ROSTOV: TRADE HUB, PRODUCES GRUB, SUPPORTS CHUB

C O N F I D E N T I A L MOSCOW 003687

SIPDIS

E.O. 12958: DECL: 12/18/2018
TAGS: PGOV PHUM PINR PREL RS SOCI ECON EFIN
SUBJECT: ROSTOV: TRADE HUB, PRODUCES GRUB, SUPPORTS CHUB
DESPITE CRISIS

REF: 07MOSCOW5548

Classified By: Deputy Minister Counselor David Kostelancik
for reason 1.4(d)


1. (C) Summary. As one of the country's most populous and
temperate weather regions, Rostov Oblast in southwestern
Russia boasts of being a leading agricultural and trade
center. Recent travel to the region's capital,
Rostov-Na-Donu (Rostov),gave us the opportunity to see how
it has thrived in part because of its proximity to the Sea of
Azov, the presence of sixty universities and numerous foreign
businesses, and a sizable population of 1.3 million. But
foul economic winds reached the region in September, and
signs of business downsizing and rising unemployment loom on
the horizon. Putin's economic package to rescue the
agricultural sector, combined with stable regional leadership
by Governor Vladimir Chub, could serve as a much-needed buoy
during the economic storm. Considering the region's poorly
organized and led opposition, political power rests firmly in
the hands of United Russia. Mass media channels cover local
events relatively freely, yet must pay deference to the
ruling elite and pay extra attention to dipping advertising
revenue streams. Ethnic and religious tensions continue to
surface despite official claims to the contrary, and youth
group efforts to encourage tolerance and social harmony have
withered because of government pressure and low membership
rates. End Summary.

Putin Encourages Chub With Agriculture Subsidies
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2. (C) Putin visited the Rosselmash farm machinery plant in
Rostov on December 11 to unveil a new anti-crisis proposal
that included subsidies for farms that purchased domestically
produced farm machinery. After discussions with Russian
agriculture and industry ministry officials, Putin voiced
plans to support domestic agricultural machinery production
while simultaneously increasing import duties on new and
second-hand foreign machinery for nine months. Putin also
announced that the federal government would allocate 25
billion rubles in capital to Rosagroleasing Company, through
which all domestic machinery would be purchased. This
announcement served as a boon to Rostov Governor Vladimir
Chub (United Russia),who established an anti-crisis council
in Rostov to expose factors slowing regional economic
development. Chub, in power since 1991, told council members
on December 10 that the crisis would be long, as evidenced by
more companies shifting to shortened work weeks, more
companies that owed wage arrears, and the fact that the
region had difficulty meeting its budget aims. Rostov
regional authorities also told its ministries, departments,
and budget-funded industries to cut expenditures in November
as a result of a tax revenue shortfall. Chub has maintained
his popularity over the past 17 years, receiving four points
on a five-point scale in a recent International Institute for
Political Expert Analysis (IIPEA) survey on "political
survivability." Deputy Editor of Rostov weekly "Gorod N"
Olga Kurushina called Chub an "ambitious man" who could not
be schemed out of his position, and assessed the IIPEA rating
as "appropriate," adding that only Chub himself can remove
him from power.

United Russia: It's All Under Control
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3. (C) During a recent trip to Rostov, Head of United
Russia's Executive Committee in Rostov Aleksandr Nechuskin
offered little substance to us when asked about current
United Russia efforts to remove juries from all court cases
filed on the grounds of extremism and terrorism. Instead, he
attempted to steer the conversation towards the importance of
Russian-U.S. cooperation on terrorism, failing to provide
background on the initiative. He characterized as
"unhelpful" a November 25 KPRF rally in front of the Rostov
regional administration building in protest against changing
the Russian constitution without a referendum, and labeled
Rostov's opposition parties as "unconstructive." Nechuskin
dismissed any rumors of a United Russia-Just Russia squabble
in Rostov Oblast, noting that his party "attempted to work
closely with its colleagues in the region on concrete
measures, but did not want to simply criticize the
government" in a reference to the Communist Party (KPRF) and
Yabloko. Rostov weekly Molot's Chief Editor Lidiya
Rtishcheva contradicted Nechuskin, telling us that United
Russia and Just Russia clashed in November over a vote in the
town of Novoshakhtinsk in Rostov Oblast. She claimed that
United Russia officials pressured and blamed her for "biased
reporting" about the dissolution of and subsequent
reformation of Novoshakhtinsk's parliament. Rtishcheva and
Gorod N Deputy Editor Olga Kurushina agreed, however, that

the regional population considered the opposition parties
weak, and especially thought of the new "Right Cause" party
as a "joke."

Foreign Investment Could Prop Rostov Economy
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4. (C) Rostov's economic ministry downplayed the impact of
the economic crisis on Rostov's inhabitants. Deputy Minister
of Economics, Commerce, and External Relations Valeriy
Yevteyev predicted a healthy economy in Rostov, bolstered by
federal agricultural support, foreign investment, and an
increase in exports. He pointed to Rostov's meat industry,
anthracite deposits, and machinery companies as domestic cash
cows, while noting that American businesses Coca Cola, Pepsi,
John Deere, and Alcoa all provided significant employment and
capital to the region. He touted the productive discussions
his ministry led with a delegation of investors from South
Korea's Association for Trade with Russia and the CIS, which
visited Rostov to inquire about sea container traffic in
early November, hoping to build on annual trade with Rostov
region already totaling 800 million USD. Yevteyev denied any
widescale crisis in Rostov, claiming that "people were
receiving their pay and businesses received credit from the
banks." He called attention to the growing number of
countries with official representation in Rostov, including
existing consulates from Ukraine, Romania, Armenia, Slovakia,
Hungary, and France, with South Korea and Bulgaria also
planning to establish a presence in the near future.


5. (C) In contrast to official statements, journalists
offered a more sober assessment of the influence of Russia's
economic downturn. Gorod N's Kurushkina told us that people
in Rostov see everything as "unpredictable," although the
environment calmed in November once investors could withdraw
funds from ATM machines again. Radio Ekho Rostov reported on
December 2 that approximately 300 organizations in Rostov
region estimated that about 5,000 workers would be laid off
because of reorganization and liquidation of assets. Local
news program "Vesti Don" broadcast on December 2 that 1,000
residents of Rostov region lost their jobs in November, with
the possibility of another 3,000 layoffs through January

2009. RBC Television provided a much more dire forecast on
November 17, saying that Rostov's largest companies may have
to fire 40,000 employees (1 percent of the Rostov regional
population) without financial support from the state.


6. (C) Economic indicators in Rostov also signaled tough
times ahead. Wage arrears in the oblast reached 20 million
rubles on November 1 (note: most recent figures),according
to the online newspaper www.yugregion.ru, in contrast to
official comments from Yevteyev. Grain prices in
agriculturally-dependent Rostov decreased in October and
November as a result of a world grain surplus, lack of
storage and processing facilities, and the economic downturn.
Rostov's official inflation rate (12.2 percent) from January
to September 2008 exceeded that of Russia's official national
average (10.6 percent). Electricity tariffs will increase by
27 percent for the Rostov regional population in 2009,
according to Regnum News, and several cafes in Rostov, as in
other Russian markets, began to offer anti-crisis discounts
in November, cutting food prices by 25 percent. One Rostov
network of clothing stores called Kultovary even attempted to
attract customers using posters featuring a man that looked
similar to President-elect Obama, urging them to buy despite
the economic crisis.

Media Outlets Feeling the Pinch
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7. (C) Several local media outlets faced the possibility of
downsizing as a result of the economic crisis, with national
and regional outlets already reducing their presence.
Molot's Rtishcheva explained to us that her newspaper (daily
distribution 10,000-12,000) had lost significant advertising
revenue since October and, as a result, would either reduce
the amount of paper used in each edition, the number of
copies distributed to street vendors, or the number of
employees in the office in coming months. In order to help
her prospects for new financing and to work proactively
towards local economic solutions, she has organized several
economic roundtables at Molot for top business leaders. Head
of political reporting at Gorod N's Olga Kurushina believed
that her paper faced fewer problems than some because its
long-standing focus on economics appealed to a more affluent
audience, but admitted that it had considered different
avenues to cut expenditures, including staff reductions.
Concerning national media. local offices of the national
papers Komsomolskaya Pravda and Moskovskiy Komsomolets
decreased the number of pages for each paper in late
November, and Rossiskaya Gazeta announced that it would
suspend its "South Russia" supplement soon. Rumors
circulated in the press that newspapers Komsomolets and Trud
would stop circulation of their respective regional
supplements in coming weeks. STS television reported that it
would lay off its staff in early 2009, and the regional unit
of Channel 5 - St. Petersburg already ceased broadcasting.

HR Ombudsman: Rostov Is Calm, But Scared By Extremism
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8. (C) Rostov Region Human Rights Ombudsman Anatoliy
Kharkovskiy told us on December 15 that interethnic
difficulties, extremism, xenophobia, and religious
persecution did not exist in Rostov "because the region's
residents had grown used to living with one another in peace
for centuries." While acknowledging that disagreements arose
between people from different ethnic, racial, and religious
backgrounds, he could not think of any situations that
merited attention. When questioned about the effects of the
economic crisis on nationalist sentiment in Rostov,
Kharkovskiy changed his tone, adding that the current rise in
Russian extremism "scared him," especially when one
considered that Rostov's population consisted of several
ethnic groups that primarily looked out for its own
interests. He expected additional problems of extremism in
Moscow because of the number of migrants, but could not offer
a prediction about Rostov. Moscow-based extremism monitor
SOVA Center's Alexander Verkhovskiy commented in September
2008 that Rostov continued to experience ethnic tension,
supported by youth group Young Europe's survey data that
showed over 60 incidents in 2007 of ethnic or racial
discrimination among foreign students.


9. (C) Kharkovskiy believed that religious groups in Rostov
enjoyed complete freedom to worship in any manner they chose,
without government restriction. He mentioned that, while the
majority of the population was Russian Orthodox, there were
large concentrations of Koreans, Armenians, Jews,
Caucasian-born Muslims, and Eastern Europeans. As an
atheist, he compared the current situation to that in the
1960s, recounting his own decision to baptize his son in the
Orthodox Church and fearing retribution from Soviet
officials. Instead of discussing examples of religious or
ethnic tension in Rostov, Kharkovskiy took the opportunity to
chastise the United States for its abuse of human rights in
democratization campaigns in Kosovo, Iraq, and Somalia, and
questioned repeatedly whether U.S. intervention has helped
any country since 1991.

Youth Groups Active, But Restricted By Government
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10. (C) The number and efficacy of Rostov's youth groups
continued to decline in 2008. Rostov's regional directorate
of the Russian Ministry of Justice confirmed on November 19
that 69 youth organizations and 12 non-commercial
organizations working with youth groups had registered
properly; however, the Justice Ministry had struck 139 youth
organizations off its book since 1992 because of insufficient
data. YHRM's Mikushkin complained, however, about the burden
placed on registering youth groups and NGOs in Rostov,
detailing his personal ordeal to receive an official receipt
from Rostov's regional tax service, necessary to operate
legally, that adjudicated a bank mistake for a debt of 17
rubles (60 cents). Molodaya Evropa (Young Europe)
Coordinator for Rostov Konstantin Baranov told us that FSB
officials had followed him and his colleagues, scrutinizing
his documents after recent coordination trips to Ukraine.
Over the past year, Baranov noted reduced access to regional
universities where Young Europe conducted seminars with
teachers, students, and journalists, claiming that government
officials instructed the university to refuse their access.
As a result, he admitted an interest in pursuing different
projects, concluding that "the overall pressure to keep quiet
about Rostov's mood of intolerance hinders my work too much."



11. (C) Several youth organizations in Rostov continued to
promote tolerance and human rights despite financial setbacks
and government scrutiny. While Molot's Rtishcheva noted to
us the large number of youth groups in Rostov, she believed
that "they did not make any waves." Youth for Human Rights
Movement (YHRM) affiliate in Rostov Director Fyodor Mikushkin

told us that his organization focused on small focus groups
to advocate respect for religious, ethnic, and lifestyle
differences, using movies and field trips to attract the
target audience. He pointed to the education system in
Rostov oblast as a primary facilitator of intolerance,
telling us that the administration segregates students from
Chechnya, Africa, or Central Asia from the other students,
thereby hindering the exchange students' ability to integrate
and make social connections. Director of the youth
organization Generation LEX Svetlana Pakhomova advertised the
organization's projects to empower youth to think critically
and openly about the need to respect human rights, but
acknowledged that government support remained low and
membership in the organization insignificant. Young Europe's
Baranov told us that his organization worked closely with the
Moscow Helsinki Group and planned to publish new statistics
on regional monitoring of extremism cases. The most
vulnerable populations, in his mind, were dark-skinned
foreign students and Caucasian migrants, with whom Young
Europe tried meet to teach ways to navigate police shakedowns
and language barriers.

Comment
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12. (C) Without substantial regional reliance on turbulent
oil and gas stocks (note: Rostov Oblast has neither),
Rostov's natural assets and business climate provide a
foundation for some means of economic stability despite
harbingers of a recession. Government leaders and
journalists, thankful for Moscow's promised subsidies,
appeared confident that the region's relatively diverse
economic portfolio puts them in a position to weather the
storm. As United Russia faces no serious political
obstacles, they should remain in power, regardless of any
adverse economic consequences.
BEYRLE