Identifier
Created
Classification
Origin
08MOSCOW327
2008-02-08 10:10:00
CONFIDENTIAL
Embassy Moscow
Cable title:  

U/S JEFFERY'S JAN 30 MEETING WITH RUSSIA'S CENTRAL

Tags:  EFIN ECON RS 
pdf how-to read a cable
VZCZCXYZ0018
PP RUEHWEB

DE RUEHMO #0327/01 0391010
ZNY CCCCC ZZH
P 081010Z FEB 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6459
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
C O N F I D E N T I A L MOSCOW 000327 

SIPDIS

SIPDIS

STATE FOR EUR/RUS, EEB/IFD
TREASURY FOR MEYER, TORGERSON
NSC FOR WARLICK

E.O. 12958: DECL: 02/08/2018
TAGS: EFIN ECON RS
SUBJECT: U/S JEFFERY'S JAN 30 MEETING WITH RUSSIA'S CENTRAL
BANK CHAIRMAN IGNATIYEV

REF: MOSCOW 141

Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d).

Summary
-------

C O N F I D E N T I A L MOSCOW 000327

SIPDIS

SIPDIS

STATE FOR EUR/RUS, EEB/IFD
TREASURY FOR MEYER, TORGERSON
NSC FOR WARLICK

E.O. 12958: DECL: 02/08/2018
TAGS: EFIN ECON RS
SUBJECT: U/S JEFFERY'S JAN 30 MEETING WITH RUSSIA'S CENTRAL
BANK CHAIRMAN IGNATIYEV

REF: MOSCOW 141

Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d).

Summary
--------------


1. (C) During a January 30 meeting with Under Secretary of
State for Economic, Energy and Agricultural Affairs Reuben
Jeffery, EEB Principal Deputy Assistant Secretary Elizabeth
Dibble and the Ambassador, Central Bank of Russia (CBR)
Chairman Sergey Ignatiyev provided a generally optimistic
outlook on Russia's economy for the year but emphasized that
controlling inflation would be among the GOR's top economic
policy priorities. Ignatiev said Russia had demonstrated
resilience in the aftermath of the "unpleasant" conditions
related to subprime concerns. On Sovereign Wealth Fund
(SWF),Ignatiev issued a caution. He conceded that
establishing SWF-related investment guidelines was prudent
policy but warned that the countries "overly concerned with
transparency, risk not being recipients of SWF investments."
End Summary.

Strong Growth in '07, Caution for '08
--------------


2. (C) On January 30, Central Bank Chairman Ignatiyev told
U/S Jeffery that Russia had, again, achieved strong economic
growth in 2007 but that one of the GOR's main goals for 2008
would be controlling inflation. Russia's real GDP growth
was, according to Ignatiyev 7.6 percent or higher. (Official
statistics released on January 31 reflected 8.1 percent real
GDP growth for the year.) However, inflation had reached
11.9 percent, which Ignatiev characterized as a "temporary"
condition that did not need to be addressed with "hasty"
control measures. (This appeared to be a reference to the
price controls program on "socially significant food items"
Prime Minister Zubkov launched before the December 2007 Duma
elections.) Ignatiyev said that an increase in world food
prices and the strong growth in net capital inflows,
estimated at USD 82 billion, were the main factors behind the
jump in inflation. He anticipated that growth in food prices
during 2008 would slow relative to 2007 and speculated that
net capital inflows would only reach USD 40 billion.


3. (C) Ignatiyev noted that Russia's current account balance
would continue to shrink as would the GOR's budget surplus.
Both developments indicated Russia was approaching an
important phase in its economic development as industry
imported more capital goods to replace the outdated stock of
Soviet technology and as the GOR moved toward a non-oil
budget. Although these factors suggested a relative slowdown
in the country's economic growth, he said uncertainty facing
financial markets was more worrying.


4. (C) Ignatiyev said the "unpleasant" conditions brought on
by concerns over the extent of the subprime situation served
as a reinforcement of the lessons the financial crisis of
1998 had provided. Business operations had not been
fundamentally affected but access to financing had became a
growing preoccupation. Banks and larger corporations secured
syndicated loans for some of their short-term needs but, in
recent weeks, had begun expressing concerns about the way
this would play out over the longer-term. The upward
re-pricing of risk for emerging market countries and
companies in subprime's aftermath threatened to increase
costs for a wide swath of Russian companies and banks, both
state-owned and private. Ignatiyev said the Central Bank
would continue to develop tools by which it would make more
credit available to smaller and non-state banks.

Sovereign Wealth Management
--------------


5. (C) U/S Jeffery encouraged the Central Bank and the GOR
to maintain active participation with the international
financial community regarding investment and disclosure
guidelines for Sovereign Wealth Funds (SWFs). Ignatiyev
briefly outlined the rules covering asset management for the
Reserve Fund (reftel),which along with the National
Prosperity Fund, would comprise Russia's SWF. He said the
GOR was still discussing options for managing managing SWF
investments, for instance whether to adopt the Singapore
model.


6. (C) Ignatiyev also emphasized the virtue of SWFs,
highlighting that they could be a much-needed and long-term

stabilizing force in financial markets. Working in
conjunction with other countries to establish transparency
standards and "to minimize the dangers" was sensible policy
making, Ignatiyev said. However, he commented that some
countries had given too much attention to the issue of
transparency. "Countries that are overly concerned will not
be recipients of SWF investments," Ignatiyev warned. He
cautioned against having "reasonable discussions" devolve
into "protectionism" and urged a balancing of the risks with
the rewards.


7. (U) This message has been cleared by U/S Jeffery.
BURNS