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

Tuesday, December 19, 2000

Mayor's Office, injured Moscow Deputy Mayor Iosif ORDZHONIKIDZE and killed his driver. ORDZHONIKIDZE was seriously wounded in the thigh and stomach and rushed to a Moscow hospital, where he is in critical condition. Two masked gunmen standing on either side of the road fired with armor-piercing bullets on ORDZHONIKIDZE's armored car, riddling it with more than 30 bullets. One gunman, who killed the driver, used a pistol, while the second gunman fired at the deputy mayor using an AK-47 Kalashnikov assault rifle, NTV reported. Moscow Mayor Yuri LUZHKOV said that ORDZHONIKIDZE, "probably got in someone's way," adding that the attack probably was linked to his work. ORDZHONIKIDZE is responsible for the Moscow government's international economic relations and worked on large-scale investments involving foreign currency. He also serves on the tourism and lotteries committees. Threats have been received following the closure of some markets and alcohol counterfeiting controls. ORDZHONIKIDZE's assistant a few months earlier was attacked in a similar fashion, but the driver survived. ORDZHONIKIDZE signed an agreement to build Russia's first top-class international motor-sport circuit at a cost of around $100 million.

Russian Governor Elections Results

· The head of the Central Election Commission announced the results of seven Russia elections for governor, noting that there had been no serious irregularities. The incumbents to retain their posts were:

Russian Federation

Politics

Berezovsky To Return As Great Negotiator?

· The Financial Times reported today that in an interview with Russian business tycoon Boris BEREZOVSKY, he revealed that contact with Chechen rebel leaders had been re-established last month. BEREZOVSKY hopes to boost his role as a potential intermediary to resolve the conflict. Kremlin spokesman Sergei YASTRZHEMBSKY has said that Russia does not need a middleman at this time. In the last Chechen War under the Boris YELTSIN administration, BEREZOVSKY played an important role as an intermediary for Chechnya. He successfully negotiated the release of Russian and foreign hostages. Previously, he ceased communication with Chechen representatives at the request of President Vladimir PUTIN. BEREZOVSKY has since had a falling out with PUTIN and withdrew from his post as a Russian State Duma deputy. He has criticized PUTIN's policies toward centralizing authority and its military offensive in Chechnya. BEREZOVSKY believes that Russia should have stopped the military campaign in late 1999, when troops reached the Terek River, which divides Chechnya. He recommends holding negotiations with Chechen President Aslan MASKHADOV, regional governors, and other fighters including Shamil BASAYEV. He said, "There is no point talking to Chechens loyal to the Russian regime." In the meantime, BEREZOVSKY remains in self-imposed exile, as he refused to return in November to Russia for questioning on a profit skimming case. The businessman has stressed that the corruption investigation against him is politically motivated.

Moscow Official Wounded In Shoot Out

· A shoot out, occurring this morning on Leontyevsky Pereulok about 500 meters from the Moscow

Today's News Highlights

Russia

Nov. Industrial Output Slows

France Reopens Credit Lines

Gusinsky Denied Bail

European Republics

Gongadze Case Takes New Turn

Lith Adds Millions To Budget

South Caucasus & Central Asia

IMF Postpones Loan Decision

Rus-Armenian 2001 Cooperation

Politics-Economics-Business

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Tuesday

December 19, 2000

Intercon's Daily

Communist-backed Alexander CHERNOGOROV in Stavropol, Vyacheslav LYUBIMOV in Ryazan and Anatoly EFREMOV in Arkhangelsk. The new governors elected were: former federal parliament deputy Vladimir TIKHONOV in Ivanovo, regional Communist leader Mikhail MASHKOVTSEV in Kamchatka, businessman Leonid MARKELOV in Mari-El Republic in the Ural Mountains, and audit chamber official Gennady SAVELYEV in the Komi-Perm region, Reuters reported. The elections took place over the weekend due to a change in regional politics after President Vladimir PUTIN's overhaul of state structures strengthening central authority. Governorships are less of a coveted prize after legislation pushed through parliament denied regional bosses the right to sit in the Federation Council. They are also subject to dismissal if deemed to have broken laws.

Economy

Ruble = 27.95/$1.00 (NY rate)

Ruble = 27.95/$1.00 (CB rate)

Ruble = 24.89/1 euro (CB rate)

Russia Achieves Best Econ. Indicators In 2000

· Vice-President of Russia's Central Bank Tatyana PARAMONOVA told the Russian State Duma Budget and Tax Committee Monday that Russia had achieved its best macroeconomic indicators in 2000. PARAMONOVA attributed this year's economic growth to Russia's credit and monetary policy. The floating ruble foreign exchange rate enabled the state to augment its foreign currency reserves and to pay off external debts accumulated in previous years. Russia's foreign currency reserves have more than doubled from $12 to $27.5 billion, improving the country's international positions. The ruble's real rate has firmed by nearly ten percent, she said. PARAMONOVA stressed, "2001 will not be an easy year. The Central Bank predicts oil prices to stand at 21-22 dollars per barrel in 2001. It also expects the inflation to drop from 12 to 14 percent compared with 20 percent in 2000. Our chief goal in 2001 is to gradually lower inflation and to ensure sustained economic growth."

Russian November Industrial Output Slows

· Russian industrial output rose at a slower annual pace in November than in October, led by makers of tractors, cars and food as they face

slowing domestic demand. Output rose 7.6 percent in November from the same period last year, after rising 10.4 percent on an annual basis in October, the State Statistics Committee said. Tractor output shrank 12.2 percent in November from a year ago, while car production grew 0.3 percent, and bread and vodka production declined 5.6 percent. Russian industrial output growth was stimulated by the 1998 ruble devaluation, making many imported goods too expensive for most Russians. That advantage for domestic producers lessened as the ruble strengthened against the dollar adjusting for the country's higher inflation rate compared with the US, Bloomberg News reported.

France To Re-open Credit Lines To Russia

· France plans to reopen credit lines to Russia, which were canceled amid the financial crisis of August, 1998. This would help boost public and private investment in Russia, French Prime Minister Lionel JOSPIN said. The loans could be guaranteed by credit insurer Coface and Russian banks. It may include "other forms of guarantee offered by the borrowers," JOSPIN added at a news conference in Paris. He said the French government is "not hostile" to the idea of transforming Russia's debts owed to France into investments, as France previously did with Morocco. Any such move would need the agreement of the Paris Club of creditor countries. The announcement came at a two-day summit of the French and Russian governments in Paris, attended by Russian Prime Minister Mikhail KASYANOV.

Business

Spain Rejects Gusinsky's Bail Request

· Media Most Chairman Vladimir GUSINSKY, who was arrested in Spain on December 12^th on an Interpol warrant issued by Russia, was refused bail by Spanish High Court Magistrate Judge Baltasar GARZON. The Judge did ask Spanish police if they could guard against GUSINSKY's attempt by assigning officers to watch him if he was freed. The police, however, have yet to respond to this. GUSINSKY can be detained for up to 40 days, in which time Spain must decide whether to extradite him to Russia. GARZON last week rejected a defense motion for bail, saying a decision could not be made until Russian authorities sent all the re

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Tuesday

December 19, 2000

Intercon's Daily

quired documents. Those papers arrived at the Spanish foreign ministry Monday. Lawyers for GUSINSKY say the charges are politically motivated due to his connection with independent NTV Television and its criticism of President Vladimir PUTIN and the war in Chechnya. Russian prosecutors allege he overstated the assets of Media Most to receive loan guarantees from Gazprom, Russia's gas monopoly. GUSINSKY was the first of Russia's so-called oligarchs to be targeted in PUTIN's attempts to curb the political influence of the country's most powerful business leaders.

Last week, Moscow's city tax inspectorate asked an arbitration court to liquidate NTV along with some other outlets of the Media Most empire. But Monday tax authorities said their lawsuit was meant only to make NTV correct certain irregularities and not to shut it down; an explanation the company refused to accept. Media Most officials have said the move looked like the latest Kremlin-led attempt to silence its criticism.

GAZ Cuts December Target

· Russia's second biggest car producer, Gorkovsky Avtomobilny Zavod's (GAZ), said it had cut its December car output target to about 1,700 from a previous average monthly target of 10,000 in response to reduced demand. GAZ has cut daily output of Volga cars from a previous 420-430 to 70, but maintained steady truck output of 430 per day, a GAZ spokeswoman said. "We have drafted our December plan according to our dealers' requests. The market determines how many cars we should produce," she said. In November, car output had already dropped from the usual figure due to shortages of component parts, she said, without giving a precise figure for last month's output. She could not comment on GAZ's output plans for January. GAZ had to stop its assembly line for a week earlier in December over a shortage of components following a payments dispute with suppliers. The assembly line resumed work last Wednesday. GAZ has also decided to cut wholesale car prices by 25 percent and rescheduled debts to suppliers, including Severstal, Russia's largest steel maker, and Bor Glass Factory over a period of up to 20 months. GAZ's debts total about 10.8 billion rubles ($385 million), including 7.5 billion rubles owed to car parts suppliers.

European Republics

Reward For Gongadze; Case Takes New Twist

· Ukraine's SBU security police offered a 100,000 gryvnia ($18,400) reward for information on the fate of missing journalist Georgy Gongadze, Reuters reported today. The SBU plunged into the crisis when Socialist Party leader Alexander Moroz made public a tape, which claimed that President Leonid Kuchma, Interior Minister Yuri Kravchenko, and SBU head Leonid Derkach played a key role in Gongadze's disappearance. Gongadze, who disappeared in September, had been harshly critical of Kuchma and several top businessmen from the president's team. Kuchma called the tape a provocation and an attempt to blackmail him by unspecified forces, which he said were seeking to plunge the nation into chaos.

Meanwhile, RFE/RL Security Watch Report quoted Komsomolskaya Pravda as saying that the scandal may have originated in Moscow. The paper noted that the timing of the scandal works to Moscow's advantage since it comes precisely when Moscow is trying to become the pre-eminent energy supplier to Western Europe. Moscow can achieve that goal through pipelines via Ukraine or around it, although the second option is preferable as it can force Kiev to return to the Russian fold. To do that, the paper says, Moscow must first force Kuchma from office and then prevent pro-Western Ukrainian Prime Minister Viktor Yushchenko from succeeding him. The Kremlin has supported its own candidate ¾ KGB veteran Leonid Derkach. According to Zavtra, however, the destabilization of Kuchma began almost immediately after Kiev signed military-technical accords with Turkey.

Lith. Adds Millions To 2001 Budget

· The Lithuanian government on Friday decided to increase revenue and expenditures in the 2001 draft budget by 200 million litas ($50 million) each, leaving the financial deficit unchanged at 906 million litas. The government sees additional revenues of 70 million litas after it scrapped its election campaign promise to reduce the value-added tax (VAT) on the construction sector to five percent from 18 percent. The government opted instead to pursue a plan to give interests rate incentives to homebuyers

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Tuesday

December 19, 2000

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on housing loans, setting aside 50 million litas for the purpose in next year's budget, Finance Minister Jonas LIONGINAS explained. Another 20 million litas from revenues will be allocated equally to the education and healthcare sectors. LIONGINAS said the remaining 130 million litas will come from the inclusion of extra-budgetary finances to be earned by universities and high schools into consolidated state budget with all the funds going back to the institutions. "This leaves us with the unchanged budget deficit of 906 million litas next year and meet the agreements with IMF," LIONGINAS said. Lithuania has agreed with the International Monetary Fund (IMF) that the general government fiscal deficit, which includes all extra-budgetary funds and net lending, will be trimmed to 1.4 percent of gross domestic product (GDP) in 2001 from 3.3 percent this year. The 2001 budget draft is based on forecasts that GDP will grow by 3.2 percent in 2001. The parliament is expected to read the draft on December 19^th, Reuters reported.

South Caucasus & Central Asia

IMF Postpones Decision On Georgian Loan

· The International Monetary Fund (IMF) has postponed a board meeting planned to discuss a new three-year lending program for Georgia, from December 20^th until January, 2001. The IMF board was due to make a final decision on whether it would unlock a $150 million lending program. Christopher LANE, the IMF's resident representative in Georgia said, "As the deadline approached it became clear that we did not have everything in place and we thought it probably made sense to have a board meeting a little bit later, in early January." LANE said the Georgian government had failed to reschedule its $180 million debt to Russia and the Georgian parliament did not pass amendments to the Tax Code, as agreed with the Fund. Russia turned down Georgia's proposals to reschedule its debt last week. LANE, however, added that the meeting's delay would not have any serious negative impact on the country's economy. "We are still

confident that soon all of the financing assurances will be in place," he said. President Eduard SHEVARDNADZE on Monday said he hoped the IMF board meeting in January would make give the go-ahead to loans for Georgia. Comment: The IMF's move to postpone this critical decision comes at a dire time for Georgia. By not cutting Georgia a break, the IMF has placed Georgia in a vulnerable position whereby Russia can pressure it into further concessions concerning military bases, energy supplies, and a visa regime. Russia can continue to reject Georgian debt proposals and ignore its right to millions of dollars worth of military supplies illegally removed from Georgia during the collapse of the Soviet Union, thereby weakening the state financially and militarily.

Rus-Armenia Plan For Cooperation In 2001

· A bilateral inter-governmental commission for economic cooperation between Russia and Armenia today will consider the results of cooperation in 2000 and plans for 2001. The item that tops the agenda of the commission meeting is Armenia's state debt to Russia. According to experts of the two countries, the debt can be repaid in part with the incomes from the activity of a joint Russian-Armenian enterprise in the energy field, which is expected to supply third countries with the energy generated at the Armenian nuclear power station. The creation of such an enterprise will be discussed during the course of the talks to be co-chaired by Russian Atomic Energy Minister Yevgeny ADAMOV and Armenian minister in charge of coordinating the activity of industrial infrastructure David ZADOYAN.

The Daily Report on Russia and the FSU

will not be published

from December 25^th to January 1^st

for Intercon's Winter Break

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