RUSSIA: CENTER-REGIONAL RELATIONS UNDER STRESS

UNCLAS SECTION 01 OF 02 MOSCOW 011002

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: PGOV PINR PREL RS
SUBJECT: RUSSIA: CENTER-REGIONAL RELATIONS UNDER STRESS

REF: 2002 MOSCOW 120552


1. (SBU) SUMMARY. Federal-local relations in Russia are
under increasing stress due to the implementation of the
Local Self-Government Law of 2003. This law cuts the flow of
tax dollars to regional and local government in order to spur
the localities to become entrepreneurial in developing their
own tax base. The local governments, especially cities,
complain that while they are the engines of growth that
create the tax revenue "hoarded" by Moscow, they are being
left with unfunded mandates by the federal government. A
report to be delivered to the Public Chamber on September 30
describes in detail the deficiencies of the federal law.
Moscow appears to be using the new law to reinforce its
central power and keep the cities politically subdued. END
SUMMARY.


2. (U) Local, national, and private-sector representatives
held a press conference on September 21 in Moscow to describe
the growing conflict in federal-local relations in Russia.
The participants included the mayors of Rostov-on-Don and
Nizhny Novgorod, a member of the State Duma Budget and Tax
Committee, and Vyacheslav Glazychev, an academic and member
of the Public Chamber.

-------------- --------------
FEDERAL LAW 131: REFORMING MUNICIPAL RELATIONSHIPS
-------------- --------------


3. (SBU) Federal Law 131 of 2003 (FL-131),which took effect
in January 2006, restructured local self-government and
municipal structures throughout Russia. In a detailed report
that will be presented to the Social Chamber on September 30,
Professor Vyacheslav Glazychev describes the history of the
law, its implementation, and its intended and unintended
consequences. Glazychev claims that to properly implement
the 167-page law, the federal government should provide 300
billion rubles, but has only budgeted 15 million. This
leaves cash-starved cities on the front lines of receiving
complaints from their citizens. Glazychev writes that this
is an "anti-urban" law that leaves cities subordinate to less
populated municipal districts in a vertical hierarchy. For
example, the city of Murom (pop. 132,000) has been subjugated
to the Murom municipal district (additional pop. 16,000).

-------------- --------------
MAYORS: MOSCOW MAKES US CHOOSE BETWEEN ROADS AND HOSPITALS
-------------- --------------


4. (SBU) The Mayors complained that Moscow had cut the flow
of tax revenue to local levels, rendering them unable to
provide basic services, but nevertheless leaving them with
the responsibility (and the blame). Mayor Bulavinov of
Nizhny Novgorod said that this year he was forced to choose
between funding road repairs and funding hospitals. Mayor
Chernyshov of Rostov-on-Don said that his choices were
between street lighting and kindergartens. The common
refrain was that while cities were the generators of wealth,
they were treated like beggars when they sought access to tax
revenues.


5. (SBU) Anecdotal evidence compiled by Glazychev shows that
many cities must now transfer 80% of their property tax
revenue up to the regional authorities, who take a cut before
passing it on to Moscow. Other examples included towns that
were forced to shut their medical clinics, budgets being
slashed by 50 to 80 percent, streetlights left dark, and
cities forced to sell land and public buildings to raise
funds. This makes life even harder for those city-dwellers
hurt by last year's monetization of benefits. The mayors at
the forum and those quoted in Glazychev's reports speak of
both the social costs of these cuts and the growing
discontent among their citizens.

--------------
MOSCOW TO REGIONS: WE'LL GIVE YOU MONEY
IF YOU CAN SHOW THAT YOU DON'T NEED IT
--------------


6. (U) Dmitry Kozak, the plenipotentiary presidential
representative (PolPred) in the Southern Federal District
(which includes Rostov-on-Don),said in an interview earlier
this year that the federal government was trying to help the
cities and regions become more "responsible" and
self-sufficient. "If local authorities work
effectively...they should be granted greater freedom and
independence. However, if they mostly rely on subsidies
(i.e., tax revenue from the federal government)...they should
have less independence and freedom and should be more
controlled by the state." He then added that those
territories with high economic growth rates and who do not

MOSCOW 00011002 002 OF 002


rely on federal tax revenue should be given a bonus by the
state as a reward. This economic incentive will spur the
other regions to become more efficient.


7. (U) Kozak, who was the architect of FL-131 (reftel) and is
now overseeing its implementation in the Southern Federal
District, refused to respond to the authors of the report,
according to Glazychev. Glazychev accused Kozak of being
disdainful of local authorities and to those who complained
about the law's effects. In his interview, Kozak argued that
one should not expect immediate results or for everyone to
like the changes (all reforms hurt),but that the law was
necessary and ultimately good for the cities and the country.
He defended the drastic budget cuts by saying that without
serious motivation, the local authorities would become lazy,
develop a "parasitic attitude," and discredit the role of
government in general among citizens. This, he said, would
in turn generate "social apathy or political extremism."


8. (SBU) COMMENT: The distribution of resources and power
between the center and the periphery is a struggle over
governance and control in this vast country. Through the
implementation of FL-131, Moscow is strengthening its
position at the top of a "vertical of power." The effects of
the 2003 law are now beginning to be seen, and as the cities
feel the pinch of the budget cuts, we expect the tension to
worsen and the complaints of the cities to grow louder. END
COMMENT.
BURNS