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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Tuesday, August 1, 2000

Russian Federation


Putin Sacks Six Generals

· In a move suggesting that the Kremlin has picked sides in the military dispute between Defense Minister Igor SERGEYEV and Chief of the General Staff Anatoly KVASHNIN, Russian President Vladimir PUTIN on Monday dismissed six top generals closely tied to SERGEYEV. The six generals sacked on Monday include: head of radioactive, biological and chemical defense Colonel General Stanislav PETROV, head of anti-aircraft forces Colonel General Boris DUKHOV, procurement chief General Anatoly SITNOV, artillery and rockets chief General Nikolai KARAULOV, head of funding and trade Lieutenant General Alexander ZOBNIN and press service head Major General Anatoly SHATALOV. All generals served under SERGEYEV in the Defense Ministry bureaucracy. Two of the generals had passed pension age, while the four others were offered other positions within the ministry. SITNOV criticized the government in recent weeks for spending too little on new weaponry and said Russia's conventional forces will fall hopelessly behind other armies within 10 years.

KVASHNIN has proposed eliminating the Strategic Nuclear Missile Forces as a separate branch of the military to free up resources for conventional arms. SERGEYEV, who served his entire career in the strategic missile forces, has called the plans "insane." The President called on SERGEYEV and KVASHNIN to present a joint reorganization plan. The daily Izvestia, reported on the sacking in an article today titled, "The commander-in-chief has chosen Anatoly KVASHNIN." It commented, "Now the Defense Minister must either demand from the Kremlin an explanation of the mass dismissals of

his subordinates, or accept the challenge hurled at him and prepare for a quick resignation…The next few days will show whether Vladimir PUTIN will hand over the Defense Ministry to his favorite." Because of the sackings, SERGEYEV will be entering the National Security Council meeting on August 11th from a weakened position. At the meeting, the Council will decide whether to dramatically cut the number of intercontinental ballistic missiles operated by the Strategic Missile Force. If the Council votes against SERGEYEV, the likelihood that he might resign increases. KVASHNIN has insisted that downsizing the missile force would free up funds to reinforce, revitalize, and modernize conventional forces, which must be able to fight two local conflicts simultaneously. By downgrading the nuclear missiles forces, Russia would be materially giving up its ability for a global projection force. However, it still has the capability of influencing its neighbors with the limited token missile force. This strategy is in line with Russia's new military strategic doctrine, which calls for Russia to project its power during its period of transformation to defend itself and its allies. The doctrine specifically states that any action aimed at undermining global and regional stability or hampering the work of Russian state and military rule would be viewed as a threat to the Russian Federation. Russia aims to prepare for more local conflicts rather than strategic nuclear war. The document notes that Russia's main external threats exist in seats of armed conflict close to the Russian federation borders

Today's News Highlights


Putin's Popularity On The Rise

Talks For Gazprom To Buy NTV?

European Republics

Rus-Ukraine Gas Supplies Talks

Ukraine Budget Falls Short

South Caucasus & Central Asia

Vaziani Base Withdrawal Begins

Russia-Iran On Caspian Sea

Azeri Hands Over POW




August 1, 2000

Intercon's Daily

and the borders of its allies. It appears that more and more of Russia's resources will be devoted to strengthening conventional forces and preventing the spread of local wars and armed conflicts. The doctrine expresses, "a firm resolve to defend national interests and guarantee military security of the Russian Federation and its allies." Russia has been actively firming relations with India, China, North Korea, Yugoslavia, Iran, Iraq and Libya. Several of Kremlin activities verify this: PUTIN's visits to China and North Korea ahead of the Group of Eight summit in Okinawa; Russia's aid package to Yugoslav President Slobodan MILOSEVIC; foreign ministry level meetings with Iraq; the sending of Russia's only remaining aircraft carrier to the Mediterranean with a fleet of warships; and PUTIN's acceptance of an invitation to visit Libya. Russia has already agreed to export $100 million of arms and military technology to Libya.

Putin's Popularity Rising

· According to a public opinion poll cited by Reuters, Russian President Vladimir PUTIN's approval rating has jumped 12 percent, from 61 percent in June to 73 percent in July. The research suggests that PUTIN's popularity buoyed from his success at the Group of Eight summit in Okinawa, his series of Asian visits ahead of the summit, the approval of the Federation Council's composition and tax reforms. PUTIN's all time high rating was recorded in mid-April at 77 percent. Prime Minister Mikhail KASYANOV won the second best approval rating with 49 percent of votes.

Meanwhile, another poll conducted by the Russian Center for Public Opinion Research (VTsIOM) also put PUTIN at the top of the list of Russia's most trusted politicians with 46 percent. Communist leader Gennady ZYUGANOV came a distant second with just 15 percent of respondents' votes, followed by former Prime Minister Yevgeny PRIMAKOV and the Siberian Kemerovo region governor, Aman TULEYEV, both with 10 percent, and KASYANOV, eight percent. The two polls were conducted at the end of July. They canvassed 1,600 people in 33 of Russia's 89 regions.


Russia Posts Positive Economic Growth

· Russia's Trade and Economic Development

Minister German GREF, citing preliminary figures, said that the economy is growing at a faster rate than predicted earlier this year. He said gross domestic product (GDP) moved ahead 5.5 percent, after 3.2 percent growth in 1999. GREF believes that inflation should drop to about 20 percent in 2000 from 36.5 percent. Consumer price inflation in July was forecast at 1.8 percent month-on-month, down from 2.6 percent in June. GDP rose 7.3 percent in the first half of this year. GREF said industrial output this year was forecast to rise 7.5 percent, higher than a previously forecast 6.0 percent. He added that output in June alone grew 9.8 percent year-on-year, while May output rose 10.6 percent year-on-year. State Statistics Committee chairman Vladimir SOKOLIN said that industrial production was up 10 percent in the first six months of 2000, and that investment was up 14.2 percent from last year. He added that GDP is estimated to have increased 7.3 percent in the first half of the year and "maybe even higher." GREF said, "Final figures for the first half will be ready by September." The International Monetary Fund (IMF) has been impressed with these positive figures. The Fund said it was, "pleasantly surprised" with the Russian economy. The figures also stave off claims that the economic growth was slowing.

Russian foreign currency and gold reserves rose $700 million to $23 billion in the week ending July 21st, as the Central Bank bought dollars with rubles to prevent the currency from strengthening further. The reserves are at the highest level since 1997, when reserves peaked at about $24.5 billion. Reserves rose $500 million to $22.3 billion in the week ending July 14th. Russia's money supply expanded by 10.6 billion rubles ($385 million) in the week ending July 17th, the Central Bank said.

Ruble = 27.82/$1.00 (NY rate)

Ruble = 27.72/$1.00 (CB rate)

Ruble = 25.52/1 euro (CB rate)


Gusinsky To Sell NTV To Gazprom

· Media-Most Chairman Vladimir GUSINSKY has agreed in principle to sell its flagship independent NTV Television station for as much as $150 million to Gazprom, Russia's natural gas producer, the Kommersant Daily reported. Media-Most and

When you need to know it as it happens




August 1, 2000

Intercon's Daily

Gazprom representatives held talks on Monday. Gazprom owns a 14 percent stake in Media Most and has two more 20 percent share packages that it has taken as collateral for guaranteeing two loans from Credit Suisse First Boston. Last week, the Prosecutor General's office dropped its embezzlement case against GUSINSKY due to lack of evidence. In July, authorities arrested GUSINSKY and held him for four days in a high-security Moscow prison. Immediately after the case was dropped, GUSINSKY left for Spain to spend time with his family. Kommersant Daily speculated that GUSINSKY agreed to hold negotiations on the sale of NTV in exchange for ending the investigation. This has not been confirmed. Analysts fear that such a sale could jeopardize the media's freedom. Robert COALSON, analyst for the National Press Institute in Russia said, "It would be very bad for Media-Most's independence. But that's the way these crises are always resolved, through some kind of deal." GUSINSKY's representative at the talks asked for $350 million for Media-Most, but that Gazprom-Media head Alfred KOKH said he wouldn't pay more than $100 million. COALSON said the state is trying to exert control of the media through Gazprom, "so that it looks more palatable than owning it directly, as in Soviet times," the Associated Press reported. Media-Most also includes Ekho of Moskvy radio, Sevodnya, and Itogi.

Yulia TYMOSHENKO, the Ukrainian Energy Minister and Deputy Prime Minister, signed a 10-year agreement with Turkmenistan last week, whereby Ukraine would buy 20 billion cubic meters of gas, increasing to 50 billion meters of gas by 2010. Ukraine's annual gas needs total 80 billion cubic meters. Debts between the two nations will also be rescheduled. Ukrainian President Leonid KUCHMA has criticized TYMOSHENKO, stating that she had exceeded her authority by signing an international gas contract, the Financial Times reported.

Ukraine Budget Revenues May Fall Short

· Head of the budgetary department at the Finance Ministry Anatoly MAKSIUTA predicted that the government's budget revenues may fall short by 2.5 billion gryvnia ($460 million) to 3 billion gryvnia this year. He believes the government will need to restrict planned spending to keep the budget balanced for 2000. In the first half of the year, the government raised 19.4 billion gryvnia in revenue, or 45.9 percent of the revenue planned for the entire year. The International Monetary Fund and the World Bank have urged Ukraine to keep its budget balanced this year, which would allow the country to qualify more loans from the lenders.

To combat its financial troubles, Ukraine's Cabinet approved a measure to cut 100,000 jobs in the government and government-funded institutions before the end of the year. First deputy prime minister Yuri YEKHANUROV said, "We want to decrease pressure on the budget, so that by January 1st we have indicators signaling a significant decrease in [spending] pressure on next year's budget." The government plans to cut 54,000 jobs at central government and 43,700 jobs from regional governments. The cutting of bureaucratic layers is a reform that international lenders, including the International Monetary Fund, will welcome.

South Caucasus & Central Asia

Russia Begins Vaziani Base Withdrawal

· Today, Russia began the process of withdrawing its excess weapons and the military hardware from the Vaziani base in Georgia. Negotiations are still being held over a timetable for the removal of equipment from Gudauta. Both bases are to be closed by July 1, 2001. Russia has two more

European Republics

Rus-Ukraine To Begin Gas Talks

· Russian government officials arrived in Kiev today for two days of talks with Ukraine over the $1.4 billion debt owed to Russia for gas supplies. The Russian delegation will hold talks with the Ukrainian Cabinet, the Ministry of Fuel and Power Industry and Ukraine's national oil and gas company NaftoGas Ukrainy. Ukraine may pay back a part of its gas debts with seven Tu-95MC bombers and three Tu-160 military planes designed for carrying rockets. Ukraine may also offer Russia about 80 winged rockets. Ukraine last year delivered $285 million worth of military equipment, including eight Tu-160 military planes and three Tu-95MC planes to Russia to help reduce the gas debts. Kiev's dependence on Russia for gas supplies could be nearing an end.

When you need to know it as it happens




August 1, 2000

Intercon's Daily

military bases in Batumi and Akhalkalaki. Military equipment from Vaziani is being loaded on railroad cars going to Batumi. From there it will be loaded on Russian ships. According to a joint statement, Russia, "firmly adhering to the agreements reached in the course of the Istanbul summit of the OSCE (the Organization for Security and Cooperation in Europe, starts from August 1st of this year to withdraw and utilize part of its weapons and the military hardware on the territory of Georgia which are restricted by the adapted Treaty on Conventional Forces in Europe." The cuts will leave Russia's military facilities and bases in Georgia with a total of 153 tanks, 241 personnel carriers and 140 artillery systems by December 31st. Russia expressed hope that Georgia will assume their obligations for, "unhindered and safe implementation in conditions of transparency." Georgian President Eduard SHEVARDNADZE in a radio address Monday said, "If the problem of the removal of Russian military bases from the territory of Georgia is resolved with the Russian administration painlessly, it will become a huge stimulus to take relations between the two countries to a higher level, where there will be more trust, more cooperation." Some of the expense related to Russia's withdrawal will be covered by the United States and Britain, said Georgian General Staff chief Dzhoni PIRTSKHALAISHVILI. Chairman of the Defense and Security Parliament Committee, Revaz ADAMIA said the US will allocate $10 million in 2000 for Russia's withdrawal. In the year 2001 more funds may be allocated if needed. NOTE: Turkish OSCE observers were barred from entering the Gudauta base for monitoring today.

Russia Pitches Caspian Idea To Iran

· Russia's envoy to the Caspian Sea region Viktor KALYUZHNY met with top Iranian officials in Tehran on Monday. He reiterated Moscow's opposition to a proposed plan to divide the oil-rich sea into national sectors. Iran has agreed to work toward a solution to the Caspian problem. Russian and Iran have less oil near their coastlines. They believe that all Caspian

littoral nations should share the seas resources. Azerbaijan, Turkmenistan and Kazakhstan, who have more oil, have called for national divisions. KALYUZHNY stated that the status of the Caspian Sea has been hindered by the, "unwanted meddling of third parties." It appears that he was referring to the US, which supports multiple pipelines from the Caspian region, which avoids Russia and Iran. Iranian Oil Minister Bijan Namdar ZANGANEH, after talks with KALYUZHNY, said today Iran saw no obstacles to more active Russian involvement in local oil projects.

KALYUZHNY distributed draft agreements to Iranian officials on the protection of the Caspian's environment, the use of its bio-resources, and the navigation of the Caspian Sea. Tehran's position is very important for Russia, and "we hope the Iranian side will study Russia's proposals agreed on with three Caspian countries," he said. Russia proposes to hold a working meeting between representatives of Caspian states in Moscow on August 15th to study Russia's position on this issue and make attempts to analyze the views of other countries with all interested sides.

Azerbaijan Hands Over Armenian POW

· Azerbaijan on Friday handed over the last two Armenian prisoners of war captured during fighting over the disputed region of Nagorno-Karabakh. It was not certain when two men would fly to Yerevan. According to the local branch of the International Committee of the Red Cross, which mediated previous prisoner releases, Armenia is still holding two Azeri prisoners of war. Armenia handed over three Azeri prisoners of war last week. It is estimated that 35, 000 peopled died during the war from 1988 to the 1994 ceasefire agreement. The exchange of prisoners appears to be the only progress made on the Nagorno-Karabakh conflict. Talks between Armenian's President Robert KOCHARYAN and Azeri President Geidar ALIYEV have done little to further the settlement process.

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