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DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 903,

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

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Friday, June 16, 2000

Russia's "first political prisoner." He has since received threatening telephone calls and fears his own arrest may be next.

PUTIN has acknowledged that arresting GUSINSKY was excessive and that the prosecutors could have accepted a pledge not to leave town during the investigation. GUSINSKY spent his third night in Moscow's dismal, overcrowded Butyrskaya jail despite protests from Russia's other oligarchs and his lawyers. Prosecutors today formally charged GUSINSKY, dashing his lawyers' hopes to seek his release. Leading Russian businessmen and lawmakers from across the political spectrum have urged the authorities to release GUSINSKY, saying it has discredited the country's reputation abroad and casts a shadow over its hard-won democratic freedoms. Valery NIKOLAYEV, the investigator in charge of the case said there were no "political motives" and that it was "a common criminal case." He said, "I personally made the decision to arrest suspect GUSINSKY on the basis of the materials we had." Andrei PIONTKOVSKY, director of the Center of Strategic Studies, a Moscow think tank, said the case reflects a struggle inside the Kremlin between newly installed advisers, who worked in the Soviet-era KGB, and holdovers from President Boris YELTSIN's administration who had close ties to Russian business moguls.

Chechen Moslem Cleric Shot Dead

· Chechen Moslem cleric Imam Umar IDRISOV, an ally of the pro-Moscow Chechen movement, was shot

Russian Federation

Breaking News

Gusinsky Released From Overcrowded Prison

· Media-Most oligarch Vladimir GUSINSKY was released from prison late this evening, after signing a written pledge not to leave the country during the ongoing investigation, the Associated Press reported. The written pledge also indicated the charges brought against him earlier today, which include swindling and theft. GUSINSKY's lawyer Genri REZNIK said, "The gist of the charges is that Media-Most itself was created exclusively with the goal of inflicting damage on the state. We are dealing with full-scale political repression." GUSINSKY was arrested on Tuesday, under suspicious circumstances. The Media Most head had been held in Butyrskaya prison, which even President Vladimir PUTIN admitted was an excessive measure.

Politics

Russia's "First Political Prisoner"

· Vladimir GUSINSKY, head of Russia's only independent media, believes he has been arrested because the government fears a free press. Russian President Vladimir PUTIN, however, denied that. The General Prosecutors' office said that GUSINSKY is a suspect in a $10 million embezzlement of state funds in a privatization sale of Russia Video. GUSINSKY purchased a 75 percent stake in May 1997. Prosecutors believe the deal involved a kickback to an executive who helped broker the transaction. Igor MALASHENKO, Media-Most vice chairman, said the arrest was meant to intimidate NTV and the holding's other media outlets. GUSINSKY's media empire has been particularly critical of the war in Chechnya and outspoken about corruption in the Kremlin. GUSINSKY's deputy Igor MALASHENKO said his boss has become the new

Today's News Highlights

Russia

Putin On Economic Reforms

Aeroflot To Lease More Boeings

European Republics

Estonia On Joining NATO

Kuchma Passes Privatization

South Caucasus & Central Asia

Georgia Optimistic On IMF Loan

Azeri-Romania On Oil Exports

Kazakh Has No Arms Inventory

Kazakhoil-Nelson Gold Form JV

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dead today. He died instantly from bullet wounds to the head in Urus-Martan. It is not clear whether rebels fighting in the area carried out the attack. However, there was a 40-minute clash on the outskirts of the village, in which 10 "aggressors" were killed. Moscow's newly appointed representative Mufti Akhmad KADYROV said that IDRISOV offered the best chance of bringing peace to the war-shattered region, Reuters reported. KADYROV has called on rebels to lay down their arms and end the nine months of fighting. "Enough blood of the Chechen people has been spilled for the sake of ideas which are alien," to the Chechens. Despite this peaceful approach, in an interview Thursday, KADYROV said, "If they [rebels] hunt me, I'll hunt them. It is either them or me. There must be one person in charge of Chechnya, there must be law and order here…For three years we have not had either work, wages or freedom. Whoever had the biggest gang ruled the roost. Everybody had his own gang, including me because I had to survive in this environment." Kremlin spokesman Sergei YASTRZHEMBSKY said, "It's a double crime when people calling themselves Moslems kill a Moslem spiritual leader."

On Thursday, authorities slapped stringent security measures on Grozny, by barring trucks delivering needed water supplies to the city. Federal troops have been the target of several suicide missions, which served as a change in tactics form the rebel's hit-and-run attacks. Four Russian Interior Ministry servicemen were killed and two others were wounded in a powerful explosion in the Chechen capital of Grozny on Thursday. The incident occurred in the settlement of Kirovo between the Chernorechye and Zavodskoi districts. Commander of the Russia's North Caucasian military district Colonel General Gennady TROSHEV said there are still some 2,000 rebel guerillas fighting in Chechnya, including the capital of Grozny. First deputy chief of the armed forces' General Staff Valery MANILOV said on Thursday it would take another two months for his troops to defeat rebel units, and then another two years to "liquidate" remaining rebels.

Helms Blocks Russian Loan Package

· Chair of the Senate Foreign Relations Committee Jesse HELMS (NC-Rep.) on Thursday blocked

a $485 million loan-refinancing package for Russia. He said, "For the past 10 months, Russia has conducted an indiscriminate war in Chechnya that has killed countless thousands of innocent people has left hundreds of thousands of others homeless." The Chairman has the authority to block such an expenditure without further Congressional approval, the Financial Times reported. HELMS also noted that, "If the government of Russia has the financial capacity to conduct its brutal assault of Chechnya and to finance the MILOSEVIC regime, it certainly has the financial capacity to meet its existing debt obligations." He said, "Rescheduling Russia's international debt will only reduce the political and economic pressure that should be directed against the Kremlin."

Economy

Ruble = 28.29/$1.00 (NY rate)

Ruble = 28.29/$1.00 (CB rate)

Ruble = 27.28/1 euro (CB rate)

Oct Nov Dec Jan Feb Mar Apr May Jun

Putin Pledges To Implement Reforms

· Addressing a group of top German businessmen, Russian President Vladimir PUTIN said he was set to implement key economic reforms by the end of July. He said that his administration is committed to improving the investment climate and business environment. PUTIN noted that a cut in

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	Friday		June 16, 2000
	Intercon's Daily
	business taxes by 2.5 percent will be a part of these reform measures. PUTIN emphasized that, "consistently to uphold ownership rights is the basic and irreversible principle of our politics…There will be no re-carving of property in Russia." He pointed out that a new economic system is actually in operation in the Russian Federation and market-determined mechanisms have been activated. Chairman of the Eastern Europe committee of the German business lobby Klaus MANGOLD said, "The key points of this reform are banking, tax and customs." He added that a working group had been established to speed up the approval of investments in Russia and a German-Russian cooperation council had been revived. MANGOLD also confirmed that a decision in principle had been reached over Hermes export credit guarantees, which should pave the way for Germany to reopen export cover to Russia. Business Aeroflot To Lease More Boeing Aircraft · Aeroflot said it plans to lease more aircraft from The Boeing Co., the world's biggest aerospace company, to better compete with foreign carriers on its international flights. Aeroflot, which already has 17 Boeing planes, including 10 737-400 jetliners, two 777, four 767 and one DC-10 aircraft, could lease another four to six Boeing planes. Nikolai PUZIRYOV, deputy director of Aeroflot's aviation department, said that new leases depend on how quickly the demand for air travel returns. Aeroflot uses Boeings on its most profitable routes to the US and Tokyo, he said. "The experience showed us that Western passengers, especially US passengers are oriented to Western technology," PUZIRYOV said. Aeroflot now uses Boeings and Airbus Industries aircraft on 60 percent of its flights. Aeroflot pays about $170 million a year to lease Boeing and Airbus aircraft and has asked companies to reschedule some payments due in 1999. Boeing Signs Strategic Agreements · The Boeing Company on June 7^th announced it has signed agreements with the Ilyushin Aviation Complex and the Vekhnaya Salda Metallurgical Production Association (VSMPO), the largest titanium manufacturer in the world. The agreements are for the development of a legal and business structure for strategic partner relationships and	further cooperation between the companies. The President of Boeing, Russian and US government leaders, Duma members, aerospace industry leaders and the Boeing team in Moscow attended a ceremony to mark the signing. The agreement with Ilyushin enables increased opportunities to work together in design, production, and other areas of the aviation business. Boeing and VSMPO will work together in the joint development of new titanium technology and alloys, their application and marketing. According to a company press release, Boeing and Russia have been working to enhance commercial aviation safety through training of airline pilots, maintenance personnel and air traffic control managers. Boeing President Harry STONECIPHER said, "The signing of these agreements...is part of Boeing's strategy to be more global. We're interested in a broad relationship with Russia and not just a few jobs here or there."

		European Republics Estonia Responds To Putin's NATO Fears · Estonian President Lennart MERI reacted strongly to Russian President Vladimir Putin statements that further eastward expansion by NATO could endanger international stability. PUTIN said, "If a country like Russia feels threatened, that would destabilize the situation in Europe and the whole world." The Estonian President said that the history of the NATO military alliance showed it had increased stability both for its members and its neighbors. "Mr. PUTIN's statement regrettably ignores one of the basic principles of the OSCE (Organization for Security and Cooperation in Europe) subscribed to by Russia herself…[That is] all countries have the inherent right to choose their own security arrangement, including the joining of alliances...No country has ever contested the right of Russia and Belarus to form a security alliance." Estonia, along with its Baltic neighbors Latvia and Lithuania, has made NATO membership part of its key foreign policy objective since gaining independence from the Soviet Union. US President Bill CLINTON on Thursday issued a statement in support of Estonia's efforts to gain membership in the alliance. Kuchma Signs Three-Year Privatization Plan · The State Property Fund announced Thursday


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	Friday Intercon's Daily June 16, 2000

		South Caucasus & Central Asia Georgia Hopes For New IMF Loan · Georgia's Finance Minister Zurab NOGAIDELI on Thursday said he is optimistic that the International Monetary Fund (IMF) will issue new loans to help the Caucasus nation deal with its economic crisis. He said, "There is no doubt that this [new IMF] program will be implemented." The program will help combat poverty. The Fund has recommended that Georgia improve its tax collection and crack down on corruption, before getting the new funds. The head of the Southern Department of the Second European Department of the International Monetary Fund David OWEN, after meeting with Georgia's economic development team, said that the economic situation in Georgia is complicated. The IMF mission, he is leading in Tbilisi, will focus on three key issues: measures for overcoming the grave fiscal situation in Georgia, prevention of corruption in governmental structures, and further development of the strategy for the decrease of poverty in the country. The mission will also review whether Georgia has fulfilled earlier recommendations to clear up wage and pension arrears and increase tax revenues. Reuters reports that in May, the IMF criticized Georgia for little progress in reducing poverty made in recent years, as tax collection was inadequate and arrears were rising. Georgia's Economic Advisor to President Eduard SHEVARDNADZE, Temur BASILIA, remains optimistic. He said, "I am sure that specific decisions will be made regarding our future cooperation with the Fund after this visit. I think these decisions will be favorable for our country." The previous IMF lending program to Georgia, a $246 million Enhanced Structural Adjustment Facility (ESAF), ended last year. Azeri-Romania Discuss Oil Deals · Azeri President Geidar ALIYEV met with Romanian Senate Foreign Policy Committee Chairman Georgiu PRESECARU on Wednesday to discuss oil transportation. ALIYEV noted that in his next visit to Romania, "specific decisions" will be made on the export of some Azeri oil via Romania. PRESECARU, in a meeting with Riza IBADOV, who chairs the Azerbaijani parliamentary commission for foreign policy, proposed that exports
	that Ukrainian President Leonid KUCHMA signed into a law an ambitious three-year privatization program. Adoption of the program, passed by parliament in May, will help Ukraine meet its heavy foreign debt schedule and is a key condition set by major financial organizations for continuing financial loans. Head of the State Property Fund Olexander BONDAR called the President's approval, "a very important political step... because previously we have never had so radical a program aimed at attracting investments." Privatization is expected to bring about $1 billion in the next two years. BONDAR said the fund has raised 1.034 billion gryvnias from privatization in the first five months of this year. Ukraine's Could Receive $1.5B In WB Loans · Immediately following the International Monetary Fund's resumption of lending to Ukraine, the World Bank announced it is prepared to release $170 million in loans to Ukraine. The IMF team arrived in Ukraine on Thursday to begin two weeks of talks with the government on reforms and the economic outlook. World Bank director for Ukraine and Belarus Luca BARBONE said the loans will be aimed at restructuring Ukraine's coal industry and financial sector. World Bank Vice President for Europe Johannes LINN said that the Bank may release $1.5 billion in loans to Ukraine over the next three years, if it succeeds in reforming its economy. LINN said, "The level of support in terms of financial assistance will depend very much on the government's ability to actually implement its reform program." These funds would be used in programs to tackle poverty, reforming government management, and the power, agriculture industries, and protecting the environment. BARBONE added that a new country assistance strategy, expected to be presented to the World Bank's board of directors in September, will replace a three-year program approved by the Bank in 1996. The new program was likely to put a stronger emphasis on social issues, such as poverty reduction and reforms in the education and health systems. Ukraine has asked the World Bank to extend a deadline for a $100 million loan, which expires on June 30^th. Ukraine has suggested the later date of December 31^st. The World Bank did not release any loans to Ukraine so far this year.


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from the Baku-Supsa pipeline transported by a tanker to Constanta would supplement, rather than compete with, the planned Baku-Ceyhan oil export pipeline. PRESECARU also expressed Romania's interest in expanding bilateral economic cooperation with Azerbaijan and promised support for Baku's bid for full membership in the Council of Europe.

Armenia Seeks To Join Council of Europe

· President of Armenia Robert KOCHARYAN told visiting Chairman of the Council of Ministers of the Council of Europe, Deputy Foreign Minister of Italy Umberto RANIERI on Thursday that Armenia is interested in joining the Council of Europe. He said, "we are seeking to become an equal member of the European family as soon as possible." According to RANIERI, Armenia has a unanimous viewpoint concerning its membership in the Council of Europe, and this idea has become a consolidating factor and is taken positively by society and political forces. Touching on bilateral ties between Armenia and Italy, Robert KOCHARYAN stressed the importance of the deepening of economic interaction. He expressed the hope that the oncoming opening of the Italian embassy in Yerevan will become a new impetus for extending cooperation between the two countries. RANIERI also pointed out that it is important for Armenia and Azerbaijan to join the Council simultaneously. He said that democratic stability in the region can enhance the peaceful settlement of conflicts. Armenian Foreign Minister Vartan OSKANYAN met in Brussels on Tuesday with NATO Secretary-General Lord ROBERTSON to brief him on the Nagorno-Karabakh conflict resolution talks. He also stressed that both sides are committed to a compromise. OSKANYAN also expressed his nation's desire to intensify its cooperation with the NATO within the Partnership for Peace program. He believes that Armenia's participation will help promote peace and stability in the region.

Kazakh Arms Defense In Disarray

· Kazakh Defense Minister Sat TOK-PAKBAYEV admitted on Wednesday that Kazakhstan does not

maintain an inventory of its arms. He said the Defense Ministry does not know how many arms it owns and what conditions they are in. Kazakhstan was strongly criticized by Western countries last year, after an undisclosed number of MiG-21 jet fighters were sold to Stalinist North Korea. The Kazakh government said a private firm illegally organized the sale. Kazakhstan has vowed to crack down on illegal exports. TOKPAKBAYEV said, "By the end of the year we must complete the inventory at the same time as calculating our arms requirements for peace time and war." "Sales must go on in order to fund the budget, and a certain proportion of the money will come to us for buying new equipment and to help resolve social problems [in the army]." Kazakhstan has vowed to form a special commission without whose permission no weapons could be delivered abroad.

Kazakhoil-Nelson Gold To Form JV

· Kazakh state oil company Kazakhoil and Nelson Gold Corp. Ltd., a Bermuda-based gold mining and exploration company signed an agreement today to form a joint venture to develop Kozhasai and Alibekmola oil field deposits, in western Kazakhstan. Kazakhoil President Nurlan BALGIMBAYEV said each side would hold 50 percent of the joint venture, Kazakhoil Aktobe. The deposits hold 60 million tons (439.8 million barrels) of crude reserves and will cost $800 million to develop. Nelson Gold's contribution to the venture will be to secure project financing. The joint venture plans to invest $275.2 million in the field's exploration until 2003. The partners also plan to sell bonds on Kazakhstan's securities market. The first oil will be produced in 2002, with the output to increase to 55,080 barrels per day by 2008. Kazakhstan crude oil production is expected to increase 10 percent this year from 1999 to 33 million tons of crude. Kazakhstan plans to increase its output four-fold to 2,400 barrels per day by 2010, according to Kazakhoil. BALGIMBAYEV said the company posted a gross profit of 35 billion tenge and a net profit of 12 billion tenge in 1999.

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

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

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