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

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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

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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