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, May 16, 2000

Russian Federation

Politics

Chechen Surgeon Gives First Hand Accounts

· Chechen Dr. Khasan Zhynidovich BAIYEV this morning addressed a Radio Free Liberty reception, describing his experience working inside a war-torn Chechen hospital. He stressed that he could not ignore his Hippocratic Oath and remained behind to operate on Russians, Chechens, civilians and rebels alike. It was he who amputated the leg of warlord Shamil BASAYEV, after his troops escaped Grozny through a mined field. BAIYEV stated that in one day he conducted 67 amputations and abdominal operations. He worked in this hospital until the Russians bombed and destroyed it. The federal troops then mined the hospital to prevent medical personnel from using it again and retrieving medicine and other supplies. The doctor explained his anti-discriminatory approach to his profession caused him to be a target by both sides. BAIYEV said federal troops searched for him, labeling him as the "bandit surgeon" who operated on BASAYEV. He related stories of negotiation attempts with soldiers, who ultimately ruthlessly searched the village. He also said that federal troops camped outside one village and once a large band of rebels enter the village, the soldiers were too afraid to fight. The troops waited for reinforcements to arrive and then indiscriminately bombed the village with artillery and rockets. BAIYEV also noted that contract fighters, known for their cruelty, were looting villages and executing civilians. These fighters traveled through the countryside in armored vehicles, tanks, and helicopters. While wearing uniforms, their behavior identified them as an irregular force. They fought to plunder and pillage villages. BAIYEV's war experience painted horrific stories of injustice, indiscriminate bombing, and the scars of torture inflicted by authorities in charge of filtration camps.

Amnesty International has been pressing the US State Department to urge Russia to allow access for international human rights monitors and journalists in Chechnya, specifically to document abuses in filtration camps. Other action demands include an international investigation into human rights abuses, access for humanitarian groups, inclusion of language criticizing human rights violations in Chechnya in the Foreign Operations Appropriations bill, and urging Russia to release a list of detained prisoners. Amnesty International is pushing for an international monitoring group instead of a Russian commission. In a letter to the editor of the Financial Times in response to Russian Foreign Minister Igor IVANOV's article "Russia Has Nothing To Hide In Chechnya," Jeremy PUTLEY said, "As Amnesty International has pointed out, it is unrealistic to expect the [Russian] presidential appointee to investigate abuses such as torture and ill-treatment in secret `filtration camps' when he himself has already denied that such camps and abuses exist." The rights organization complained that no matter how many cases it cites, the State Department is unwilling to take action. In a recent Congressional hearing, Senator Mitch MCCONNEL (Rep.-KY) quoted from a December 15, 1999, Russian National Security Council meeting summary that, "this region [Southern Chechnya] must be rendered devoid of life and the basis for the return of new bandits and terrorists must be eliminated forever." He pressed US Undersecretary of State Strobe TALBOTT to endorse a war-

Today's News Highlights

Russia

Did Thugs Get The Right Writer?

Foreign Invest. Drops In 1999

Unexim Bank Delays Debt Plan

European Republics

Latvia Prepares For EBRD Mtg.

Latvia's Trade Defit Gap Widens

Estonia's 1999 GDP Contracted

South Caucasus & Central Asia

Georgia-Nato Partnership Grows

Kyrgyz To Restructure Debts

Politics-Economics-Business

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May 16, 2000

Intercon's Daily

crime tribunal or at the very least an international investigation of human rights abuses. TALBOTT remained unwilling to do so.

Did Thugs Attack The Right Journalist?

· Igor DOMNIKOV, a journalist who works for Moscow-based Novaya Gazeta, was beaten unconscious with a hammer by an unknown attacker on Friday outside his apartment building. Neighbors discovered him and immediately called an ambulance and the police. DOMNIKOV was so severely beaten that his wife could not immediately identify him. Police have not determined whether the attack was in retaliation for something DOMNIKOV had written or a random act of violence. Several journalists have been attacked or killed in Russia after writing controversial articles. Novaya Gazeta editor Dmitry MURATOV said Saturday on NTV Television that the attack may have been aimed at Oleg SULTANOV, who was conducting an investigation into corruption among high-ranking officials involved in the oil industry. SULTANOV resembles DOMNIKOV and lives in the same building. DOMNIKOV writes about culture and education. However, the United Press International reported that DOMNIKOV's wife said that she had seen her husband's notes before he left for work. "He said he had found a good formula to write about the events at the Media-Most holding company, which in his opinion, represent an attack on the democratic press," she said. Politicians and journalists have expressed concern about the state of a free press, after tax police, prosecutor officials, and Interior Ministry police raided the offices of the Media-Most group on Thursday. The raid has been cited as part of an intimidation campaign against media outlets, which criticize the Kremlin.

Economy

Ruble = 28.28/$1.00 (NY rate)

Ruble = 28.26/$1.00 (CB rate)

Ruble = 25.58/1 euro (CB rate)

Foreign Investment Dropped Over 90 Percent

· The Russian Central Bank on Friday announced that foreign investment into Russia fell over 90 percent from $20.8 billion in 1998 to $1.3 billion in 1999. Foreign direct investment rose from $2.8 billion in 1998 to $2.9 billion in 1999. Foreign loans and credits to the government sector declined from

$6.7 billion in 1998 to $2.7 billion in 1999. Actual government payments for foreign loans and credits totaled $7.2 billion, including 5.6 billion on the principle and 1.6 billion in interest, while the due payments stood $12.2 billion. The proportion of foreign banks in the Russian commercial banking system climbed to 10.7 percentage as of January 1, 2000, up 70 percent from the index of previous year. Foreign direct investment into this sector increased to $500 million [including subordinated credits], compared with an initially estimated $300 million, in 1999. Last year, foreign currency in cash brought into Russia amounted to $11.7 billion, down from $20.7 billion in 1998. Some $8.3 billion out of the sum flowed into Russia by the banking system. At the same time, $12.6 billion were taken out of the country in comparison with $21.6 billion in 1998, including $5.4 billion through unregistered trade [shuttle traders] and another $5.3 billion by tourists.

IMF-Russia To Review Gref's Reform Plan

· International Monetary Fund (IMF) experts are meeting in Moscow today with German GREF, director of the Russian government's Center for Strategic Developments, which is drafting an economic reform program for President Vladimir PUTIN. The talks will continue through the beginning of June. Martin GILMAN, the IMF representative in Moscow, said he wouldn't rule out that official negotiations between Russia and the IMF on a new loan program could start in June. In April first deputy managing director of the IMF Stanley FISCHER said the fund expects to resume lending to Russia soon. The IMF has not released any money to Russia since it suspended a $4.5 billion loan program last year. GILMAN did note that new lending would not begin until a new government is in place. He told an investment conference, "We have indications that Mr. PUTIN, Mr. KASYANOV, the new government, are united in understanding that Russia should move forward quickly to take advantage of the favorable situation to start implementing structural reforms, which is not going to be easy." The IMF team will be reviewing GREF's plan and considering which, "aspects of Mr. GREF's proposals will actually be adopted by the new government and in what time [frame]." GILMAN stressed, "The government needs to concentrate on making sure that the fiscal deficit and the fiscal balance would be sustainable in the medium-term context."

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Other key issues to be discussed include reducing the amount of barter in the economy, tax reforms, strengthening the social safety net, and judicial, industrial and banking reforms.

Business

LUKoil-Gazprom Split Exploration Unit

· According to Gazprom affiliate Interfin Deputy General Director Valery DIKEVICH, LUKoil and Gazprom have agreed to split oil exploration and diamonds mining assets of Arkhangelskgeoldobycha (AGD), an Arctic exploration company. LUKoil plans to increase its stake to 100 percent in AGD and will receive its oil producing assets, while Gazprom is interested in the exploration company's diamond deposit licenses. V.A. Invest, a venture equally owned by LUKoil and Gazprom, holds a 57.8 percent stake in AGD. In January, Archangel Diamond Corp, an international diamond exploration company, filed a request with a Stockholm-based International Tribunal seeking the transfer of a diamond deposit license from AGD to a joint venture set up by the companies.

Doveritelnii Approves Gazprom Loan

· Russia's Doveritelnii i Investicionnii Bank, the affiliate bank of Yukos Oil Co., the country's number two oil producer, said it will provide a $100 million loan to Russian natural gas monopoly, Gazprom, for company projects. This the first loan to Gazprom with a six-month maturity and cooperation will expand. The bank plans to allocate loans backed with the 100 percent liquid assets. Doveritelnii I Investicionnii Bank provided a $16 million loan to Unified Energy Systems (UES), Russia's electricity distribution monopoly, for new equipment purchases in April.

Unexim Bank Delays Debt Plan

· Unexim Bank has delayed the deadline creditor have to respond to the bank's debt restructuring plan from May 15^th to May 25^th. The bank is seeking to get written approval of its offer of 10 percent cash payment, new dollar bonds and potential profit from other assets it owns in exchange for debts it stopped servicing in 1998 and 1999. Unexim is scheduled to meet with bondholders on May 22^nd, after failing earlier this month to persuade enough bondholders to accept their debt plan. A Russian court is due to

hold a hearing on Unexim Bank's bankruptcy on July 3^rd.

European Republics

Latvia Prepares For EBRD's General Meeting

· Latvian officials put thousands of security officers on standby in preparation for this weekend's annual general meeting of the European Bank for Reconstruction and Development (EBRD). Officials said they did not expect protests on the scale of those, which disturbed the meetings of the International Monetary Fund (IMF), the World Trade Organization (WTO) and the Asian Development Bank. It is estimated that about 3,000 top government and banking officials from around the world are expected to converge on the Latvian capital for the EBRD's meeting. Interior Ministry spokesman Normunds BELSKIS, who is not predicting a large protest said, "A couple of thousand police officers are expected to be involved but our aim is to provide a maximum of security while remaining unseen." The EBRD meeting officially opens on May 20^th and runs until May 23^rd. Ivars STURAINIS, an official involved in the operation told Reuters, "This event is unprecedented for Latvia in terms of the numbers of visitors. Our task is to see to it that the bankers are safe both where they work, live or rest…We are drafting in help from the region surrounding Riga, utilizing all police units, be it traffic, security or municipal."

Latvia's Trade Deficit Gap Widens

· Latvia's trade deficit widened at a faster pace in March than February. The trade deficit totaled 59.1 million lats ($98.5 million) in March compared with 41.2 million lats in the previous month. For the first three months of the year, the country's deficit totaled 141.1 million lats, compared with 129.7 million lats in the same period a year earlier, the Central Statistical Bureau reported. In 1999, the March trade deficit totaled 58.2 million lats, while the February deficit totaled 39.3 million lats. The country exported 100.8 million lats in goods during March, up by 6.7 million lats from a month ago, while it imported 159.8 million lats in goods, up 24.5 million lats from a month ago. For the year so far, 274.5 million lats in goods have been exported, while 415.6 million lats in goods have been imported. The

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country's biggest export market and the main source of imports in March was Germany, with 17.5 percent of the total and 15.0 percent of the total, respectively.

Ukraine's Foreign Investment Reaches $178M

· Ukraine's State Statistics Committee said the nation attracted $178.3 million in foreign direct investment in the first quarter of this year. This is a rise of 70.1 percent more than in the same period in 1999. Cash investments totaled $96.6 million in the period, while the rest came in the form of immovable and movable assets and securities. As of April 1^st, Ukraine reported total foreign direct investment of $3.37 billion since the end of communism, up from $2.82 billion a year ago, the committee said. The US remains Ukraine's largest foreign investor with its portion totaling $614 million, or 18.2 percent of the overall investment in the country. The Netherlands invested $307 million, or 9.1 percent, and Russia $286 million, or 8.5 percent. Ukraine's food processing industry remains the most attractive to the investors, with about $692 million, or 20.5 percent of the overall investments.

Estonia's 1999 GDP Contracted

· Estonia's economy contracted 1.1 percent in 1999, according to revised preliminary data of the Statistical Office. Previous calculations showed gross domestic product (GDP) falling 1.4 percent last year. According to the revised data, GDP rose 1.8 percent in the fourth quarter of last year, and fell 0.5 percent, 2.5 percent and 3.3 percent in the third, second and first quarters respectively. Estonia's GDP at constant prices totaled 48.47 billion kroons in 1999, from 49 billion kroons in 1998.

South Caucasus & Central Asia

Georgia-NATO Strengthen Partnership

· First deputy head of Georgian Armed Forces General Staff David NAIRASHVILI and the representative of the NATO Partnership for Peace program headquarters under the Georgian Armed

Forces General Staff Nikolay LALIASHVILI departed for Brussels today. They will attend a discussion on the "Process of Planning Partnership and Analysis" of NATO. Georgian representatives will meet with 10 NATO member-countries, which will discuss the additional compatibility goals of Georgia. The Georgian side must achieve 25 goals for compatibility with NATO, which will promote the coincidence of Georgian Armed Forces with the North-Atlantic Alliance standards.

Meanwhile, head of Georgian Navy General Staff, Giuli GALDAVA is representing the Georgian side at an Athens meeting on widening NATO cooperation with countries to its South. Issues relating to the widening of cooperation with Mediterranean and Black Sea basin countries in the framework of NATO Partnership for Peace program will be discussed today. Commanders and heads of general staff of the Navy forces of the Mediterranean and Black Sea basin NATO member and partner countries are attending the meeting.

Kyrgyz Seeks Debt Restructuring Deals

· Head of the Kyrgyz State Investment Committee Urkaly ISAYEV said the nation will meet its debts to multilateral international lenders but servicing commercial loans were problematic. Kyrgyzstan will be seeking to restructure some of its $1.2 billion foreign debt. The nation's debt equals its gross domestic product. ISAYEV stressed that the nation must start repaying these debts immediately. He said that these debts equal about 20 percent of total foreign debt. ISAYEV said Kyrgyzstan was to repay $83 million to foreign creditors in 2000. The loans, mostly from Russia, Pakistan and Turkey and taken out after independence from Moscow in 1991, were received at 2.5 percent over LIBOR, Reuters reported. Russia recently managed to persuade its creditors in the Paris Club of creditor nations to restructure part of its own debts, and ISAYEV said Kyrgyzstan would seek similar conditions. It owes Russia $130 million. Kyrgyzstan has been fighting to recover from its economic downfalls

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

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