MEDEVEDEV'S ECONOMIC ADVISOR ACKNOWLEDGES

C O N F I D E N T I A L MOSCOW 002902

SIPDIS

STATE FOR EUR/RUS; NSC FOR JELLISON

E.O. 12958: DECL: 09/29/2018
TAGS: ECON EINV ETRD PREL PGOV RS
SUBJECT: MEDEVEDEV'S ECONOMIC ADVISOR ACKNOWLEDGES
FINANCIAL CRISIS; DEFENDS RUSSIA'S WTO APPROACH

Classified By: Ambassador John R. Beyrle for Reasons 1.5 (b) and (d).

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Summary
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1. (C) In a September 25 meeting, President Medvedev's
Economic assistant, Arkadiy Dvorkovich, told the Ambassador
that Russia was also in the midst of a serious financial
crisis and that the U.S. and Russia needed to work together
to restore confidence to the world financial system. He
defended Russian actions to reopen bilateral trade
agreements, which he said were in response to the lack of
progress in Russia's WTO accession. Dvorkovich questioned
U.S. silence at WTO negotiations in Geneva and the
postponement of G8 meetings. He said that after a delay
caused by the Georgian conflict, the GOR was working to get
Medvedev's economic reform agenda back on track. Finally, he
noted that he plans to be in the U.S. twice in coming months
and hoped to be able to meet with U.S. officials in
Washington on one or both occasions. End Summary.

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Financial Crises
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2. (C) Dvorkovich acknowledged that the Russian economy was
going through a serious financial crisis. He said Russia's
problems were similar to those of the U.S. as tightening
credit was threatening to spill over into the real economy.
We faced common challenges and needed to coordinate action in
order to restore confidence to the world financial system. In
that regard, he noted that U.S. firms, including U.S. banks,
were cutting back on their activities in Russia. To the
extent that this was in reaction to economic conditions this
was understandable. However, there were rumors that the USG
had pressured U.S. firms to disinvest or reduce credit lines.


3. (C) The Ambassador responded that this was not U.S.
policy. The Ambassador in turn took issue with Medvedev's
recent comment about an economic "depression" in the U.S.
That had been both inaccurate and unhelpful. A serious
recession was possible but we were far from a depression.


4. (C) Dvorkovich took the point and added that the GOR was
working to restore investor confidence in the Russian
economy. For instance, the TNK-BP dispute had been settled
and the case against Mechel closed. Dvorkovich also
dismissed any comparisons between either of these cases and
Medvedev's comments to the Polyus gold mining firm to stop
"whining" about a lack of government support. Polyus had
purchased the license without such guarantees and could
afford to develop the deposit through its own resources.

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WTO
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5. (C) On WTO, Dvorkovich claimed that a few months ago, the
GOR had decided to make a major push on accession. The
results had been disappointing. Neither the U.S. nor the EU
had provided a positive signal. In late July, the GOR had
decided that under the circumstances it was not prepared to
continue with unilateral commitments that it had made in the
expectation of accession. What was needed at this point was
a clear indication from the U.S. and the EU: do this and you
will get in.


6. (C) The Ambassador responded that the politics of
accession were difficult. No country had pushed harder the
last two years than the U.S. to help speed Russia's
accession. The U.S. and the EU both still saw Russia's
accession as in everyone's long-term interests but to say
that it was not going anywhere right now was a statement of
fact. Compromise was needed to resolve the remaining issues
and the space for compromise had been much reduced in the
current climate. The Ambassador added that we were deeply
concerned that the GOR was embracing protectionist measures
in response to its WTO bid slowing. In particular, we had
been concerned about the recent letter from the Veterinary
Service (VPSS) that the GOR no longer recognized the
bilateral agreement and its side letters. The MFA and
Economics Ministry had claimed it was not government policy
but nonetheless the signal the letter had sent was that
Russia was no longer interested in WTO accession.


7. (C) Dvorkovich said Russia did still want membership.
Accession would bring benefits both to Russia and to its

trading partners, including the U.S. However, Russia would
not stand outside knocking on the door forever. There were
few substantive issues preventing accession; in the GOR's
view, it was a question of political will. In that regard,
the GOR hoped to see signs of progress at the next round of
negotiations in Geneva in early November and hoped that the
U.S. would not remain silent again. If Russia was not
welcome, he added, it would continue to operate as it was
now, resolving disputes bilaterally. Dvorkovich added that
Russia was also looking to preserve cooperation in the G8 and
other multilateral fora. As G8 Sherpa, he was concerned by
the U.S. prompted postponement of meetings. This did not
hurt Russia so much as it did third countries that were
counting on the world's leaders to work together to resolve
pressing transnational issues such as climate change, or
infectious diseases.

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Economic Reform
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8. (C) The Ambassador told Dvorkovich that he had been
impressed with Medvedev's speech last February at the
Krasnoyarsk Economic Forum and at the vision it had laid out
of a prosperous, integrated and competitive Russian economy.
The U.S. strongly supported this vision because it would be
good for Russia and because it would be good U.S. economic
interests. Our impression was, however, that the promised
reforms appeared to have been sidetracked in the aftermath of
the Georgian conflict.


9. (C) Dvorkovich responded that there had been a delay
because of Georgia but that the plans were now moving forward
again. For instance, a key package of anti-corruption
measures that would bring Russia into compliance with
international standards would be submitted to the Duma on
September 30. In addition, the GOR was moving forward on
legislation that would improve competition, on laws that
would better support SMEs, and on increased budgetary support
for higher education, health care, and infrastructure
projects such as roads. The GOR was also introducing
targeted tax reductions, though VAT reform had been out off
until 2009.


10. (C) The Ambassador asked if Dvorkovich was concerned
about the effect of all of these priorities on the GOR's
budget. Dvorkovich said not all of the reforms would cost
money; some were regulatory changes. In any event, in
implementing these reforms, the GOR would be careful not to
overspend.

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U.S. Visits
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11. (C) Dvorkovich said he had been invited to the USRBC
Annual Conference in Washington the week of October 6-10. In
addition, he would likely be in the U.S. in mid-November for
a ceremony inaugurating a university-to-university
partnership between Duke University's Fuqua Business School
(where Dvorkovich was a student) and the Sokolov Business
school in St. Petersburg. He planned to visit Washington
during one or both of these trips and hoped to see a variety
of U.S. officials.


12. (C) The Ambassador responded that he would also be in
Washington for the USRBC Conference and would see what could
be done about scheduling meetings. November, after hoped-for
progress by Russia in meeting its Georgia commitments, might
be a better opportunity.

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Comment
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13. (C) The same day he met with the Ambassador Dvorkovich
claimed in a speech that Russia was well-positioned to emerge
from the financial crises on "top" of the world's financial
system. There was little such bravado in private. Instead,
Dvorkovich, like Finance Minister Kudrin earlier in the week,
seemed sobered by Russia's financial problems, the
seriousness of which we believe caught him and other senior
GOR economic policy-makers by surprise.
BEYRLE