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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, July 26, 2000

Russian Federation


Governors Vote For Removal From FC

· In a vote of 119 to 18 with four abstentions, the governors in the Russian Federation Council reluctantly voted to approve a bill that would remove them from the parliament. The bill proposed by Russian President Vladimir PUTIN aims to centralize power. The President argues that more central control over the regions is needed to fix Russia's economic problems, and to stop what he calls disregard for federal laws in some of the provinces. Critics say PUTIN is consolidating too many powers. The Federation Council debated the issue ahead of the vote. Nikolai FYODOROV, governor of Chuvashia region in central Russia and a bitter opponent of the measure, warned of a new era of central authority but was more restrained than usual. "Such a disproportionate concentration of power in a single person's hands, such a destruction of the system of checks and balances, is very dangerous for democracy and for the face of parliamentarism…The atmosphere in our society is such that the will of the emperor, or that of the president, is tantamount to law," he told members. "A Kremlin official's opinion is more important than the Federation Council's constitutional position." However, other governors such as Alexander SURIKOV of Altai region resigned themselves to their defeat. He said, " Whether we reject this or not, the bill will come into law even if it means overriding our veto." The Russian State Duma has already overridden the regional leaders' veto of a second bill allowing PUTIN to sack governors and dissolve local assemblies if they break laws. The lower house had already secured enough votes to override today's vote, if it had been necessary.

A compromise was reached by a commission of

both houses, which allows governors to stay in the Federation Council for the length of their terms¾up to a deadline of January 2002. It also allowed them to appoint and sack their own representatives to sit in their place in the upper house.

Russia To Open Contacts With Chechen Rebels

· General Vladimir BOKOVIKOV, the Kremlin's deputy representative in southern Russia, on Monday said he was prepared to open direct contact with elected Chechen President Aslan MASKHADOV and meet with him personally, if necessary, Reuters reported. The Kremlin, however, stated that talks would only focus on the immediate rebel surrender. "I think MASKHADOV is not completely lost, therefore I call on him to show sense," Interfax quoted BOKOVIKOV as saying. "On both sides the best sons of the nation are dying, who are in the end all citizens of Russia and equally dear to her." Russia says about 2,500 of its soldiers have died in the fighting. The Russian General built a personal relationship with MASKHADOV, when he served as MASKHADOV's commander in the Soviet armed forces before Chechnya declared its independence.

The Kremlin played down the comments. Konstantin MAKEYEV, deputy to Russia's chief Chechnya spokesman Sergei YASTRZHEMBSKY, told Reuters, "The policy of the federal center is not to hold talks with terrorists. MASKHADOV is a wanted man. I think he [BOKOVIKOV] meant to say that

Today's News Highlights


Tax Packaged Debated In FC

Interior To Probe Privatizations

European Republics

Belarus Opp. Threaten Election

WB Grants Loan To Lithuania

South Caucasus & Central Asia

Black Sea Force Opens Meeting

Itera Announces Projects

Azeri Opp. Threaten Election

US- Azeri Statement




July 26, 2000

Intercon's Daily

he would use his personal contacts with MASKHADOV¾he has good relations with him as his former commander¾to discuss his capitulation," MAKEYEV said.


Ruble = 27.65/$1.00 (NY rate)

Ruble = 27.65/$1.00 (CB rate)

Ruble = 26.05/1 euro (CB rate)

Tax Reform Program Up For Crucial Vote

· Russia's Federation Council is due today to vote on a major tax packaged proposed by Russian President Vladimir PUTIN, which includes a 13 percent flat income tax. The budget committee of the Federation Council recommended that the regional bosses accept the main tax laws, but reject the "implementation bill," a separate piece of legislation required for putting the changes into effect. The last document contains some contentious measures ¾including the eventual scrapping of a four percent tax on companies' turnover, now collected and spent in many regions. One of the effects of the tax overhaul would be to centralize collection and distribution of tax revenues that previously were left to the regional governors to control. PUTIN has pressed his advantage in securing approval of legislation to reduce the political rights of regional bosses. However, the Federation Council has a chance to seriously challenge PUTIN's reform program by not passing the tax package. PUTIN's envoy to the upper house Vyacheslav KHISHNYAKOV, said the government may have to call an emergency session of the Russian State Duma, the second this summer, to address the problem. The packaged passed with a narrow margin in the Duma, failing to secure enough votes to overturn a Federation Council veto.

Western investors, international lenders and Russian businessmen have all maintained for years that radical tax reform is needed to jumpstart Russia's economy. Finance Minister Alexei KUDRIN said on Tuesday he remains hopeful. "We hope to convince the governors tomorrow. I see arguments, which could convince them in direct conversations. I will meet them again today. No one has strong feelings against the tax code, as a serious step towards improving the situation in the country and reducing the tax burden for the real sector. But I am

still cautious as each governor answers to his region," he said.


Interior Min. To Investigate Privatization Sales

· General Nikolai NINO, the deputy head of the economic crime unit of the Interior Ministry, said it will investigate any privatization sale of Russian state-owned enterprises, which may have harmed the state. He said, "If the interests of the state suffered during privatization we must investigate and the damage must be restored." NINO added, "there is no talks of redistribution of property, [but] the investigation of certain crimes must be completed," the Financial Times reported. He said the investigations were part of a program for the "decriminalization of the Russian economy." NINO's division's investigations begin just days before Russian President Vladimir PUTIN is scheduled to meet with some of Russia's top businessmen.

Kudryavy Calls UES Vote Irregular

· Russian Deputy Fuel and Energy Minister Viktor KUDRYAVY said he suspects there were irregularities in a shareholder vote at Unified Energy Systems (UES), the country's power monopoly, in June, Kommersant Daily reported. KUDRAVY said that judging by the results of the vote to elect the UES board, confidentiality rules were broken. KUDRAVY wrote a letter to Igor KOSTIKOV, chairman of Russia's Federal Securities Commission, asking him to investigate. He said a number of candidates for the board received exactly the same percentage of votes — the minimum required to get elected, the paper said. Among candidates elected to the board were UES Chief Executive Officer Anatoly CHUBAIS.

Rus-Iran To Build Light Trucks

· Iranian and Russian car-makers have reached a preliminary agreement to build and launch a production line to manufacture the Gazel light truck in Iran. "Low cost, simplicity in assembling and ability to use the vehicle as a truck, a minibus and an ambulance car as well as its probable success in the regional market are the advantages, which made the signing of the contract possible," Jabar SADEGI, a representative of the Havar Industrial Group, an Iranian company seeking a license, said on Monday. He said the contract had been dis

When you need to know it as it happens




July 26, 2000

Intercon's Daily

cussed during the company's visit to Moscow of an economic delegation from the Iranian province of East Azerbaijan. "The target capacity of the production line during the first year of operation is 10,000 vehicles. Forty percent of the spare parts will be manufactured at local enterprises," SADEGI said.

staged a 1996 referendum, which led to him disbanding parliament, expanding his powers and extending his term in office.

WB Approves SAL II Loan For Lithuania

· The World Bank today approved a $98.5 million Second Structural Adjustment Loan (SAL II) to support the Government of Lithuania's reform program, which aims to reduce poverty by putting the economy on a path of rapid and sustainable growth in a setting of macro—financial stability. The loan's main goals are to restore growth, reduce the vulnerability growing out of high and variable twin deficits, limit immediate and longer-term poverty, and ensure smoother integration into the European Union (EU). Enhancement of medium-term fiscal sustainability and removing bottlenecks to higher efficiency are the backbones of the reforms to be supported by the SAL II, according to a World Bank press release. The loan will build upon and deepen the reform program supported by the first structural Adjustment Loan, approved by the World Bank's board on October 15, 1996, as well as by subsequent analytical work and policy advice from the Bank. The SAL has also been designed to complement policy measures being supported under ongoing and proposed World Bank projects, which have recently focused on social and human development. Since joining the World Bank in 1992, commitments to Lithuania total $446.5 million for 15 projects.

Lazarenko Denied Bail By US Judge

· US Judge Elizabeth LAPORTE on Tuesday denied bail for former Ukraine prime minister Pavlo LAZARENKO, citing fears that he might attempt to flee the country since he had already fled Switzerland. LAZARENKO is charged with laundering millions of dollars allegedly received in bribes. LAZARENKO is being held in federal prison outside San Francisco on charges of laundering some $114 million he allegedly stole while in elected office in Ukraine in the 1990s. He has pleaded not guilty to the US charges. In June, a Swiss court convicted LAZARENKO in absentia of money-laundering, giving him an 18-month suspended sentence and confiscating nearly $6.6 million from his Swiss bank accounts. His Swiss lawyer said LAZARENKO accepted two charges of money laundering while a provincial governor in 1993-94, but challenged all

European Republics

Belarus Opposition To Boycott Elections

· The Belarus united democratic opposition said it will not take part in the upcoming parliamentary elections set by President Alexander LUKASHENKO for October 15th. The leaders of opposition parties in Minsk on Monday said that Belarus authorities have failed to create conditions for fair democratic elections in the country. The head of the United Civic Party, Anatoly LEBEDKO, said the opposition plans to hold a nationwide referendum as a counterbalance to the ongoing election campaign in Belarus. Questions to be asked during the referendum will be formulated on the basis of four conditions put forth by the opposition for fair elections. In particular, they demand that the opposition should be given access to electronic mass media. According to an opposition statement, "We propose broadcasting a round table live, given the many instances of distortion by state media and the tendentious campaign by authorities against opposition groups." State television in the country of 10 million has recently accused opposition groups of behaving provocatively at the behest of the West, Reuters report. The opposition also intends to urge international organizations not to send their observers to the upcoming parliamentary elections. The Organization for Security and Cooperation in Europe (OSCE) said it will probably not send a team to monitor the election.

On Tuesday, only seven of 18 parties participated in a meeting with presidential aide Sergei POSOKHOV, who has pledged to uphold democratic principles during the election. He said, "In Belarus, there are no obstacles to holding a democratic election which might be seen as such by our public opinion and the international community." Opposition parties stayed away from the meeting. Only a few leftist groups, which back LUKASHENKO, showed up. Western states have largely shunned Belarus since LUKASHENKO

When you need to know it as it happens



Wednesday Intercon's Daily July 26, 2000

other accusations. LAZARENKO was arrested in Switzerland in December, 1998. After being indicted by a Geneva judge on charges of money-laundering, he was released on bail. Ukrainian state prosecutors have charged LAZARENKO with misappropriating state property.

South Caucasus & Central Asia

Black Sea Armed Forces Opens Conference

· Document regarding the status of the BLACKSEAFOR Armed Forces will be discussed today by the experts from the Group of Cooperation of the Black Sea Basin countries, at the 9th round of negotiations in Moscow. The conference opened today and will continue through July 28th. Georgian Defense Ministry, experts of foreign and defense ministries will represent Georgia at the negotiations. BLACKSEAFOR was formed by the initiative of Turkey 2 years ago. BLACKSEAFOR armed forces are to consist of 4 to 6 coastguard boats from six countries (Georgia, Turkey, Ukraine, Bulgaria, Romania and Russia). The force will hold joint exercises, rescue operations, mine-clearing and settlement of ecological problems. Member states stress that the cooperation of the force is not to be considered a military bloc and is not aimed against any other country, Prime News Agency reported.

Itera Announces Participation In Projects

· President of Itera Holding Valery OTCHERTSOV announced the plan to participate in realization of projects, bringing more help to the group of international companies. This includes the project of Armenian electricity exports to Turkey though Georgia, and the selling of Russian gas in Azerbaijan. Itera Holding is holding negotiations with Azerbaijan on selling gas since the government passed the decision on buying 2 billion cubic meters of the fuel this year, OTCHERTSOV said. Itera Holding wants to deliver gas to Azerbaijan, since, "this market is able to pay for gas with the real money."Yerevan did not comment on Itera's participation in the Armenian electricity export.

Azeri Opposition To Boycott Elections

· Azerbaijan's political opposition parties on Tuesday threatened to boycott parliamentary elections in November, unless authorities repeal

amendments to election laws reducing its role in the process. On Friday, the parliament voted to cut the oppositions' influence on the Central Election Commission (CEC) by stripping its representatives the right to veto the presidential appointee on the commission. A statement issued by 13 opposition parties in the former Soviet republic said the law in its current form "creates a basis for the falsification of the elections." Head of Musavat Isa GAMBAR said, "A democratic opposition cannot participate in parliamentary elections on the basis of the existing law." Musavat is one of Azerbaijan's opposition parties likely to win seats in the election, along with the Popular Front and National Independence Party. The leaders of five opposition parties appealed to the Council of Europe, one of the continent's most prominent human rights groups, to press the Azeri leadership to alter the legislation. Opposition parties had earlier refused to take up their six seats on the Central Election Commission and objected to a seventh presidential appointee, preventing the 18-member body from forming a two-thirds quorum and starting its work. Opposition pressure appears to be working. In fact, a western political analyst predicted, "There will be a mountain of pressure in the next two weeks from the international community to change these laws, otherwise there's not a chance of holding a fair election here." Western governments and international electoral observers have criticized prior elections in Azerbaijan. According to a US State Department press release, "The Department of State regrets the recent actions of Azerbaijan's parliament. While the July 5th electoral law was an improvement over the previous version, it is seriously flawed… Parliament's action last week to change the composition of the CEC and TEC's [territorial election commissions] is a further setback and reverses an important electoral compromise achieved in consultation with the OSCE. Lack of transparent and impartial vote counting has been a problem in all of Azerbaijan's previous elections; it was our hope that his problem could be corrected by implementation of electoral laws in conformity with international standards.


President of Georigan International Gas Corporation NOT Georgian International Oil Corporation.




July 26, 2000

Intercon's Daily

Azerbaijani Government Backtracks On It Commitments

by US-Azerbaijan Council,

July 21, 2000

The pre-election drama in Azerbaijan has taken a sharp turn for the worse after the adoption of the controversial law on the parliamentary election to be held on November 5, 2000. The Azerbaijani Parliament controlled by the members of the ruling party has exacerbated the already explosive situation by blatantly violating the Azerbaijani Constitution and law, which led to the opposition's decision to boycott the elections.

The relations between the authorities and opposition parties began deteriorating when the government dominated parliament refused to take into consideration the recommendations of the European organizations and the opposition on the amendments to the Law on Parliamentary Elections. The opposition leaders maintain that the current version of the law will inevitably allow the authorities to falsify the election results at the local and precinct levels. The OSCE and Council of Europe representative concur that the law must be amended. In order to persuade the government to revise the law, the members of the Central Electoral Commission from the opposition parties have decided not to attend the meetings of the CEC. Without six members of the opposition and one independent member that has to be confirmed by both sides, the CEC does not have the quorum to conduct its meetings and make decisions. The parliament of the country adamantly refused to amend the law and the speaker of the Azerbaijani parliament openly broke the electoral law by summoning the members of the previous and now dissolved Central Electoral Commission to fill the spots of the current CEC members from the opposition camp. Besides the moral aspect that these old guards from the defunct CEC are believed to have participated in the falsification of the previous elections, these individuals had no legal right to attend the meeting of the new CEC let alone voting on issues.

The speaker of the parliament who warned the opposition leaders about the consequences of their absence went further by revising not the law on the elections, but the law on the CEC that was relatively acceptable for both sides. Thus, at the today's session of the parliament, the majority of the deputies voted to eliminate the article in the law on the CEC that required the agreement of both the government and opposition on one independent member of the CEC, thus, allowing the work of the CEC without six CEC members from the opposition.

The parliamentary elections are on the verge of complete collapse because of these actions of the Azerbaijani parliament. 12 major opposition parties of the country including Popular Front, National Independence, Musavat, Democratic, Civil Solidarity, Vahdat, Social-Democratic, Namus, Ahrar, Popular, Progress and Freedom parties, have issued a statement saying that they will boycott the parliamentary elections unless the law on the parliamentary elections and "reactionary" amendment in the law on the CEC initiated by Murtuz ALESKEROV, the speaker of the parliament, are revised. Now thanks to the efforts by the parliament, Azerbaijan risks yet another failed or falsified election this fall.

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