WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Friday, December 21, 2001

Russian Federation


Rus-UK Summit Focuses On Afghanistan

• Russian President Vladimir PUTIN will arrive in London today to hold talks with British Prime Minister Tony BLAIR. This is the ninth time the two leaders have met. Their good personal relationship has helped foster ties between Russia and NATO in the fight against terrorism. A British official noted that the Russian-NATO relationship will be one of the key issues discussed during the two-day visit, but the focus will be the crisis in Afghanistan. Defense Minister Sergei Ivanov pointed out this week, “Our countries are sharing intelligence information on a very serious and unprecedented scale. This has never happened before.” BLAIR wrote to PUTIN in October, shortly after the Russian-U.S. summit with U.S. President George W. BUSH, proposing Moscow sit as an equal with the 19 NATO member states when they discuss certain topics. The new Russia-North Atlantic Council would discuss “soft” security issues like fighting terrorism, peace support operations and the spread of weapons of mass destruction. The U.S. has rejected a proposal for Russia to have a veto vote in the alliance’s affairs. PUTIN has made closer integration with the West on economic issues as much a policy priority as security matters, and British support for Russia’s membership of the World Trade Organization (WTO) is expected to feature in their discussions.

Putin To Host Televised Question Show

• On Christmas Eve, Russian President Vladimir PUTIN will host a televised phone-in show from his Kremlin office. Ordinary Russian citizens will be allowed to call in and ask questions of PUTIN. The show ill be broadcast on the state-run ORT and RTR television networks across Russia’s 11 time zones. The Kremlin opened up a free-phone hotline Wednesday which took around 2,000 calls within a few hours of opening, ORT said. The call center will remain open until the end of the live broadcast. Officials expect around 1.5 million calls. Staff at the center said calls so far had focused on the nation’s main preoccupations  low living standards, pensions and conditions in the army. Citizens connected to the Internet will be able to put questions via the World Wide Web as well. PUTIN has used radio phone-ins and the Internet to talk to domestic and international audiences before to underscore his style as a modern, efficient manager.


CB Sells $50M To Repatriate Rubles

• The Russian Central Bank on Thursday sold $50 million at a minimum rate of 32.50 rubles per dollar at an auction aimed at helping foreigners to repatriate rubles frozen after GKO treasury bill restructuring. Total demand at the auction, which took place on December 18th, was $96.14 million, a Central Bank official told Reuters. The Central Bank’s official rate Thursday was 30.28 rubles per dollar. At the previous auction on November 13th, the Central Bank sold $50 million at a minimum rate of 31.90 rubles per dollar. The demand was $82.96 million. The Central Bank’s hard currency auctions are a preferred way of repatriating rubles that foreigners received after GKOs were restructured in the aftermath of the 1998 economic crisis. The rubles are effectively frozen in special “S” accounts.

Russian Banks To Raise Capital Or Close

• Russian Deputy Prime Minister and Finance Minister Alexei KUDRIN said on Tuesday that half of Russian commercial banks must either increase their capital, restructure, or face liquidation by 2004, Interfax reported. As of 2007, the minimum level of capitalization for individual banks should be no less than 5 million euros ($4.51 million). KUDRIN explained that goals for the banking sector were established under a joint strategy prepared by the government and the Central Bank, RFE\RL Newsline reported.


LUKoil Calls For Cuts In Production, Exports

• LUKoil Vice President Leonid FEDUN has called on Russia to cut oil production and exports, as promised to the Organization of Petroleum Exporting Countries (OPEC). He believes the restrictions should last six months, beginning in January. He explained that Russia’s pipeline network has been overloaded with oil after several ports were badly hit by storms this month. Novorossiisk was shut for 12 days this month after one strong storm. FEDUN told Reuters in an interview. “Our pipeline system is already overloaded, our refineries are oversupplied and we also have an obligation to cut oil exports. We don’t have any other choice but to cut our oil production…We think that we can cut oil output from January by the volume of the [export] cut we have offered to world markets.” It was unclear how many other Russian oil companies would support such a proposal. Most of them have been boosting output. Russia, the world’s second largest oil exporter, agreed in December under OPEC pressure to cut exports by 150,000 barrels per day (bpd) to help the cartel support flagging oil prices. Many Russian oil firms have been against any production cut as they have invested billions of dollars to develop fields. They also say that producing oil in Russia is different from the Middle East as it is impossible to restart an oil well in Russia once it has been shut down.

Second largest oil producer Yukos and sixth largest firm Sibneft, where output rose a solid 15 percent and 19 percent respectively, were among the strongest opponents of output cuts. While LUKoil has kept output flat the last two years, Yukos said it will increase its oil output by some 24 percent next year to 1.4 million bpd. Russia produces a total of seven million bpd and exports three million bpd.

MiG Seeks Modernization Deal With Bulgaria

• Russian plane maker MiG on Wednesday said it hoped to reach a deal with Bulgaria to modernize its MiG-29 fighter fleet as part of Sofia’s efforts to bring its air force up to NATO standards. A spokesman for MiG, best known for its military jets, told Reuters the company hoped the deal with Bulgaria would include the modernization of 20 Soviet-built MiG-29s. “The upgrade project involving Russian avionics will be carried out in Russia and is called for within the framework Bulgaria’s military reforms,” Maxim TARASENKO said. “A good deal of the 20 MiGs will need to be fully refurbished before having the upgrade,” he said. There are now 123 MiG-29s in Germany, Hungary, Poland, Romania, Bulgaria and Slovakia and their modernization could bring Russia up to $300 million. Arms exports remain an important source of income for Russia. The country expects its arms exporters to rake in more than $4 billion this year and even more in 2002. Russia continues to try to boost its share of the world weapons trade as it shrank dramatically after the collapse of the Soviet Union in 1991.


Today's News Highlights


Banks:Raise Capital Or Close

LUKoil On Oil Cuts

MiG Seeks Deal With Bulgaria

European Republics

Adamkus To Meet Bush

New Latvian CB Chief Elected

South Caucasus & Central Asia

House Passes Foreign Aid Bill

IMF On Kyrgyz Reforms

Obituary Ludmilla Kalugin

Published every business day since 1993


Intercon's Daily

When you need to know it as it happens

European Republics

Lithuanian Official Killed In Bombing

• Juozas PALIEKAS, a Lithuanian municipal official, was killed in an explosion on Tuesday while entering a residential building in the port city of Klaipeda. The local businessman and member of the Klaipeda region municipal council was fatally wounded in the blast. PALIEKAS, a Social Democrat who ran in the last parliamentary election, was taken to hospital where he died with wounds to his head and internal organs. “The explosion hit when he was entering the premises, but no further details are known at the moment,” Klaipeda police officer Gintaras STREIKYS told Reuters. Police have launched an investigation into the blast. Killings of political officials are rare in Lithuania.

Adamkus To Meet With Bush

• Lithuanian President Valdas ADAMKUS will meet with U.S. President George W. BUSH at the White House on January 23rd. White House spokesman Ari FLEISCHER said, “The visit provides an opportunity for the president to recognize the great strides that Lithuania has made over the last decade. The United States appreciates Lithuania’s support in the war on terrorism.”

Latvia Predicts Economic Growth For 2001

• Aija ZIGURE, head of the statistics office, said that Latvia’s economy is expected to show full-year growth of between seven and eight percent. She also expected fourth quarter gross domestic product (GDP) growth to be similar to a 6.3 percent expansion seen in the third quarter, Reuters reported. “The full-year figure should stand between seven percent and eight percent as manufacturing develops normally as well as other sectors, including transport, construction, and non-financial investment has grown. There are no signs which would make us trim our full-year forecast. It is believed that the economy will continue to grow at a similar pace in 2002. “The next year [growth] should not be worse than this year’s, but of course we are a small and open economy and there are risks out there,” ZIGURE said.

Latvian Parliament Elects CB Head

• The Latvian parliament on Thursday, in a vote of 68 to 1 with 17 abstentions, elected Imars RIMSEVICS to head the Central Bank and oversee the Baltic state’s monetary policy. Latvia is preparing to join the European Union (EU) and eventually adopt the euro. RIMSEVICS, current deputy Central Bank head, was the only candidate for the post after former economics minister Ingrida UDRE withdrew from the race earlier this week. The new Central Bank chairman pledged to keep the lat pegged to the SDR basket of world currencies. He told parliament, “My appointment would secure continuation of policies and predictability.”

RIMSEVICS replaces outgoing central bank head Einars REPSE, who resigned to enter politics. REPSE, with RIMSEVICS at his side, was widely respected for keeping the lat stable through a sharp banking crisis in 1995 and global emerging markets turmoil in 1997 and 1998. The new head of the Bank of Latvia, elected for a six-year term, will most likely be at the helm when the country joins the EU, which is expected to be in 2004. RIMSEVICS appointment was largely expected by the market and financial institutions.

South Caucasus & Central Asia

U.S. Approves 2002 Foreign Aid Bill

• The U.S. House of Representatives on Wednesday, in a vote of 357 to 66, approved the long-delayed foreign aid spending bill. It sets aside $15.3 billion in aid to foreign nations for the fiscal year of 2002. The Senate is expected to approve the measure and then will pass it to President George W. BUSH for his signature. Significantly, the bill suspends a nine-year ban on military aid to Azerbaijan. Most of the bill’s elements had been agreed by House-Senate negotiators last month. The Bush administration had asked Congress to set aside the ban to reward Azerbaijan, a potential new source of oil, for cooperation in the fight against terrorism. Pro-Armenian lawmakers had voiced concern that lifting the ban could lead to renewed aggression by Azerbaijan against Armenia over Nagorno-Karabakh, Reuters reported. The compromise provides $4 million in military aid to Armenia and lawmakers promised to revisit the issue next year.

Japan To Give 544M Yen To Armenia

• Japan promised Thursday to provide up to 544 million yen in grants to help Armenia improve its medical system and preserve historical documents, the Japanese Foreign Ministry said. Japanese Foreign Minister Makiko TANAKA and Armenian Foreign Minister Vartan OSKANYAN exchanged diplomatic notes on the grants at the outset of a meeting at the ministry. Japan will provide up to 495 million yen in grant aid to help Armenia replace aging medical equipment, the ministry said. Health care in the country has deteriorated since the collapse of the Soviet Union. It suffered a major earthquake in 1988 which killed some 25,000 people and the same year became embroiled in a conflict with neighboring Azerbaijan over ownership of the Nagorno-Karabakh region. Japan will also provide up to 49.3 million yen in cultural grant aid so the state-run Matenadaran-Mashtot Institute of Ancient Manuscripts can purchase equipment for preservation of historical documents, according to the ministry, Kyodo News reported. OSKANYAN told TANAKA that Armenia is thinking about opening an embassy in Tokyo next year.

IMF Urges Krygyz Reforms

• The International Monetary Fund (IMF) positively assessed the Kyrgyz economy. The Fund said Kyrgyzstan had achieved significant success in marco-economic stabilization, but must go on with reforms to be able to tackle its foreign debt and poverty. In Kyrgyzstan half the people live in poverty and foreign debt is 125 percent of gross domestic product (GDP). The IMF urged Kyrgyzstan to carry out tougher monetary policy, increase tax collection, carry on with privatization, and reform the banking sector. “Directors commended the authorities’ recent macroeconomic policy performance, which has resulted in strong growth, low inflation, and stability in the foreign exchange market,” the IMF said. It added, “The government’s commitment to a deepening of structural reform has already resulted in an improved implementation record in 2001, but resolute implementation of the new economic program will be needed to enhance prospects for sustained growth and poverty reduction, and a resolution of the country’s debt problem.” The Fund said it expected GDP growth to come in at 4.5 percent in the next three years compared with a 5.0 percent rise in 2000, the same as is expected in 2001. It called on Kyrgyzstan to be cautious about further borrowing abroad, Reuters reported. “Directors commended the authorities for their ambitious external debt strategy. Directors welcomed the willingness of Paris Club creditors to reschedule debt service payments falling due in the period ahead, while noting that, over the medium term, debt reschedulings on highly concessional terms will be needed to improve the prospects for growth and for achieving debt sustainability.”

U.S. Planes Land In Kyrgyzstan

• Four U.S. transport planes landed at Bishkek’s Manas airport late on Tuesday bringing equipment, Interfax reported. Some 150 troops are already stationed at the airport in readiness for the arrival of a 2,000-troop contingent. The arrival of the first U.S. transport aircraft in Kulyab, Tajikistan, originally scheduled for December 20th, has been delayed because the airfield is not yet in a fit condition for landing, ITAR-TASS reported. Italian military specialists are currently working to render the airfield operational, RFE\RL Newsline reported.

Kazakhstan President To Meet Bush

• Kazakh President Nursultan NAZARBAYEV is visiting to U.S. this week. He is traveling to Houston, Texas and New York before arriving in Washington DC. NAZARBAYEV will meet with U.S. President George W. BUSH on Saturday.

Tajikistan-India Agree To Boost Cooperation

• The first session of the Tajik-Indian commission on trade and economic cooperation concluded with the signing of a protocol on cooperation, Asia Plus-Blitz reported. An agreement on cooperation in the field of tourism was also initialed, RFE\RL Newsline reported. On Tuesday, Tajik Defense Minister Colonel General Sherali KHAIRULLOEV left for India for talks on the military and political situation in Central Asia. He will reportedly also visit factories producing munitions.

Obituary: Ludmilla V. Kalugin

We regret to inform you that the wife of our colleague Oleg D. Kalugin passed away December 20th at her home with her family. She was a remarkable woman with strong views and character, who steadfastly supported her husband and his efforts to bring democratic change to Russia. Her friendship, humor, and warmth will be sorely missed by all those who had the pleasure of her company. Please remember her and her family in your intentions.

The Daily Report on Russia and FSU

will not be published

from December 24th to January 1st

For Intercon’s Winter Break

December 21, 2001

When you need to know it as it happens


Intercon's Daily

December 21, 2001

Intercon's Daily


Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia  copyright 2001, Intercon International, USA.

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

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

Tatyana Kotova, Contributing Editor

When you need to know it as it happens

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

available for non-profit institutions.

December 21, 2001