AMBASSADOR'S APRIL 5 MEETING WITH CENTRAL BANK

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001528 SIPDIS SIPDIS DEPT PASS FEDERAL RESERVE DEPT FOR EUR/RUS, EUR/ERA, IO, TREASURY FOR BAKER E.O. 12958: DECL: 04/05/2017 TAGS: ECON EINV RS SUBJECT: AMBASSADOR'S APRIL 5 MEETING WITH CENTRAL BANK GOVERNOR IGNATIEV REF: A. MOSCOW 1515 ¶B. MOSCOW 1514 ¶C. MOSCOW 1249 MOSCOW 00001528 001.2 OF 002 ¶1. Summary. (SBU) In his April 5 meeting with the Ambassador, Central Bank Governor Sergey Ignatiev reiterated the importance placed by the GOR on WTO succession, downplayed the likelihood of the Central Bank losing its supervisory authority over the banking system, and was optimistic about Russia's macro-economic picture for the next several years. He also touched briefly on UNSCR 1737. End Summary. WTO --- ¶2. (SBU) Echoing the recent comments of Ministers Kudrin and Gref (ref a,b),Ignatiev remarked that it was of utmost importance that WTO succession happens this year. He did not predict any negative fallout of WTO membership on Russian banks. The Bank's Supervisory Role -------------- ¶3. (C) Ignatiev downplayed the possibility of the Central Bank's supervisory authority over the financial system being revoked or even altered. He said he was surprised when, in February, Duma Banking Chairman Reznik proposed that the CBR and the Federal Financial Monitoring Service be merged into a mega-regulator. He had in fact met with Reznik two days before the latter made this proposal, but had not be forewarned about it. The media frenzy about the perceived challenge to the CBR's authority was unfortunate, but he did not think the CBR was under much a threat. (Note: the media speculation was fueled by a series of letters by the presumed mastermind behind the assassination of Deputy Central Bank Governor Andrei Kozlov last September; the recently published letters accuse the Central Bank of illicit financial activity. End Note.) A working group consisting of the Central Bank, Finance Ministry, other GOR agencies, banking associations and "all interested parties" will be formed to discuss banking supervision authority. But Ignatiev seemed confident that supervision authority would remain with the CBR, at least for the foreseeable future. A Rosy Economic Picture -------------- ¶4. (SBU) Russia's macro-economic health will remain strong in the coming year, despite the spending pressures inherent in an election year, remarked Ignatiev. The accumulation of reserves has been an important monetary sterilization tool, but the need to maintain such high levels is lessening. The ruble will continue to appreciate vis-a-vis the dollar, though at slower rate than in 2006. Ignatiev expressed minor concern about the rapid growth in consumer lending and increase in non-performing loans, but believes banks were already adjusting their loan portfolios and business models. UNSCR 1737 -------------- ¶5. (SBU) Ignatiev professed little knowledge of UNSCR 1737, which requires member states to freeze assets belonging to Iranian proliferators. Nor would he predict when a Presidential decree enacting 1737 would be signed. Sergey Tatarinov, the head of the Central Bank's International Division who also attended the meeting, posited that there was no political consensus on the decree. (Comment: The Central Bank is a party to the committee drafting the Presidential Decree. Other Bank officials have cautioned that such a decree would still not provide the sufficient authority for the Bank to freeze and seize such assets. End Comment.) Ignatiev did confirm our understanding that the Bank is monitoring suspect accounts (ref c). Ambassador acknowledged that effort, but reiterated our strong interest in early conclusion of the Presidential decree. Comment -------------- ¶6. (C) Ignatiev seemed unperturbed by the recent brouhaha surrounding the CBR's supervisory authority. The press had even speculated that the CBR would be stripped of its supervisory role - which would have made Russia the only western country where the Central Bank did not play such a MOSCOW 00001528 002.2 OF 002 role. Ignatiev will attend the Spring Bank/Fund meetings, but has no individual meetings scheduled. He understands English well, but prefers to speak in Russian. ¶7. (C) Tatarinov's comments about UNSCR 1737 also adds further confusion to the status of GOR implementation of UNSCR 1737; we have heard everything from the decree was on Putin's desk waiting his signature to still being hashed out in the inter-agency process. The MFA, MinFin and even other Central Bank officials have repeatedly told us the GOR was committed to full implementation of UNSCR 1737. BURNS