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

Friday, November 17, 2000

Russian Federation

Politics

Putin To Further Centralize Power

· Across Russia's 89 regions, elections of more than 30 regional governors are taking place between late October and early January. The results will help determine the relationship between the President Vladimir PUTIN's administration and local authorities. After his inauguration in May, PUTIN implemented a tough stance towards the regions in his efforts to curb the local corruption and dissent. The governors are to be limited to two terms in office and will lose their seats in the Federation Council receiving instead places on the State Council that has no constitutional role and places the governors more under the President's influence. PUTIN split the country into seven districts and appointed his envoys to survey the governors and ensure the implementation of the federal policy. The draft 2001 budget cuts down on both the money and tax-setting authority of the governors. Furthermore, beginning next year PUTIN will have the power to dismiss or suspend governors accused of corruption or taking decisions contravening the federal law. "The prize is not as valuable as it used to be," said Vyacheslav NIKONOV, head of Moscow-based think tank Fond Politika. "Governorships are less desirable," he added.

PUTIN's attempts to centralize power intervening directly to the regional elections and pushing the candidates with the background in security services and armed forces have dubious results. His preferred candidates recently lost in Moscow city and region, as well as in his native St. Petersburg. Since then, a new range of fresh tactics has been applied. Last month, Alexander RUTSKOI, the popular governor of the Kursk region, was banned from standing for reelection on the premises of

misreporting his property and office abuse. RUTSKOI's appeal to the Supreme Court was overruled. He believes the court decision ruled against him because his initiatives to help the families of the sailors who died on the Kursk nuclear submarine in August infuriated PUTIN. According to the Financial Times, another group of governors who have fallen from the favor of PUTIN's circle, announced over the last few weeks that they would not stand for reelection. This new approach towards the regional authorities seems to contradict PUTIN's pledge for implementing the rule of law.

Economy

Russian Economic Statistics

· Russian foreign currency and gold reserves rose for a 10^th week to a record $26 billion in the week ending November 10^th, the Central Bank said. The reserves rose $100 million to the highest level since the fall of the Soviet Union. The reserves rose $200 million in the previous week to $25.9 billion. Russia's money supply expanded to 455.4 billion rubles ($16.4 billion) in the week ending November 8^th, the Central Bank said. The money supply, which includes cash currency in circulation plus required reserves, rose by 9.4 billion rubles.

Russia's industrial output rose at a faster annual pace in October from the previous month, led by textile, paper and metals producers benefiting from stronger demand. Output rose 10.4 percent in October,

Today's News Highlights

Russia

Gazprom Media Most Seal Deal

European Republics

Lith. Diplomat For NATO Bid

Latvian CB Cuts Rates

Ukraine Ratifies CTBT

South Caucasus & Central Asia

Georgian Budget Difficulties

Georgian-NATO Exercises

Itera Boosts Armenian Supplies

Kazakh Tenge To Remain Stable

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Friday

November 17, 2000

Intercon's Daily

compared with the same month a year earlier, after annual growth of 7.2 percent in September, the State Statistics Committee recorded. Output in the textile industry rose 33.5 percent. Steel pipe makers produced 13.5 percent more than in the same month last year. Electricity production rose 5.6 percent. Russian economic growth has accelerated this year, with gross domestic product expanding by 7.5 percent in the first half, driven by high prices for oil and gas and the ruble's 75 percent fall against the dollar since August, 1998. The devaluation raised the price of imported goods and made Russian-made products more competitive.

Ruble = 27.76/$1.00 (NY rate)

Ruble = 27.80/$1.00 (CB rate)

Ruble = 23.70/1 euro (CB rate)

Nov DecJanFebMarAprMayJunJulAug Sep Oct Nov

Business

Gazprom-Media Most Seal New Deal

· Russia's largest independent media group, Media Most, and the nation's gas monopoly, Gazprom, have signed a new agreement to settle more than $500 million in debt owed to Gazprom. On Thursday, Media Most executives said Russian President Vladimir PUTIN had forced Gazprom earlier this week to cancel an agreement on the debt because it didn't give the state control of the media group's flagship television station NTV. That agreement gave Gazprom equity in exchange for the debt, though it delayed giving the gas company

control of the media group until July, 2001, and only if a package of shares wasn't first sold to international investors. Media Most said it fell victim to political pressure from the Kremlin, which the company says wants to crack down on independent media. The Kremlin denies such accusations and says the debt row was purely commercial.

On September 26^th, PUTIN said he wouldn't intervene in the conflict between Media Most and Gazprom, in which the government owns the largest single stake of 38 percent. The President said, "I consider it wrong to interfere in a conflict between two commercial entities." The following day, US Secretary of State Madeleine ALBRIGHT said PUTIN would lose credibility if Gazprom took over Media Most and the NTV Station. She told the House International Relations Committee, "Nobody is going to believe that the Russian government is committed to media freedom if the independent TV is under government control. And make no mistake, Gazprom ownership of NTV is government control." Media-Most spokesman Dmitry OSTALSKY said the new agreement was virtually identical to the old one. "But it is no longer an out-of-court settlement. It is just a deal between two companies and it does not need to be approved by court," he said. He pointed out that Media Most would hand shares in some of the media holding's companies to Gazprom to clear the debt. The deal is unlikely to relieve pressure from Media Most's beleaguered owner Vladimir GUSINSKY, who suffered a fresh blow on Friday when prosecutors reopened an old embezzlement case against him. Media Most said that move was politically motivated.

European Republics

Lith. Appoints Diplomat For NATO Entry Bid

· Lithuanian President Valdas ADAMKUS today appointed diplomat Giedrius CEKUOLIS to coordinate the Baltic state's efforts to secure membership in the North Atlantic Treaty Alliance (NATO). Lithuania hopes to secure an invitation to join the defense alliance ¾one of its key foreign policy goals ¾at the next NATO summit due in 2002. "The President believes this appointment will consolidate Lithuania's diplomatic efforts in securing NATO membership," presidential spokeswoman Violeta

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GAIZAUSKAITE told Reuters. Lithuania, together with Latvia and Estonia, were deeply disappointed by a NATO decision to exclude them from its expansion last year, when former Warsaw Pact members Poland, the Czech Republic and Hungary joined. The three view NATO membership, vehemently opposed by Russia, as the best way of guaranteeing the independence they won from Moscow in 1991 after 50 years of Soviet rule.

Latvian CB Cuts Rate; Fiscal Priorities

· The Latvian Central Bank on Thursday announced cuts in commercial banks' reserve requirement from seven percent to six percent, the second reduction this year. This is part of an effort to bring it closer to European Union levels. The reserve requirement ¾a long-term money supply instrument ¾is currently two percent in euro zone states. In January, the Latvian Central Bank cut the requirement one percent from eight percent, the level it had stood at since 1993. The Central Bank said it also reduced the mandatory share of cash in reserves, effective December 1^st, with an aim to eventually eliminating it completely. It will now require that lats in reserves do not exceed 40 percent of total reserves, down from 50 percent. Meeting the reserve requirement secures a certain stability in money demand and enhances the effectiveness of open market operations such as repo, currency swap auctions and secondary market transactions, the Central Bank said.

Latvian Finance Minister Gundars BERZINS said the government will prioritize having a balanced budget in 2002 that will be based on assumed gross domestic product (GDP) growth of seven to eight percent. The Cabinet failed to keep its promise to limit the 2000 budget deficit to two percent of GDP, and was forced to push amendments through parliament that took it to 3.18 percent of GDP. The 2001 budget draft, with its final reading in parliament scheduled for November 30^th, has a planned deficit of 1.74 percent of GDP. BERZINS said, "I hope that in 2002 we will have a deficit-free budget and at least seven to eight percent gross domestic product growth [that year]." The Latvian Central Bank has said it expects GDP growth of 5.5 percent this year, after growth slowed to a mere 0.1 percent in 1999 amid a prolonged recession.

Ukraine Ratifies CTBT

· Ukraine's parliament ratified the Comprehensive Nuclear Test Ban Treaty (CTBT) Thursday. Ukraine, which surrendered its huge arsenal of Soviet nuclear weapons to Russia in the mid-1990s, becomes the 31^st of 44 nuclear capable states to have ratified the pact, including France, Britain, and Russia. Ukraine signed the CTBT in 1996. The treaty builds on a 1963 Partial Test Ban Treaty outlawing atomic blasts in the atmosphere and has been signed by 41 of the 44 nuclear capable states, as well as by more than 100 other states. India, Pakistan, and North Korea have not signed. The treaty will not formally come into effect until all nuclear capable nations ratify it. Of the world's five declared nuclear powers, the US and China are the only two to have signed, but not ratified the CTBT. US Vice President Al GORE is committed to working toward ratification, while Republican presidential candidate George W. BUSH backs a continued US national moratorium on nuclear testing, but opposes ratifying the CTBT. On November 1^st, the UN General Assembly Committee on Disarmament and International Security adopted a resolution drafted by Japan, which included an appeal to bring the CTBT into force by 2003.

South Caucasus & Central Asia

Georgia's 2001 State Budget Difficulties

· Georgia's state budget for 2001 was discussed at the government session and introduced to the parliament bureau on Thursday, Prime News Agency reported. The budget was not agreed upon in the government session due to different ideas of the Finance and Tax and Revenue Ministers. Tax and Revenue Minister Mikhail MACHAVARIANI presented that idea of decreasing the taxes on the oil products, tobacco and alcohol products, but the Finance Minister Zurab NOGAIDELI was against this offer. The Finance department head believes that the taxes on the products should be raised, since without this the tax incomes will not be raised. President Eduard SHEVARDNADZE ordered the government to agree on the budget by the end of this week. According to NOGAIDELI, Georgian presidential advisor Leshek BALTSEROVICH and the International Monetary Fund (IMF) representatives approved the draft budget. Georgian government is

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also seeking the Paris Club lenders' approval to restructure Georgia's foreign debt. In case of approval, 98 million lari from 2001 budget will be allocated to paying off foreign debts. Georgia's total foreign debts currently amount for over $2 billion.

Georgia-NATO Discuss Military Exercise

· Georgian Army Lieutenant-General Johnny PIRTSKHALASHVILI has met NATO officials in Brussels for talks on scheduling a multinational military exercise on Georgia's Black Sea coast for next summer. Georgian military sources say naval and army units of some 20 NATO members and partner countries, including the US, France, Italy, Greece, and Turkey, will join the maneuvers, codenamed Cooperative Partner - 2001 and an element of NATO's Partnership for Peace program. An international conference attended by a Georgian delegation to discuss the exercise ended in Naples on Wednesday. PIRTSKHALASHVILI attended the annual meeting of chiefs of the general staffs of NATO members and partner countries. In Brussels, he met chiefs of the general staffs of Britain, Ukraine, and Turkey.

US-Armenian Boost Defense Ties

· Deputy chairman of the US Joint Chiefs of Staff Richard MYERS and Armenian Defense Minister Serzh SARKISYAN met on Thursday in Yerevan to discuss the transfer of military equipment to the Russian base in Armenia from Georgia's Akhalkalaki district. The Armenian minister explained that military had been transferred under the CFE Treaty. SARKISYAN and MYERS discussed prospects for military and military-political relations between Armenia and the US and exchanged views on the creation of the regional security system, the military-political situation in the region and Nagorno-Karabakh settlement, and Armenia's position on this issue. The meeting also focused on the US aid to forming an Armenian peacekeeping battalion. SARKISYAN said that the battalion will take part only in peacekeeping operations. Speaking about Armenia's attitude towards NATO's Partnership for

Peace program, the Defense Minister said that his country intends to participate in different actions under this program.

Itera Boost Supplies To Armenia

· The international group of Itera companies has boosted daily deliveries of gas to Armenia to four million cubic meters as of November 15^th. Officials of the press service of the Itera Holding stated on Wednesday that this was agreed during the November 14^th talks in Moscow between Itera President Igor MAKAROV and Chairman of the Board and Director-General of the ArmRosgazprom Society Roland ADONTS. Prior to that, Itera had daily delivered to Armenia about 3.2 million cubic meters of gas. The Itera international group of companies had planned to supply 1.45 billion cubic meters of gas to Armenia in 2000 and to meet thereby all the nation's requirements in imported gas.

Kazakhstan Currency To Remain Stable

· Kazakhstan's Central Bank head on Wednesday said that the tenge currency is unlikely to fluctuate sharply against the dollar any further this year, and inflation and depreciation rates look set to fall in 2001. Grigory MARCHENKO said the tenge had depreciated by 4.3 percent since the beginning of the year. It fell one percent over the past week, after markets reacted to his comments that the tenge was slightly overvalued. It was trading on Thursday at 144.22 to the dollar as compared to 142.75 a week ago, in line with earlier forecasts. He also confirmed that inflation would probably fall further in 2001. "We forecast year-end inflation rates of nine percent and that is what it will be, while the depreciation rate was estimated at 4 to 5 percent," he said. "Next year we plan inflation to be 6 to 7 percent while the depreciation will be 3 to 5 percent." Kazakhstan was forced in April, 1999 to devalue its currency, which came under tremendous pressure after the Russian devaluation of the ruble in August, 1998. Higher oil and metals prices have bee the source of foreign investment and helped to stabilize the currency.

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

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