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

Friday, October 13, 2000

Russian Federation

Politics

Gore's October Surprise

· A secret 1995 pact between US and Russia signed by Vice President Al GORE and then Russian prime minister Viktor CHERNOMYRDIN was revealed today by The New York Times. This agreement signed in Moscow allowed Russia to continuing supplying conventional weapons to Iran. The agreement undercuts a 1992 law, which was sponsored by GORE and Senator John MCCAIN (Rep.-AZ), the Iran-Iraq Arms Nonproliferation Act. This secret agreement allowed Russia to continue to provide advanced weapons to Iran in fulfillment of existing agreements to be completed by the end of 1999. According to a Central Intelligence Agency (CIA) report in August, Russia has since continued to violate this secret pact and remains a significant supplier of conventional arms to Tehran. Some experts will argue that this pact has encouraged this arms trade between Russia and Iran to continue. The details of the GORE-CHERNOMYRDIN secret pact have never been disclosed to Congress or the public, recalling to mind the Iran-Contra scandal of the REAGAN Administration. The New York Times indicated that this information was provided by an administration official concerned over the proliferation of arms and weapons to Iran. The document states that the US would, "take appropriate steps to avoid any penalties to Russia that might otherwise arise under domestic law with respect to the completion of the transfer." The agreement also committed the US to help Russia join international arms-trading organizations, remove Russia from a list of countries ineligible to receive US arms or technical assistance, and even seek customers for Russia's weapons industry. The specified weapons Russia committed to sell

Iran included one kilo-class diesel-powered submarine, 160 T-72 tanks, 600 armored personnel carriers, numerous anti-ship mines, cluster bombs, and a variety of long-range guided torpedoes and other munitions for the submarines and tanks. Russia had already provided Iran with fighter aircraft, surface-to-air missiles and other armored vehicles. It should be noted that the submarine, one of three Russia sold to Iran, is difficult to detect and poses a direct threat to US warships and oil tankers in the Persian Gulf. According to the Congressional Research Service, the submarine and its long-range torpedoes were specifically cited as reasons by GORE and MCCAIN to enact the 1992 nonproliferation act. The agreement required Russia to sign no new arms contracts with Iran and no weapons were to be deliver beyond December 31, 1999. MCCAIN reacted to the report by stating, "If the administration has acquiesced in the sale, then I believe they have violated both the intent and the letter of the law."

An aide to GORE, Leon FUERTH, explained that the arms sales were not subject to sanctions because they did not meet the 1992 act's definition of "advanced conventional weapons," and didn't significantly shift the balance of power in the Persian Gulf. He added, "We deliberately used the GORE-MCCAIN law as a fulcrum to negotiate an understanding with Russia to put constraints on their exports to Iran." FUERTH stressed, "We have indicated we are not satisfied with a unilateral decision by

Today's News Highlights

Russia

Sept. Budget Surplus

Surgutneftegaz Output Rises

European Republics

Belarus Parliamentary Elections

Adamkus Accepts Coalition

South Caucasus & Central Asia

Georgia Searches For Fugitives

Customs Revenues Rise

Kuchma-Karimov Two-Day Talks

Politics-Economics-Business

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Friday

October 13, 2000

Intercon's Daily

the Russians to modify the terms of this understanding." In January, US Secretary of State Madeleine ALBRIGHT in a letter complained to Russian Foreign Minister Igor IVANOV that Russia had failed to abide by the GORE-CHERNOMYRDIN agreement. She warned that, "Continued transfers to Iran could be subject to sanctions under relevant US laws."

Russia's disregard for the GORE-CHERNOMYRDIN agreement has emboldened Moscow to ignore other agreements, particularly those on missile and nuclear technology sales to Tehran, according to Gordon OEHLER, the former director of the Nonproliferation Center at the CIA. He pointed out, "If this [the secret pact] had been disclosed to Congress, the committees would have gone berserk, absolutely. But the larger problem is, if you have these under-the-table deals that give the Russians permission to do these things, it gives the signal that its' OK to do other things." Last week, Senator Sam BROWNBACK (Rep. KS), chairman of the Near East and South Asian subcommittee of the Foreign Relations Committee lectured Robert EINHORN the State Department's top nonproliferation official, that the administration's failure to inform Congress of confidential deals with Russia has allowed Russia to send significant quantities of arms to Iran and elsewhere. By looking the other way, he said, "The problem has grown decidedly worse, and the world is a far more dangerous place because of that."

Economy

Russia Achieves Sept. Budget Surplus

· Russia's September budget surplus was 0.9 percent of gross domestic product (GDP), or 5.5 billion rubles ($197 million), the Finance Ministry said on Wednesday, quoting new preliminary figures. The surplus in the first nine months of 2000 was 2.3 percent of GDP, or 106.0 billion rubles, the ministry said in a statement reported by . The primary surplus, which does not include debt service, was 5.4 percent of GDP. Nine months revenues were 783.0 billion rubles and spending was 677.0 billion rubles. Russia's September revenues were 89.9 billion rubles while spending amounted to 84.4 billion rubles, the statement said. Last month, the country repaid 7.9 billion rubles of domestic debt and 12.5 billion rubles of foreign debt. The

government spent 16.0 billion rubles for defense, the largest budget item, meeting all its obligations to the military. It channeled 10.7 billion rubles to law enforcement activities and 1.7 billion rubles for science.

Ruble = 27.09/$1.00 (NY rate)

Ruble = 27.85/$1.00 (CB rate)

Ruble = 23.87/1 euro (CB rate)

Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

Business

Surgutneftegaz Oil Output Rises 8.1 Percent

· Surgutneftegaz, Russia's third oil producer, increased its oil production over a nine-month period by 8.1 percent from the same period last year after crude prices rose to 10-year highs, enabling the company to invest more. Output climbed to 30.1 million tons (220.6 million barrels) as of October, from 27.8 million tons produced in the first nine months of 1999. Gas production through the end of September rose by 1.8 percent to 8.3 billion cubic meters this year from 8.2 billion cubic meters produced over the same period in 1999. According to a company statement, "The oil production growth rate allows Surgut experts to foresee 40 million tons of crude total output in 2000. The capital expenditures will significantly exceed the 20 billion rubles ($720 million) investment planed for this year." Russian oil companies increased investments in production project this year with oil prices a third

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higher than last year. The nation's producers export about a third of their oil output. Brent oil for delivery in November rose as much as 2.51 percent, or 80 cents, to $32.65 per barrel, a two-week high, Bloomberg News reported.

made." US Ambassador to Belarus Valery TSEPKALO said that the US Department of State was not likely to recognize the lawfulness of the elections. He added that, "The United States maintain normal relations with much less democratic countries and at the same time bitterly criticizes Belarus."

Adamkus Accepts Lithuanian Coalition

· Lithuanian President Valdas ADAMKUS has accepted the formation of a coalition government between Liberal Union, New Union, and other minor parties which was developed and signed on Thursday. Arturas PAULUSKAS, the leader of the New Union, told Reuters, "The agreement sets the major cooperation principles which stipulates that Liberals take the top post in the cabinet and New Union takes the chairmanship of parliament." ADAMKUS is not expected to name an official candidate for prime minister until after the new parliament convenes next week. The Liberal Union is likely to submit Rolandas PAKSAS as their candidate for prime minister. He ran on a business-friendly program of tax cuts, streamlined government and balanced budgets. PAKSAS was prime minister for five months last year but resigned over a controversial oil sector privatization deal. He has said he wants to see fiscally conservative Jonas LIONGINAS return as his finance minister and Eugenijus MALDEIKIS as his economy minister; the two held the same posts last year.

South Caucasus & Central Asia

Georgian Search For Fugitives Continue

· Georgian special Interior Ministry agents are continuing to search in 25 kilometers of forest in the Ambrolauri region for seven of the eight remaining convicts, who escaped from the Republic Prison Hospital on October 1^st. The eighth runaway is suspected to be outside of the Ambrolauri region. Georgian law enforcing bodies on Thursday detained four of the 12 convicts, including three top former officials from the GAMSAKHURDIA Administration. Those captured are Guram ABSANDZE, a former finance minister accused of organizing an attack on Georgian President Eduard SHEVARDNADZE in 1998, Vakhtang (Loti) KOBALIA, former Commander in Chief of the National Guard under the late President Zviad

European Republics

Belarus Boycott Parliamentary Elections

· Belarus, on Sunday October 15^th, will hold a controversial election for its lower house of parliament. The chamber was made up of President Alexander LUKASHENKO supporters, after the President dissolved the opposition-led legislature in November 1996. The opposition is boycotting the poll because authorities have not ensured equal access to state-controlled mass media. The opposition claims that the parliament has no meaningful functions. Approximately 7,000 protestors demonstrated in Minsk on October 1^st. Another march is planned for Sunday. Former Prime Minister Mikhail CHIGIR, who is among the few opposition leaders running for parliament, said the opposition was making "an unprecedented blunder" in boycotting the poll. "All political parties should have participated in the election. The whole of society would have benefited from a large number of well-educated opposition deputies. Unfortunately, this parliament will have just a few of them."

A total of 567 candidates are vying for 110 seats in the lower chamber. These include 279 candidates designated by political parties generally loyal to LUKASHENKO. Candidates who receive more than 50 percent of votes cast in their constituencies will be announced winners. If no candidate gets more than 50 percent of votes, a second round will be held within two weeks. The election will be pronounced valid if 50 percent of votes plus one vote are cast. If second rounds are held in some constituencies, the turnout must be 25 percent to make them valid. A team of observers from the European parliament, the Council of Europe and the Organization for Security and Cooperation in Europe (OSCE), representing of Western-based human rights bodies, will monitor Sunday's election. Belarus Foreign Ministry spokesman Pavel LATUSHKO said, "We hope for an objective estimate of the international observers and count...that a positive decision on Western recognition of the poll will be

When you need to know it as it happens

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October 13, 2000

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GAMSAKHURDIA, Zurab EJIBIA, who fired an anti-tank missile at the presidential motorcade in February 1998, and Khvicha PIRTSKHALAVA, who earlier was reported to have been hiding in the forest.

ABSANDZE was the first to testify after being captured. His lawyer said ABSANDZE is pleading not guilty. ABSANDZE said he did not escape, but he merely left the prison as a sign of protest. He refused to give details on how they left the prison, using his legal right not to answer the question. In written testimony, he outlined reasons why he left. ABSANDZE wrote, "I didn't have any hopes of being released from prison, so the fact that I left is the extreme formal way to express my protest. I did it because I wanted to stop the unceasing repressions against me because other methods like starving myself did not help," Prime News Agency reported. ABSANDZE has been sentenced to eight more years in prison for trying to escape.

Meanwhile, former Georgian deputy Boris KAKUBAVA, wanted by Georgian and Interpol, has called the chairman of the parliamentary committee for human rights Yelena TEVDORADZE and asked for a possibility to make a speech in parliament next Tuesday. He added that he was willing to surrender to the law enforcing bodies following the speech. KAKUBAVA is wanted for organizing the May coup attempt. The Georgian Security Ministry has obtained transcripts of conversations between KAKUBAVA and the coup plotters.

Georgian Customs Revenues Rise

· General director of ITS Georgia Neville BISSETT told Prime News Agency that since January, 1998, Georgia has increased its collection of customs revenues. He said an average monthly figure of customs revenues since January 1998 has been 15 million lari. This August the figure went up to 22.5 million lari. BISSETT noted that progress has been made since ITS signed a contract with Georgia.

Kuchma-Karimov Discuss Trade-Politics

· Ukrainian President Leonid KUCHMA and Uzbek President Islam KARIMOV opened two days of talks on Thursday. They focused their discussions on trade and politics. Ukraine wants to boost trade with Uzbekistan. In the first eight months of the year, exports to Uzbekistan declined 50 percent in the from the same period of 1999, while imports grew sharply. Ukraine sells Uzbekistan machinery, ferrous and non-ferrous metals and buys gas. Ukraine lowered its trade surplus forecast to about $1 billion this year from $2.1 billion, as imports increase unexpectedly fast this year.

KUCHMA and KARIMOV strongly criticized the new Eurasian Economic Union, founded by Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan. The new trade bloc, which replaces the Customs Union. It aims to harmonize tax and customs laws and other administrative tasks. KARIMOV said, "I believe this is an organization built on illusory projects…In practical terms, if the customs union resolved nothing, this new group will not resolve anything either." He called it a "stillborn" union. Echoing these sentiments, KUCHMA said, "Having been unable to decide what to do with one organization, how can they throw themselves into another without having a legal basis." Ukraine and Uzbekistan are members of GUUAM (Georgia, Ukraine, Uzbekistan, Azerbaijan and Moldova), which promotes economic cooperation. GUUAM decided last month to hold more frequent formal meetings. Agence France Presse reported that both KARIMOV and have been wary of joining an organization that would boost the political and economic influence of Moscow in their regions.

The two leaders are expected to touch on supplies of Uzbek gas to Ukraine, as well as the fight against international terrorism and religious extremism, situation in Afghanistan, and security in the Central Asia today. KUCHMA and KARIMOV will sign a joint declaration and a number of documents, upon the conclusion of their talks.

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

Oleg D. Kalugin, Content Advisor Jennifer M. Rhodes, Principal Editor

Tatyana Kortova, Contributing 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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