BORIS JORDAN: WHAT TO EXPECT FROM PUTIN/MEDVEDEV

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001356 SIPDIS STATE FOR EUR/RUS; NSC FOR MWARLICK E.O. 12958: DECL: 05/13/2018 TAGS: ECON EINV ETRD PREL PGOV RS SUBJECT: BORIS JORDAN: WHAT TO EXPECT FROM PUTIN/MEDVEDEV Classified By: CDA Daniel A. Russell for Reasons 1.5 (b) and (d). -------------- Summary -------------- ¶1. (C) American businessman Boris Jordan, a long-term fixture in Moscow, told ECON MC May 6 that he was beginning to worry about the ability of the arrangement between President Medvedev and Prime Minister Putin to preserve political stability. He was skeptical that Putin was prepared to share power and questioned how Medvedev might react over time. Jordan said Putin's continuing influence could slow economic reforms, given the importance he attaches to national security concerns and avoiding foreign entanglements. Jordan also offered insight into the nature of individual wealth in Russia: real but constrained by the state. End Summary -------------- Who's In Charge -------------- ¶2. (C) Jordan said he was personally comfortable with either Putin or Medvedev as president and thought Putin had chosen the right successor. However, he expressed skepticism that the partnership between Putin and Medvedev would work. In Russia's history there were few if any examples of power being shared successfully. Given the close relationship between the two leaders, Jordan said he had initially been hopeful that the arrangement would continue the current political stability. However, it was increasingly apparent that Putin had no intention of giving up much if any power and that was creating growing uncertainty and the potential for instability as Russia waited to see how Medvedev reacted. ¶3. (C) Jordan said regardless of which leader ended up calling the shots, he did not see U.S.-Russian relations improving in the near term. Medvedev's view of the U.S. was heavily influenced by Putin. Moreover, the U.S. presidential campaign, with its sometimes aggressive rhetoric directed at Russia, was reinforcing these views. -------------- Economic Policy -------------- ¶4. (C) Jordan said that the prospects for economic reform could become hostage to the relationship between Medvedev and Putin. For Putin, the overriding policy consideration was national security. Putin was willing to accept slower, more gradual economic growth in order to avoid foreign dependency. This had led Putin to emphasize paying down the country's external debts and building up its reserves in order to eliminate any external entanglements. Jordan claimed this was also the source of the mixed messages the government sent foreign investors: their capital and expertise were needed but their presence and the external ties they brought with them were not wanted. ¶5. (C) Jordan said Putin's continuing influence could delay or even forestall some of the reforms Medvedev had called for to open and modernize the economy. For instance, for the economy to modernize would require looser fiscal policy as the government increased spending on the priority areas such as infrastructure. However, this would mean smaller government surpluses or even deficit-spending, something that Putin and Finance Minister Kudrin were likely to oppose. In addition, Putin as president had expanded the role for the state in the economy, including creating a number of state corporations. Medvedev, on the other hand, had called for a reduction in the economic role of the state and especially the state corporations, which Putin might also oppose. -------------- Oligarchs and Their Wealth -------------- ¶6. (C) Jordan said it was true that the wealth of Russia's billionaires, especially those in natural resource extraction was overstated. Putin's policy was quite clear that assets that had been acquired on the cheap in the 90s through insider deals could not be sold without GOR permission. The actual value of the shares of BP's partners in TNK-BP, for instance, could not therefore be extrapolated directly from the market price of the company but would be negotiated with the GOR and the potential purchaser. According to Jordan, a more interesting question was what would happen when the MOSCOW 00001356 002 OF 002 oligarchs started aging and sought to pass their holdings on to their children or other family members. ¶7. (C) Jordan said, however, there was no question that Russia's oligarchs had grown fabulously wealthy over the past few years. He said his own businesses, especially his insurance company, were growing at a rate of 80 percent a year. Moreover, Jordan said it was also not true that the oligarchs were not investing in their companies. In that regard, he cited Vladimir Lisin, whom he claimed was Russia's wealthiest individual. Jordan ruefully noted that he had sold Lisin his company, Novolipetsk Steel, in the mid-90s -- not one of his best business decisions. Lisin had steadily invested in the company over the years, increasing its output and its revenues. Jordan said the steel sector in general was one of Russia's strongest and the only reason it wasn't a major exporter was growing domestic demand. Jordan claimed that by contrast Oleg Deripaska was heavily leveraged and if commodity prices began to fall he would be in trouble. RUSSELL