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Daily intelligence briefing on the former Soviet Union

Tuesday, July 3, 2001

Russian Federation


FSB Raids Ekho Moskvy

• Russian prosecutors and Federal Security Service (FSB) agents raided Russia’s independent radio station, Ekho Moskvy, seizing shares worth 14 percent of the station. These shares were given to the radio station’s journalists by Media Most chairman Vladimir GUSINSKY in May. An agreement with GUSINSKY on the transfer of the 14 percent stake was signed last month, but formally the package is still held by Media Most. The station’s journalists already own 28 percent of the Ekho Moskvy shares. Ekho Moskvy has been fighting off a take-over by state-controlled Gazprom, which has taken control of most of GUSINSKY’s former media assets, the Financial Times reported. Gazprom has gained control of NTV, shut down Sevodnya, and sacked the staff of Itogi magazine. The raid came on the eve of a special interview of French President Jacques CHIRAC, who at the time of the raid was speaking to students at Moscow State University on the state’s responsibility of guaranteeing freedom of expression. Today, CHIRAC spoke on the radio station about Russia’s need to find a political solution to the Chechen conflict. He also stressed that France, along with the West, is concerned about threats to freedom of the press in Russia. CHIRAC said, “We are very attentive to everything that can endanger freedom of speech and the press and endanger the progress of the world, including Russia, along the road of democracy.”

Chirac Speaks On Chechnya, Free Speech

• French President Jacques CHIRAC today concluded his visit to Russia by speaking on Ekho Moskvy, which was raided by federal agents on Monday. In the radio interview, he stressed that Russia should work to find a political settlement to its military campaign in Chechnya. France’s criticism of the campaign has undermined bilateral ties in the past. CHIRAC, noting French history, pointed out that even when leaders thought they had good reason to crush opponents, such action invariably produced devastating results. “Attempts to find a military solution always lead to deplorable consequences, even when it is not what leaders are after,” he said. The French President stressed that he told Russian President Vladimir PUTIN in talks on Monday that, “You must always look for a political solution.” PUTIN countered by saying, “We are dealing with isolated attacks by separatists. The latest attacks are carried out by fighters who come from abroad, mostly mercenaries with large quantities of heroin…I believe that if a group of mercenaries landed in southern France with similar aims, France would act in the same way.”

The two leaders were also divided on former Yugoslav President Slobodan MILOSEVIC’s transfer to the International Criminal Tribunal, denounced by Moscow as a threat to stability in the Balkan region. CHIRAC understood PUTIN’s reasoning but said the man is, “responsible for the deaths of hundreds of thousands” could not escape justice. CHIRAC also emphasized the importance of a free press. He said, “We are very attentive to everything that can endanger freedom of speech and the press and endanger the progress of the world, including Russia, along the road of democracy.”


Russia’s WTO Entry Indefinitely Delayed

• Russia’s entry to the World Trade Organization (WTO) has been delayed until the country’s legislation is in line with WTO standards. Russia’s chief WTO negotiator, Deputy Trade and Economy Minister Maxim MEDVEDKOV said the WTO last week demanded that Moscow adjust all its legislation to its standards before further discussions on entry to the multilateral trading system. “A working group arrived at a decision to indefinitely delay preparation of the protocol on Russia joining the WTO. They [the WTO] think that Russia, while moving forward, has not yet crossed the threshold necessary for a final stage of the talks and there are still a many loopholes in legislation,” Prime-Tass quoted MEDVEKOV as saying. He said the protocol on Russia joining the WTO could be ready in three to four years, according to a pessimistic scenario, though there was still hope that in the autumn “our partners’ position may change.” He said there was hope that, “we shall sign protocols with a number of countries on completing negotiations by the end of the year.” Russian President Vladimir PUTIN has made joining WTO a top priority for his administration and set the end of 2001 as the deadline for joining the club. WTO was unhappy about Russia’s customs controls and drawbacks in standardization and certification. MEDVEDKOV said Russia had prepared 10 bills necessary for joining the WTO and two were under discussion, adding that the cabinet would consider joining the WTO at its meeting on July 26th. Differences of opinion on some tariffs were serious, including tariffs on furniture, cars, agricultural goods, most chemicals, pharmaceuticals and toys. Also, the WTO criticized Russia for maintaining low domestic energy prices, saying it was effectively a subsidy for the rest of the economy. MEDVEDKOV said Russia did not agree.

Ruble = 29.07/$1.00 (NY rate)

Ruble = 29.19/$1.00 (CB rate)

Ruble = 24.80/1 euro (CB rate)

June PMI Rises Modestly

• Russia’s manufacturing economy accelerated modestly in June driven by stronger growth in new orders, Moscow Narodny Bank Purchasing Managers’ Index (PMI) data showed today. The seasonally adjusted PMI, intended to give a snapshot of business conditions, registered 53.2 in June after 52.5 in May. PMI readings above 50 signal an increase in the manufacturing economy, while readings below 50 signal a contraction. “In line with the sustained growth of total orders, manufacturers continued to increase production, with output rising at a rate up marginally on that recorded the previous month,” Moscow Narodny Bank said in a statement. However, the survey continued to point to the existence of few significant capacity constraints in the supply of inputs to purchasing managers.

Russia Can Meet All Foreign Debts

• Russia’s deputy finance minister Alexei ULYUKAYEV, speaking at a seminar on reforms in Russia, on Saturday said that Russia can meet its payments on its foreign debts in full. He noted that taking into account oil prices and economic growth, Russia is in a position to pay off its debts, including in its peak year, 2003. Russia should pay off a total of $19.5 billion in 2003, against $14.5 billion this year, and some $15 billion in 2002. The years 2005 and 2008 will also be difficult for Russia, which will have to pay off to its creditors some $16 billion to $17 billion. The Finance Ministry proceeds in its estimates from oil prices that should be no lower than $17 to $18.50 per barrel, ULYUKAYEV told Itar-Tass. The deputy finance minister also stressed that Russia had not refused and was not refusing to pay off its debts. According to him, payments on the Russian debts had never failed to meet deadlines. However, payments on the debts of the former USSR have not always been made in time. Chairman of the Russian State Duma’s committee on budgets and taxes Alexander ZHUKOV supported ULYUKAYEV’s point, noting that Russia will, “be able to service and pay off its foreign debt,” by 2003.

IMF On Russian Monetary Policy

• The International Monetary Fund (IMF) has called on Russia at the end of a five-day mission to tighten monetary policy to check inflation and keep closely to spending plans in its current budget. An IMF statement issued in Moscow late on Friday said the mission’s main purpose was to discuss Russia’s macroeconomic outlook for the rest of the year and plans for the 2002 budget. “As to 2001, the mission was primarily concerned with modifications to policies needed to reduce inflation, which is running above what the mission considers consistent with the authorities’ target for the year as a whole. In this regard, the mission recommended some tightening of monetary policy, as well as maintaining expenditures within the limits in the 2001 budget.” President Vladimir PUTIN’s top economic adviser, Andrei ILLARIONOV, has said that the government will have difficulty staying within a 14 percent to 16 percent inflation forecast for 2001 already higher than the original target of 12 percent to 14 percent. Central Bank Chairman Viktor GERASHCHENKO predicted this month that Prime Minister Mikhail KASYANOV’s government would end up revising the target to 18 percent or more. The IMF statement also said that the mission found proposals for the 2002 budget, “to be consistent with [the Russian government’s] macroeconomic targets for next year.” Russia’s representative to the IMF, Alexander MOZHIN, told Reuters on Friday that the visiting delegation had given the Russian economy a seal of approval.

S&P Upgrades Russian Rating

• Credit rating agency Standard & Poor’s (S&P) on June 28th upgraded Russia’s long-term local and foreign currency ratings from B-minus to B, citing 2001’s strong economic performance and progress on structural reform. Russia’s short-term local and foreign currency ratings were raised from C to B, while the country’s rating outlook remained stable. The new B long-term rating applies to all of Russia’s roughly $16 billion of outstanding Eurobonds and its dollar-denominated Finance Ministry (FinMin) bonds, which were previously rated B-. S&P said in a statement that the upgrade reflected a stronger policy environment in Russia. Economic growth is expected to continue, and progress has been made on critical reform issues including land privatization, which passed its first reading in parliament. S&P said it believed the Russian government’s debt payments to the Paris Club of sovereign lenders would remain on track until 2003. “The upgrade also reflects better prospects for legislation of structural reform critical to a fundamental improvement in creditworthiness,” it noted. If growth continues through 2002, S&P said it, “could lead to the establishment of a stabilization fund, which serves as a mechanism to capture windfall revenues and would be insulated from current spending pressures.”


Russia-Iran Sign Oil-Gas Agreement

• Russia and Iran have signed an agreement on cooperation in the retooling of the Iranian oil and gas complex, according to the Russian Union of Producers of Oil and Gas Equipment, which represented Russia at the talks together with the Stankoimport state enterprise. On behalf of Iran, the agreement was signed by the Association of Producers of Equipment for the Oil and Gas Industry of Iran, which was created with the participation of the state for the purpose of modernizing the Iranian raw materials producing industry. Under the agreement, Russian industrial enterprises will take part in the retooling of Iranian plants, turning out equipment for the oil industry, and in organizing at them the production of competitive equipment, acting as partners in joint ventures, Itar-Tass reported. A proposal was formulated on the results of the talks to create a working group for the retooling of the Iranian oil and gas complex under the Russian-Iranian intergovernmental commission.

Russian Aluminum Hires Livshits

• Russian Aluminum has hired former deputy prime minister Alexander LIVSHITS as deputy chief executive. An economist who was also a finance minister under former President Boris YELTSIN, LIVSHITS will head up international activities and special projects for Russian Aluminum. Chief Executive Officer Oleg DERIPASKA said in a statement, “I am convinced his work in the new position will contribute to an increase in the company’s prestige in business circles both in Russia and beyond.” He added that the main aim of the nomination was, “to achieve a qualitative breakthrough in implementing the company’s global ambitions in all areas of its business.” LIVSHITS told the Kommersant Daily that one of his responsibilities would be project financing. “In fact such projects are not simply financial I would call them financial and political projects. Taking into account the scope of the company...there is no bypassing the political aspect,” he said. LIVSHITS was chairman of Rossiisky Kredit Bank and before served as minister without a portfolio responsible for Russia’s relations with the Group of Eight industrialized nations. Russian Aluminum controls over 70 percent of Russia’s primary aluminum output. It produced 2.44 million tons of the metal in 2000.

Sberbank Approves 10 Million Shares Issue

• Shareholders in Sberbank, Russia’s largest savings bank, approved a proposal to issue 10 million new shares, thereby doubling its capital. The aim of the issue is to double its capital to improve the ratio of capital to loans. Sberbank chairman Andrei KAZMIN said, “We will increase capital with a share issue,” the Financial Times reported. Minority shareholders have complained that such an issue would dilute the value of their shares, as a previous share sale did in May. The annual shareholder meeting on Wednesday rejected a preemptive clause that would have allowed existing shareholders to buy new shares in proportion to their holdings. Russia’s Central Bank holds nearly 64 percent of Sberbank.

EADS Order Airbus Parts From Russian Plants

• The European Aeronautic Defense and Space Co. (EADS) on Monday signed a cooperation plan that would award Russian plants $1.8 billion worth of orders for Airbus parts and other products over the next 10 years. The framework agreement, signed by EADS chief executive Philippe CAMUS and Russian Aerospace Agency chief Yuri KOPTEV, envisions that EADS will sign contracts with Russian aerospace manufacturers for the production of Airbus parts and joint design and production of other aircraft and space vehicles. “This new partnership will allow both EADS and Russia to be even more successful in the world market,” CAMUS said at a news conference. Russian plants will manufacture fuselage sections for every second EADS Airbus A320 - 150 sections per year - and also produce other components for the A320 as well as A330/340 aircraft. Russian companies are also invited to manufacture landing gear and engine mounts for the new super-jumbo A380 jetliner capable of carrying over 500 passengers. In addition, EADS is offering Russian aircraft makers a chance to participate in production of the new A400 military transport aircraft. “We’re hoping that Russian industry will become a major industrial partner of Airbus,” CAMUS said. The cooperation plan also calls for joint development of Russian-designed Mi-38 transport helicopter and modernization of Soviet-built MiG-29 fighter jets currently in use in Germany and several Central and Eastern European nations, the Associated Press reported. In space, the new partnership foresees further joint efforts to modernize Soviet-designed Soyuz booster rockets for more commercial launches of Western satellites. EADS’ partnership plan with Russia follows a cooperation agreement that Russia signed in April with Boeing, the Airbus’ rival, for the joint development of supersonic business jet and a small regional jetliner.


Today's News Highlights


WTO Entry Indefinitely Delayed

June PMI Rises

Russia Can Meet Foreign Debts

Rus-Iran Oil-Gas Agreement

European Republics

Ukraine Imposes VAT On Russia

Yushchenko Plans Comeback

South Caucasus & Central Asia

US Helps Georgian Borderguards

WB Gives Tajikistan $50M Credit

Published every business day since 1993


Intercon's Daily

When you need to know it as it happens

July 3, 2001

When you need to know it as it happens


Intercon's Daily

July 3, 2001

Tuesday Intercon's Daily July 3, 2001

European Republics

Ukraine Imposes VAT On Russian Goods

• Effective Sunday, Ukraine has imposed a value added tax (VAT) on Russian imports. The Ukrainian Cabinet agreed last week to drop the 1998 decision on canceling the collection of the VAT from Russian goods, sold in Ukraine. Finance Minister Igor MITYUKOV told reporters that, “the imposition of the VAT by Ukraine is an adequate and agreed step, taken in connection with the fact that Russia also transfers to collecting the VAT from imported goods [from July 1st], including Ukrainian products.” The finance minister emphasized that this action will not cover cases, which were specially spelled out in Ukrainian legislation. The Finance Minister stressed that the adopted decision will help to regulate the practice of taxation between the two countries in compliance with international norms.

Yushchenko Plans Political Comeback

• Former Ukrainian Prime Minister Viktor YUSHCHENKO, told the World Economic Forum business conference in Salzburg, that he is forming a coalition to contest elections in 2002. YUSHCHENKO, who was ousted by Ukraine’s parliament in June, explained, “I propose to create a democratic coalition block of forces made up of center-left and center-right.” He noted that the new government under Prime Minister Anatoly KINAKH is basically a caretaker administration until the elections, which is threatening the progress of reforms. He stressed that key reforms were in danger. Ukraine’s painfully slow reforms have meant the country has not received a new agreement with the Internationally Monetary Fund (IMF) and cannot proceed with talks with sovereign creditors on restructuring its debts. Ukraine’s problems with the IMF include whether the pattern of a balanced budget and economic growth could be sustained in the present political vacuum. Other key differences with the IMF were over banking reform with reference to the Bank of Ukraine.

South Caucasus & Central Asia

US Helps Georgian Border Guards

• The US has been assisting Georgia in building up its border guard troops by providing aid and training. Acting special adviser of the US secretary of state for newly independent states John BEYRLE said that the program for Georgia was almost the largest of all US aid programs to former Soviet republics. He said that the program has been implemented since 1998 and its total cost has reached $72 million. It deals mainly with personnel training and the supply of equipment, such as communications equipment and night-vision instruments. He confirmed that Washington had been discussing with Tbilisi and Moscow the situation on Georgia’s border with Chechnya. BEYRLE noted that the US had played a considerable role in the installation of the Organization for Security and Cooperation in Europe (OSCE) observers along the border.

Georgia Not To Host Foreign Troops On Bases

• Head of the Georgian parliament’s committee on foreign ties Nino BURDZHANIDZE on Sunday said that Georgia does not intend to deploy foreign troops, including NATO’s armed forces, on its territory after Russia withdraws its military units and weapons from their bases. She categorically refuted a number of mass media reports that the Georgian leadership supposedly intended to let the North Atlantic Treaty Organization (NATO) troops enter the country or deploy the alliance’s bases, according to an Itar-Tass news agency report.

FSU Industrial Output Statistics

• According to the data available at the Commonwealth of Independent States (CIS) Statistics Committee, Ukraine’s industrial output has been the highest among that of the CIS states in the first five months of 2001. From January to May, 2001, CIS industrial output has increased by 8.5 percent. From January to May, 2001, industrial output in Tajikistan has risen by 13.5 percent comparing to the same period last year, in Kazakhstan – by 11.6 percent, in Moldova – by 9.9 percent, in Kyrgyzstan – by 6.8 percent, in Russia – by 5.9 percent, in Azerbaijan – by 5.5 percent, in Armenia – by 4.2 percent, and in Belarus – by 3.4 percent, Prime News Agency reported. Industrial output in Georgia has fallen by 6.2 percent. Statistical data on Turkmenistan and Uzbekistan is not available.

US State Issued Travel Warning For Tajikistan

• The US State Department issued a travel warning for US citizens traveling to Tajikistan because of continuing political unrest. “The security situation in Tajikistan remains unstable and the political situation remains fluid,” the Department said, citing outbreaks of clashes between government troops and gunmen loyal to former rebel chiefs.

WB To Appropriate Tajikistan $50M

• The World Bank (WB) appropriated Tajikistan the second credit for structural changes, totaling $50 million, which will, “be aimed at bringing down the level of poverty and supporting economic growth,” according to a Bank press release. The document notes that the credit will help to grant, in a short period, financial support for the Tajikistan government so as, “to meet its requirements in cash for carrying out current reforms and to implement the first project for support of the intermediary Document for Strategy of Reducing Poverty.” Senior economist Jewdet DENIZER explained the appropriated credit is expected, “to have serious influence on solution of questions concerning poverty.” This is especially true of the countryside where 7 percent of Tajikistan poor population lives. Repayment of the credit will be made in line with ordinary WB conditions for such countries as Tajikistan: 40 years, including a 10-year grace period with an interest rate equal to nil. Since 1993, the republic already received $156 million.

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When you need to know it as it happens

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July 3, 2001