TANDEM FOCUS ON ECONOMIC CRISIS AT UNITED RUSSIA

C O N F I D E N T I A L MOSCOW 003366

SIPDIS

E.O. 12958: DECL: 11/21/2018
TAGS: PGOV PHUM PINR RS SOCI
SUBJECT: TANDEM FOCUS ON ECONOMIC CRISIS AT UNITED RUSSIA
CONGRESS

REF: A. MOSCOW 3328

B. MOSCOW 3243

Classified By: DCM Eric Rubin. Reason: 1.4 (d).


1. (C) Summary. Both President Medvedev and Premier Putin
honed in on economic issues as the main challenge facing
Russia today, with Putin outlining a number of measures to
bolster economic performance and mitigate the impact of the
deepening crisis. Instead of the political intrigue that had
dominated the speculative press about a potential shake-up in
the tandem, the two speeches provided an opportunity for
Medvedev and Putin to play their respective roles: Medvedev
emphasizing values and political reform, Putin nailing down
details about the government's plan for supporting the
economy. Neither touched seriously on foreign policy issues
and avoided the militant rhetoric that had characterized
their public pronouncements earlier this fall. Ultimately,
the tandem is "on message" that difficult economic times are
ahead, but seeks to reassure that the government has
resources and the will to mitigate the worst affects -- there
will be no repeat of the economic shocks of the 1990s. Their
success in achieving those goals with the tools at hand
remains an open question, as noted in our reporting on their
crisis mitigation program. End Summary.

Medvedev - Mostly Pabulum
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2. (SBU) Medvedev and Putin walked into the Gostiniy Dvor
hall together, with Putin taking the gavel to call the
session to order and introduce the president. Medvedev
comments were brief; he essentially thanked United Russia for
its support -- praising them as the "party of power" -- and
reiterated the themes of his address to the Federal Assembly
(Ref B). He stated that "overcoming the negative
consequences of the global economic crisis" was the greatest
challenge facing the administration and he called on the
party to continue its work in support of the policy agenda,
particularly in meeting the needs of everyday Russians.


3. (C) The optics of Medvedev's speech and the way Putin
acted toward the president appear to have been designed to
reinforce the official hierarchy. Despite press reports that
Putin would address the nation via television, only
Medvedev's speech was aired on the state-controlled
television. Camera shots of the opening ceremonies captured
Putin rising quickly to his feet to formally welcome the
president to the congress -- an adherence to protocol before
the public and the elite. Putin also used his address to
underline his support for Medvedev's reforms, outlined in the
president's address to the Federal Assembly.

Putin - Facing Reality?
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4. (C) Putin's address centered on the message that the
government was aware of the deepening economic crisis in
Russia, but had a strategy for mitigating the worst affects
on the public. That plan appears to be based on the idea of
"circling the wagons" and relying primarily on Russian
resources to stimulate the economy and to protect, as much as
possible, the quality of life gains made over the past 8
years.


5. (C) As always, Putin demonstrated a mastery of detail as
he outlined a series of measures to strengthen the economy.
He highlighted the military-industrial sector as a priority
and called for both restructuring, to better meet the needs
of the army and export markets, and a 50 billion ruble
investment. Tax incentives, including a reduction in
corporate taxes, and a re-jiggering of the tax calculation
formulas are also on the table


6. (C) The main thrust of Putin's message appeared to be
directed at the people, seeking to assuage popular concerns
about the security of their savings, their salaries, and
their future. (Although we admit that it seems strange that
his address was not televised and instead was given to the
loyal elite.) He asserted that plans to increase pensions by
50% over the next two years would be implemented, committed
to maintaining state salaries and pensions at the current
level, and called for an increase in unemployment payments.
Moreover, he emphasized the government's efforts to preserve
wealth by guaranteeing 98.5% of people's savings and by using
reserves to support the ruble. His closing comments -- that
his government would work to shield the population from
economic shocks, like those that occurred in 1991 and 1998 --
gave an indication of the administration's focus on calming
public panic and maintaining social order.
Not Much Foreign Policy

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7. (C) The congress was notable for its focus on domestic
matters. Putin referred only twice to the United States in
his remarks, both times in relation to the global financial
crisis; Medvedev avoided any reference to foreign matters.
The only direct criticism came from Duma Speaker Boris
Gryzlov, who referred to the youth of Ukraine and Georgia
having been misled by people "from across the ocean,"
something that will never happen in Russia. At a roundtable
hosted by Duma member Konstantin Kosachev prior to the main
sessions, anti-American remarks came from party
representatives from South Ossetia and Abkhazia, who
criticized the U.S. for its support for President
Saakashvili. The most vitriolic commentary was provided by
former Serbian PM Kostunica, also a guest at the United Party
Congress. He focused his remarks solely on Kosovo, launching
a blistering condemnation of the United States, concentrating
on U.S. activities from 2005-2008, leading to the recognition
of Kosovo.

From the Gallery
--------------


8. (C) We happened to be seated with some members of the
party's Executive Committee and regional leaders during the
Medvedev, Putin and Duma Speaker Boris Gryzlov presentations
to the congress. Party members listened attentively at the
beginning of Putin's speech, but began to lose interest as
the remarks dragged on. His exclusive focus on domestic
economic matters elicited mixed reactions from those around
us. Some, including Deputy Director for Analysis and
Planning Andrey Santenov told us that the measures proposed
corresponded to what he and others understood to be ideas
being proposed by regional political and business leaders.
When Putin turned to issues of taxes, there was strong
approval, which dissipated into mild grumbling when he spoke
of additional state funding for the defense industry. And
when Putin pledged additional assistance to the unemployed,
there was further talk - first, of surprise that Putin would
recognize the fact that unemployment is growing, especially
in the regions, and second that the government would provide
additional resources for the unemployed.


9. (C) The delegates noted that Putin had focused on small
and medium sized businesses in his remarks as has been
recommended by regional political and business leaders (Ref
A). More than anything, they were surprised that Putin
outlined so many measures that the government plans to take,
confirming that the crisis is hitting average Russians, but
also demonstrating that United Russia understands this and
will use its Duma majority to get through measures to help.

Old Business
--------------


10. (C) The party congress also officially endorsed the
October decision by the leadership of the United Russia and
Agrarian parties to unite. Agrarian Party leader Plotnikov
delivered a strong endorsement of United Russia party
activities and of the leadership of Medvedev and Putin.
Several of the leaders of his party, including some from the
regions, were elected to the party's high council. Plotnikov
also announced that more than 45,000 Agrarian party members
had already transferred their membership to United Russia.


11. (C) As expected, the party leadership made a great deal
of the fact that the party is attracting young people, and
that it is promoting younger people to more senior ranks.
Party war-horses, like Moscow Mayor Luzhkov who, despite his
public rebuke from Medvedev for his November 17 comments that
governors should be elected, not appointed, co-chaired
working sessions of the congress with Gryzlov, were out in
force, and will continue to occupy positions on the party's
national council.

Comment
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12. (C) Our initial assessment of the meat of Putin's speech
is that there is little new proposed here -- much of what he
discussed was included in the 55 initiatives released last
week. Uralsib financial analyst Chris Weafer described the
message as the "Don't panic, (but pray) and noted that many
of the promises Putin made will be difficult to keep unless
oil prices rise. He figured that Putin was continuing to base
his plan on $75 per barrel oil, while the more cautious
Finance Minister Kudrin appears to use a $50 per barrel in
his more pessimistic calculations.
BEYRLE