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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

Monday, June 5, 2000

The US and Russian Presidents agreed to set up a joint missile-spotting center by fall of 2001. The center, to be located in a Moscow suburb, will help fill in the void of blind spots in Russian defenses caused by obsolete military satellites. CLINTON said, "This is terribly important. It is the first permanent US-Russian military cooperation ever. Russian and US officials will be working side-by-side 24 hours a day to monitor missile warning information. It is a milestone in enhancing strategic stability." The center would initially monitor launches from the US and Russia, but later could share information on launches by third parties aimed at the US or Russia. Russian and the US, however, did not announce any developments regarding the launch of negotiations for a START-III treaty. Washington also wants to negotiate with Russia under the START nuclear arms reduction treaties to cut atomic weapons. The two countries agreed to each dispose of 34 tons of nuclear-weapons-grade plutonium extracted from dismantled nuclear missiles. The pact represents about one-third of the US military plutonium stockpile and one-quarter of the Russian, enough for thousands of weapons. Russia will dispose of the plutonium by converting it into fuel for nuclear reactors, while the US will convert some and store the rest underground. The disposal process will be a 20-year effort, costing about $5.7 billion. The Russian program is estimated to cost more than $1.7 billion and the US program is estimated to cost $4 billion. The US and Russia said they will seek funding from other nations.

Russian Federation

Politics

Russia-US To Open Joint Missile Center

· US President Bill CLINTON and Russian President Vladimir PUTIN concluded a two-day summit late Sunday, which had been downplayed due to upcoming elections in the US. They had about six hours of talks covering arms control, Chechnya and the Russian economy. The two leaders agreed that there is an emerging missile threat from so-called rogue nations such as Iraq and North Korea, but failed to agree on how to tackle the problem. CLINTON said, "We have agreed to a statement of principles...that makes clear that there is an emerging ballistic missile threat that must be addressed. But we have not yet agreed on how best to do so." They ordered ministers and officials to work together on how they can narrow the two sides' differences. Later this summer, CLINTON will make a decision on whether to deploy a national missile defense system, which is prohibited by the 1972 Anti-Ballistic Missile (ABM) treaty. Russia has strongly opposed the development of this system, claiming it will instigate a new arms race. PUTIN would rather place defenses close to risky states to shoot down missiles as they are launched. He added, "We're against having a cure which is worse than the disease." US Secretary of State Madeleine ALBRIGHT said in a CNN interview that PUTIN's proposal could supplement, not replace the US-style system. The US believes its anti-missile shield will not undermine the balance of power. CLINTON and PUTIN agreed to leave open the possibility of amending the treaty. They affirmed the treaty could be amended in the future, "taking into account any changes in the international security environment." The two Presidents signed a declaration on strategic stability that agreed to resolve differences over how to best defend against rogue threats.

Today's News Highlights

Russia

Clinton Reviews Economic Plans

Svyazinvest Reorganization

European Republics

Clinton-Kuchma Toast Closure

LUKoil To Increase Supplies

Ukraine Bids On Tank Contract

Belarus CB Independent Again

South Caucasus & Central Asia

UN Military Observers Released

Tajik Regional Leader Killed

Politics-Economics-Business

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Monday

June 5, 2000

Intercon's Daily

PUTIN said he was pleased with the summit. "I have to say that the Russian side cannot fail to express its satisfaction with the spirit, the quality and also the results of our negotiations."

Russia Seizes Human Rights Report

· Russian customs officials last week seized an Amnesty International report detailing allegations of human rights abuses by Russian forces in Chechnya. The confiscation of the report at Moscow's Sheremetyevo airport, "sets a dangerous precedent which brings to mind old Soviet practices," Amnesty International said in a statement. Officials at Sheremetyevo could not immediately be reached. Amnesty said researcher Marina KATZAROVA arrived in Russia and was on her way to a human rights conference in Vladikavkaz at the invitation of the Russian government. Two cardboard boxes containing copies of the report, to have been distributed at the conference, were halted by customs officers. The Associated Press reported that the material appeared to be "anti-Russian government propaganda" and that the rights group might use the report for commercial purposes. Human rights groups have accused Russian forces fighting separatist rebels in Chechnya of widespread human rights violations against the civilian population, including looting and summary execution. The Kremlin denies allegations of systematic human rights abuses and insists that the heavy bombing and shelling of Chechnya, in which many civilians have died, was needed to wipe out secessionist rebels.

Economy

Ruble = 28.34/$1.00 (NY rate)

Ruble = 28.30/$1.00 (CB rate)

Ruble = 26.83/1 euro (CB rate)

Clinton Reviews Russia's Economic Plans

· US President Bill CLINTON on Sunday said that Russian President Vladimir PUTIN's economic plans and team of advisors were encouraging signs that Russia could stage a sustained economic recovery. "I am encouraged by the economic plan President PUTIN has outlined and by the current recovery, and we look forward to Russia continuing to implement those reforms which will actually make the recovery last," CLINTON said. PUTIN has organized a team of pro-market reformers to shape

the country's economic plan. CLINTON said, "This is a good economic team with a very good opportunity to increase investment in Russia." He urged Russia to attract foreign investment instead of depending on international financial aid. Russia has borrowed billions of dollars from international financial institutions such as the International Monetary Fund (IMF) in the past although the latest IMF loan program has been on hold since last year. He also encouraged Russia to diversify its economy instead of depending only on revenues from high oil prices. Russia's economy is grossly over-dependent on raw materials, with exports of oil, gas and metals accounting for some 75 percent of hard currency export earnings. CLINTON added that Russia should also press on with the fight against crime and corruption, endemic in many areas of Russian life. He said that Russia should pass laws against money laundering, for the protection of property, and a for new equitable tax code.

Business

Svyazinvest To Present Reorganization Plan

· Svyazinvest, a holding company for Russia's telephone operators, has begun to consolidate over 80 regional operators into seven or eight companies to attract billions of dollars of investment, The Wall Street Journal reported. Vadim BELOV, deputy general director of Svyazinvest, said a formal restructuring plan would be presented to shareholders by consultants Arthur Andersen LLC and Commerzbank on June 26^th. Svyazinvest General Director Valeri YASHIN said, "We have several plans under consideration. One option is cross-regional consolidation of companies into seven regional operators, and that process has already begun." Analysts welcomed the restructuring as an attempt to transform the outdated Soviet era network into a competitive industry, although they cautioned that the size of the task and the number of competing interests could complicate the process. Russia's public communications were privatized into too many small operators unable to raise funds for investment. Telekom Invest, a St. Petersburg-based group of 30 telecommunications companies in northwest Russia, said last week its 1999 profit fell 70 percent to $11 million, as the country's economic collapse in 1998 continued to takes its toll on telecom sales. New economic growth is

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	Monday		June 5, 2000
	Intercon's Daily
	raising hopes that 2000 will bring in a record number of sales. The Russian Telecommunications Ministry said the telecom industry needs about $20 billion in investment over the next few years. Most To Invest In Israel's Bezeq International · Bezeq International, the long-distance calling unit of Israel's state-owned phone company, said Russia's Most Group and Ma'ariv Holdings Ltd. will invest $36 million in its Internet division, aiming to create the country's largest on-line services and media company. Most, which controls Russia's NTV Television, and newspaper publisher Ma'ariv will control 42 percent of Israel's third Internet access provider, which will become an independent company. The venture will bid about $30 million for Walla! Communications Ltd., a Hebrew Internet search engine, by swapping shares representing a 20 percent stake in itself. The new company, not yet named, would challenge MSN-Israel, an online venture between Israeli access provider Internet Gold Ltd. and Microsoft Corp. A merger with Walla! will give the new venture the brand name of one of Israel's most well-known Web sites.	dence on Russia. He is also expected to announce a program of small- and medium-sized business development, a new tax treaty and financial assistance to help close Chernobyl. Under CLINTON, Ukraine has become the third largest borrower form the International Monetary Fund (IMF) and World Bank, as well as the third biggest recipient of US direct foreign aid. The CLINTON administration has stressed that Ukraine must prohibit top business oligarchs from control the economy and influencing the nation's policy makers. The US has given KUCHMA a list of oligarchs, advising him not to let them anywhere near policymaking. Ahead of his tour, CLINTON said, "I would very much like to find out what successes have been achieved in the fight against corruption in Ukraine," the Financial Times reported. CLINTON's visit come on the heals of an audit of Ukraine's Central Bank issued by the IMF to investigate whether the bank inflated its reserves to gain loans. This was proven to be the case. The Fund noted that it would not have granted loans to Ukraine, if the correct information had been presented. In addition, the US last week charged Ukraine's former prime minister Pavlo LAZARENKO on seven counts of money laundering, one count of conspiracy to commit money laundering, and 23 counts of transporting stolen property. LUKoil To Increase Supplies To Ukraine · LUKoil, Russia's top oil producer, plans to increase crude oil supplies soon to its Ukrainian refining subsidiary, Odeskiy Naftopeperobnyi Zavod, according to LUKoil President Vagit ALEKPEROV. LUKoil, which reportedly controls between 80 percent and 90 percent of the refinery, said last month it planned to refine about 150,000 tons of oil a month at the refinery beginning in June. During his visit to Ukraine in late May, ALEKPEROV confirmed Vladimir GAFNER as the refinery's new head. Ukraine depends on oil and oil products supplies from abroad for more than 80 percent of its overall needs and most of the country's refineries are suffering from insufficient oil supplies. Ukraine Bids For Tank Contract · Ukraine has designed a new version of its T-84 main battle tank, which may raise its chances of winning a $2 billion tender for rights to sell 1,000
	European Republics Clinton-Kuchma Announce Chernobyl Closure · US President Bill CLINTON arrived at Ukraine's Boryspil Airport outside the capital Kiev today, the final stop on his one-week European tour. He encouraged Ukraine to forge closer ties with Europe. CLINTON and Ukrainian President Leonid KUCHMA made a champagne toast after announcing that the Chernobyl nuclear power plant will be closed for good in December. Chernobyl was the site of the world's worst civil nuclear disaster in 1986. The European Bank for Reconstruction and Development is considering a $170 million loan, part of $1.7 billion in proposed financing to complete the construction of two new nuclear plants. The visit is seen as a demonstration of a "strategic partnership" between the US and Ukraine. The two countries are expected to sign a memorandum for assistance in tackling consequences of natural and man-made disasters, tackling corruption and organized crime, cooperation in science and technology, and agreements regulating aviation and maritime shipping. CLINTON plans to discuss Ukraine' economic program and its efforts to cut its depen


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Monday

June 5, 2000

Intercon's Daily

tanks to Turkey. The head of the Morozov tank design bureau in Kharkiv said this "totally new" version of the T-84 had been sent to Turkey in late May, with the aim of participating in the final stage of tests during the tender. Yuri BYSYAK said the tank had been armed with a new automatic loading device, a 120-millimeter cannon compatible with NATO standards and a 1,200 horse-power engine, equipped with "brand new" electronic components designed in Ukraine. Officials say the T-84 tank, which has already successfully passed the first stage of the tender, will face tough competition from manufacturers in Germany, the US and France. BYSYAK said the Ukrainian tank was no worse than its competitors and that at this stage there were no obvious leaders or outsiders. The final stage of the tender, shooting tests, started on June 1^st. Ukrainian officials say the tank's relatively low price is another asset, but have declined to give concrete figures.

Belarus Boosts Independence Of CB

· Belarus President Alexander LUKA-SHENKO has reversed his decision to subordinate the central bank to the government. Many believe that this decision, made public on Friday, was the result of pressure from international financial institutions. Belarus' constitution establishes the Central Bank as an independent institution defining the country's credit and monetary policies. But in April 1998, following the collapse of the Belarus ruble, LUKASHENKO ordered the bank subordinated to the government, one of a number of decisions on economic policy which drew criticism from foreign economists. Central Bank officials hailed LUKASHENKO's new decision to free the bank. "It is connected to work on the new banking code and was recommended by international financial bodies," Anatoly DROZDOV, head of the bank's information department, told Reuters. The Central Bank has pledged to tighten policies this year and to replace multiple rates of the Belarus ruble with a unified one.

South Caucasus & Central Asia

UN Military Observers Released Unharmed

· The four UN military observers, who were kidnapped on Thursday in the Kodori Gorge, were released unharmed on Monday. The four included two Danish UN officers, a Briton who works for the Halo [Yellow] Trust anti-landmine charity, and a local interpreter. Georgy LEONIDZE of Georgia's National Security Council said, "They all were freed unconditionally." After one of the hostages, an Abkhaz guide, was released on Saturday, the kidnappers issued a demand for a ransom of $300,000. The captors contacted Tbilisi-based Rustavi-2 Television network Sunday to make their claim known to UN officials. Georgian President Eduard SHEVARDNADZE and the leader of unrecognized republic of Abkhazia Vladislav ARDZINBA discussed the issue on Saturday by telephone. The two developed a plan for joint Georgian-Abkhazian searches. Political secretary of the UN military observers mission in Georgia Veselin KOSTOV told Prime News Agency, the hostages were released and transported to Sukhumi. According to the British hostage, the kidnappers were members of a criminal element operating in the Saventi region of Georgia. The hostage taking was a repeat of an incident last October, when gunmen seized six UN observers and their local translator in the same region. In that incident, the hostage takers demanded a $200,000 ransom or they would shoot the military observers. They later released the hostages without conditions. The 100-strong UN contingent watches over a ceasefire between Georgian and Abkhazian forces.

Tajik Regional Official Killed In Ambush

· Unidentified gunmen killed Sirazhutdin DAVLATOV, chairman of Tajikistan's Garm district, his driver, and another passenger in an ambush. The car, which was heading for Garm from Dushanbe, came under fire from several points, according to the Interior Ministry. The Interior Ministry said it is considering the attack a terrorist act.

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

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