinced that Ukraine is now a different country than it was." YUSHCHENKO will meet with IMF Managing Director Horst KOEHLER, US President Bill CLINTON, Secretary of State Madeleine ALBRIGHT, National Security Adviser Sandy BERGER, Treasury Secretary Lawrence SUM

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submitted their resignation at Monday's session. ZHVANIA has yet to determine which resignations he will accept or reject. Intercon sources report, however, that he will accept the resignation of those responsible including GAMRELIDZE and GACHECHILADZE. SHEVARDNADZE stated that the opposition in the CUG was caused, "by the lack of necessary experience" of the certain members of the governing party," Prime News Agency reported.

Azeri Police Disband Opposition Protestors

· Azeri police dispersed a small group of protestors and detained nine members of the opposition party on Monday. Opposition members were arrested for holding an unsanctioned protest and were released after their fines were paid. The protestors were expressing their indignation over the arrest of opposition figures on April 29^th. During that protest more than 40 demonstrators clashed with police. Among the detainees are former Prime Minister Panakh HUSEINOV, of opposition party The Peoples Party, and Arif GADJIEV, of another opposition group, Musavat. In addition, tax officials have shut down a magazine, which regularly criticized the government of President Geidar ALIYEV. Interfax quoted the editor of the Monitor Weekly magazine as saying the reason for the suspension in its work was political rather than due to tax violations. Opposition members are seeking greater representation on an electoral commission, which will oversee the upcoming parliamentary poll. Officials have dismissed allegations the poll will be rigged in favor of ALIYEV's New Azerbaijan Party.

OKIOC Tests Kashagan A Second Time

· Caspian Sea oil drilling partners in the Offshore Kazakhstan International Operating Company (OKIOC) on Friday agreed that they will deepen the existing Kashagan East exploration well and test it again. Earlier results proved inconclusive. OKIOC said it is, "too early to conclude whether the indications of hydrocarbons encountered so far represent a discovery." OKIOC and the Kazakh govern

ment said the project had now reached its target depth of 4,500 meters. OKIOC had originally planned to explore the deeper section of the Kashagan structure from Kashagan West, a location some 40 kilometers away on the 100-kilometer long structure. Initial seismic tests showed possible hydrocarbon reserves of about 4 billion tons, making the OKIOC project the largest offshore exploration effort in the world. Optimistic analysts predict that the reserve could hold as much as 20 billion barrels of recoverable oil. Neighboring nations and investors have been quick to show interest in transporting these possible reserves. Russia, Iran, and Azerbaijan, as well as the US, have already begun to lobby the Kazakh government on obtaining its reserves for their pipelines. Iran is pushing a North-South route to the gulf; Russia plans to propose transporting oil on the Tengiz-Novorossiisk pipeline to be completed in 2001; while Azerbaijan and the US are seeking oil for the Baku-Ceyhan route. US advisor for the Caspian region Jan KALICKI said Kashagan, "could be a big plus for…the east-west transportation system that we've been advising."

Swiss Firms To Boost Kazakh Zinc Output

· The head of a Swiss mining company says Kazakhstan's Kaztsink Zinc operation will increase production capacity by 16 percent to 280,000 tons per year by the end of 2000. Willi STROTHOTTE, head of Glencore International made the announcement at a news conference Friday after a meeting with Kazakh President Nursultan NAZARBAYEV,. The meeting focused on the completion of construction at the Maleyevsky mine, which belongs to Kaztsink. Glencore holds a controlling stake in Kaztsink through Kazastur Zinc.

Tajik Accident Kills Presidential Guards

· A traffic accident killed six members of the presidential guard from Tajikistan on Sunday. A military truck carrying new recruits crashed near a training camp about 40 km (25 miles) south of Dushanbe. An investigation had begun into the accident, in which 23 soldiers were also injured.

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

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