RUSSIA'S KINDER, GENTLER FACE TO THE WORLD?

C O N F I D E N T I A L MOSCOW 000270 SIPDIS SIPDIS STATE FOR EUR/RUS, EEB/IFD TREASURY FOR MEYER, TORGERSON NSC FOR WARLICK E.O. 12958: DECL: 02/01/2018 TAGS: EFIN ECON RS SUBJECT: RUSSIA'S KINDER, GENTLER FACE TO THE WORLD? Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d). Summary -------------- ¶1. (C) During the opening session of the 2008 Russia Forum organized by Troika Dialog, Deputy Prime Minister and Finance Minister Aleksey Kudrin called for "a shift in the GOR's foreign policy goals" to ensure a more stable, more attractive investment climate. His comments followed, but did not respond to, more critical statements by Unified Energy Systems President Anatoly Chubais who said Russia should "stop acting like a teenager" in its international relations and lamented lost investment as a result of this behavior. Participants in other panel discussions at the Forum, told us Kudrin might have been playing to the crowd, namely market-oriented financial professionals and economic observers, but that he was also likely in favor of a more business-friendly foreign policy. End Summary. Kudrin Suggests an Adjustment -------------- ¶2. (SBU) In his address to the Russia Forum, Deputy Prime Minister Kudrin provided a brief overview of Russia's economic performance in 2007 as well as the prospects for 2008 and beyond. He said that real GDP growth for 2007 would prove to be 7.8 percent or higher, but had been tempered by higher-than-expected inflation. He said the business climate had demonstrated considerable resilience in the aftermath of the financial market turmoil that subprime concerns had generated. The Central Bank and the Finance Ministry were taking measures to sustain liquidity among the country's banks and the country had already embarked on a broadbased infrastructure investment program, which Kudrin emphasized were key elements in maintaining Russia's economic growth. ¶3. (SBU) However, another key factor supporting the long-term development of Russia's economy, Kudrin suggested, lay in the area of foreign policy. He called for a "shift in the GOR's foreign policy goals in the near future to guarantee a stable investment climate." ¶4. (SBU) Kudrin's comments followed, but did not respond directly to a more critical assessment of Russia's foreign policy by Unified Energy Systems President Anatoly Chubais. Chubais praised the GOR for recognizing the country's need for enhanced infrastructure from ports to schools to better medical facilities. He also lauded the Finance Ministry's and Central Bank's response to the liquidity squeeze in August and September 2007 brought on by subprime concerns. However, he lamented that Russia had been "belligerent" in its foreign policy, which threatened to keep potential investors out of the country. Chubais said Russia should "stop acting like a teenager" and focus on longer-term considerations. Discussing the recent tension with the British Council, Chubais rhetorically asked "how much does this foreign policy cost Russia?" A "Kinder, Gentler" Foreign Policy? -------------- ¶5. (C) Participants in other panel discussions told us that Kudrin's comments could not necessarily be taken as an indication of a shift in Russia's foreign policy. Eurasia Group President Ian Bremmer said that Kudrin might have been playing to the crowd. Attendees, and many of the participants scheduled to make presentations during the Forum's various sessions, were either financial sector professionals or economic observers who tend to favor liberal economic policies writ large. ¶6. (C) Troika Asset Management President and former Deputy Minister of Economic Development and Trade Andrei Sharonov speculated that while Kudrin might share Chubais frustration over the recent tensions with the British Council, his disappointment with the handling of the so-called Storchak affair probably contributed to the outburst. Sharonov said that "in his understated way" Kudrin might be trying to to keep a hardline foreign policy from disrupting the country's business and investment climate. Sharonov expressed doubt that Kudrin's statement had been coordinated with Medvedev's office but said that he would not be surprised if Medvedev adopted a more cooperative approach to foreign policy. BURNS