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06USNATO643 2006-10-27 13:06:00 CONFIDENTIAL Mission USNATO
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DE RUEHNO #0643/01 3001306
O 271306Z OCT 06
					  C O N F I D E N T I A L USNATO 000643 



E.O. 12958: DECL: 10/26/2016

Classified By: DCM Rick Olson for Reasons 1.4 (B) and (D).

1. (C) Summary: The NATO "Heads of Economic Intelligence"
was convened by Defense & Economic Security Director Patrick
Hardouin who reviewed the Committee's program over the past
year. He then turned to the issue of the UK,s decision not
to support the Committee's work in future and how to better
support the International Military Staff (IMS) and Capitals.
He proposed that innovations were necessary concerning
working methods so that economic intelligence is an integral
part of the agreed Strategic Military Requirements. The
"Heads" reviewed their intelligence priorities with the
majority putting Russia and energy security at the top of
their list followed by counter-terrorism. Support for the
Economic Committee and its work program was nearly unanimous.

(C) Summary Continued: The 11-13 October meeting on
"Russia/Ukraine/FSU Defense-economics" reflected mounting
concern over the energy security situation of NATO members
(read EU), Moscow's pressure on Ukraine and Georgia and
continued worrisome trends in democracy-building in the FSU,
and the moribund state of economic reform in most of Central
Asia. Progress on the US defense cost-estimating model
"NOBEL" was also reviewed. Participation was outstanding with
about 50 representatives attending and numerous papers and
briefings were presented.

2. (C) Chairman Hardouin opened the annual NATO "Heads"
meeting with a review of the Committee's work over the past
year including experts meetings and papers on Terrorism
Finance, Afghanistan's Reconstruction, Developments in the
Balkans, Economic and Security Developments in the Middle
East (including Iraq), and the special January meeting on
Ukrainian Energy Security. He then turned to the matter of
the UK's decision not to support the Committee's work in
future and asked if the Committee's work was still relevant
to the International Military Staff (IMS) and Capitals and if
not what needed to be done.

3. (C) IMS representative Adm. Clayton (UK) explained that
the IMS still needs the full operational package on its areas
of current or potential military operations. It needs, for
example, to know about economic trends in Afghanistan, Iraq
and the Balkans, and progress on reconstruction of key
economic infrastructure. Moreover, in preparation for future
conflicts NATO needs to know what infrastructure should be
targeted or spared for post-war recovery and urged that the
Economic Committee's work be continued.

4. (C) Delegates from NATO countries having small
intelligence efforts including Bulgaria, the Baltics, Poland
and Turkey explained that the papers from reinforced meeting
were very valuable to their governments given their own
limited analytical resources. Other delegations also strongly
supported the Committees work, particularly on "energy
security", "Russian defense-economic policies", "FSU
criminal/organized crime", "Caspian energy" and "terrorism
finance". It was clear that many believed the Committee's
work is all the more important because of the disturbing
negative political and economic trends in Putin's Kremlin.
Some noted that given the continued political uncertainty in
Ukraine, events in Georgia, Moldova,s fragile economic
situation and retrograde policies prevailing in Belarus it
was no time for NATO to curtail its defense-economic
analysis. There was also considerable consternation among the
newer NATO members over Russia using its energy resources as
a tool of its foreign policy, not only with the EU but also
with its FSU neighbors, especially in Central Asia.

5. (C) The Chairman proposed that innovations were
necessary concerning working methods in order to implement
NATO requirements that economic intelligence and analysis
become an integral part of the agreed NATO Strategic Military
Requirements. The innovations included: 1) greater and more
timely exchanges of written products; 2) more intensive use
of NATO's BICES computer system as a method of more rapidly
disseminating intelligence information; and 3) increased use
of ad hoc reinforced Economic Committee meetings on issues of
immediate concern. In response, the US mentioned ongoing
"write for release" programs and efforts to obtain BICES
terminals in analytical workspaces and encouraged the
Committee and delegations to do the same. The US mentioned
attendance at ad hoc meetings might run into funding
problems, but most other delegations strongly supported the
idea of ad hoc meetings.

6. (U) The "Security and Defense Economic Developments in
Russia, Ukraine/FSU meeting opened 10 October with two
excellent unclassified presentations, one by Dr. Rousso,

Chief Economist of the EBRD on "Escaping the Resource trap:
Market Reform and Political Governance in the Resource Rich
Countries of Eurasia" and the other by Prof. Alain Blum who
briefed on "The Impact of Russian and Regional Demography on
Economic and Social Stability".

7. (C) The classified sessions on political/economic
trends in Russia and Ukraine were especially particularly
dynamic, focusing on Russia's increasing willingness to use
of its energy and trade leverage--some used the term
"weapon"--in its relations with the newer NATO members and
within the FSU especially in view of Russia-Georgia tensions.
Russia's continued move towards a more statist economic
policy and the fallout on its neighbors--both FSU and EU also
generated a lot of discussion.

8. (C) Representatives from Poland, the Baltics, Hungary,
Slovenia, and the Czech Republic presented briefings and
papers describing the trends in Russia's energy sector, the
impact of the energy windfall on Moscow's economic policies
and its use of energy leverage for political ends. They also
discussed the many negative experiences in doing business
with private Russian companies and the influence exercised
over firms by the Russian government and by Russian criminal
elements. The US presented a briefing and paper on
"Russia/Algeria/Iran: Seeking More Clout in the EU Gas
Market?". Germany's paper on "Russia as a Major Energy Power"
was quite pessimistic on the overall negative impact that
sudden oil wealth is having on the Russian political scene
and how government, FSB and criminal elements are merging to
run Russia.

9. (C) The impact of Russia's energy windfall on the
budgets of the MOD and other security-related forces was
briefed by the UK which also offered two excellent papers
analyzing actual defense and law enforcement spending in 2005
& First Half of 2006 and the budgets/projected outlays for
these ministries in 2006 & 2007. These papers note that
while the MOD's budget has increased substantially over the
past five years, inflation has taken a big bite and in real
terms the increases are more modest, albeit still
significant. There is also increasing evidence that
inflation in the defense procurement sector is even higher
than in the civilian economy. The paper also notes that the
published 2006 MOD defense budget data is becoming less
informative than in previous years. The UK also presented
papers on Ukrainian defense spending and on the economy of

10. (C) The US delegation presented an update on its work
on the joint US/UK/Denmark "National Order of Battle
Life-cycle Cost Estimator (NOBLE) defense expenditure-costing
model. Recent and future model improvements were covered, as
were Ruble and Dollar defense cost estimates for 2004-2015.
The NOBLE estimate was then compared with Russia's defense
goals according to Russia's "Urgent Tasks" report with the
finding that the goals could not be met unless the defense
burden rises to 6 percent of gross domestic product. The
written report was posted to NATO's LOCE computer system.

11. (C) During the Chairman's wrap-up session many
delegations expressed their appreciation for the meeting's
excellent agenda focusing on the Russia/FSU-NATO big picture
and how Moscow's economic policies are directly impacting
NATO members. A number of experts expressed how pleased they
were to have the opportunity to attend this unique gathering
of intelligence analysts where they could have such a frank
and dynamic exchange of views and information.