Publication: Monitor Volume: 2 Issue: 238

The De Beers diamond conglomerate has achieved one of the goals it set when, earlier this week, it threatened to end its 35-year diamond trading agreement with Russia: it has got the attention of the Russian government. Through its Central Selling Organization cartel (CSO), De Beers markets about 70 percent of the world’s diamonds. On December 18 it gave Russia until the end of this year to ratify a new agreement under which De Beers would continue to sell the bulk of Russia’s diamonds on world markets. (Itar-Tass, BBC World Service, December 18) "Part of the intent is tactical, to make sure we get the attention of the authorities in Russia," CSO managing director Gary Ralfe admitted. (AP, December 18)

De Beers signed a provisional agreement in February 1996 with Russia’s main diamond-producing company, Almazy Rossii-Sakha (ARS), under which Russia would market 75 percent of its rough diamonds through the CSO. This agreement ran aground when it was passed to the Russian government for final approval in September. At that point, the Russian government began to accuse ARS of tax evasion and currency fraud. Early this week, Finance Minister Aleksandr Livshits announced that the government wanted to review some aspects of the agreement with De Beers. It was at that point that De Beers resolved to force Moscow to make up its mind one way or the other. De Beers suspects Russia of leaking rough diamonds onto world markets, circumventing the CSO, in order to earn hard currency quickly. But it also suspects that it has got caught in the crossfire between the central Russian government and diamond producers in the Siberian Republic of Sakha (Yakutia).

So far, De Beers’ ultimatum has illuminated a new split in the Russian government, between the Economics and Finance Ministries. Deputy Finance Minister Vladimir Panskov said yesterday that Russia must sign a new agreement with De Beers "otherwise, we shall simply destroy the world diamond market." The Finance Ministry, which provoked the rumpus, said it was looking into the matter but claimed it had not yet been officially informed about the ultimatum by De Beers. (Interfax, December 19) The most important disagreement, however, remains that between Moscow and the autonomy-minded Republic of Sakha. Much depends on the outcome of the presidential election due to take place in Sakha on Sunday, December 22. Favored to win is the incumbent president, Mikhail Nikolaev, a former Communist party official. Under his leadership, Sakha has taken an increasingly autonomous line from Moscow. It is Moscow’s desire to rein in the republic that is believed to be delaying the agreement with De Beers.

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