RUSSIAN THREATENS UKRAINE COULD BE LEFT IN THE

C O N F I D E N T I A L SECTION 01 OF 02 ISTANBUL 000384

SIPDIS

EUR/RU FOR HRECINOS; EEB/TPP/BTA FOR RMANOGUE, WBAIRD;
EEB/TPP/MTA; USTR FOR CKLEIN; TREASURY FOR CSMART, EMEYER

E.O. 12958: DECL: 10/06/2019
TAGS: ECON PGOV OSCE TU RU UR
SUBJECT: RUSSIAN THREATENS UKRAINE COULD BE LEFT IN THE
COLD THIS WINTER

Classified By: Economic Counselor Dale Eppler for reasons 1.4 (b) and (
d).


1. Summary: On October 4, Under Secretary of State for
Economics, Energy, and Agricultural Affairs Robert Hormats
met with Russian Minister of Finance Alexi Kudrin during the
IMF/World Bank annual meetings in Istanbul. The two
discussed a range of economic issues, including Russia's role
in the IMF, the G-20, and the bilateral economic dialogue.
Kudrin appeared frustrated by the slow progress on Russian's
WRO accession, and urged forward movement as quickly as
possible. Kudrin also raised Russian's concern over
Ukraine's ability to pay for Russian gasm which may once
again affect supplies of gas to Western Europe this winter.
End summary.


2. IMF/G-20 Summit: U/S Hormats thanked Kudrin for his
efforts to resolve the Bank of New York case as well as
Russia's support fo the IMF (note: Russia will supply the
IMF 1.2 billion is SDRs.) Hormats stated that although there
will be quota changes, we want to ensure that Russia has a
seat at the table. We consider Russia a strong partner as
the World Bank and IMF make institutional reforms. Hormats
noted that Russia is also an important partner in the G-20,
adding that the G-20 will be the primary global summit in the
future. Kudrin called the Pittsburgh G-20 meetings a "big
success," and stated that Russia hopes that financial issues
will be discussed by the G-8 (not just the G-7, which
excludes Russia.)


3. Bilateral Dialogue: Referencing the new bilateral
presidential commission, Hormats stated that White House
officials have nevertheless directed agencies to continue
their normal sub-Cabinet level discussions with Russia.
Hormats plans to visit Moscow in December for consultations
with his counterpart, Vice Minister for Foreign Affairs
Denisov. Kudrin agreed that we should continue bilateral
consultations between corresponding ministries. He noted
that the Finance Ministry meets with Treasury and the U.S.
Federal Reserve several times a year. Kudrin added that the
climate for bilateral relations has improved as a result of
America's decision on missile defense.


4. WTO accession: Kudrin opined that if the U.S. wanted
Russia to join the WTO, we should do more to make this
happen. In the current climate of protectionism, Russia's
membership in the WTO would be very useful. When USTR Kirk
visited St. Petersburg this summer, we were close to a deal,
but then Russia, Belarus, and Kazakhstan announced they would
for a customs union, delaying the WTO process. Hormats
responded that the U.S. continues to support Russia's WTO
membership as an independent entity and that this is good for
the global trading system. However, the U.S. still has
concerns regarding encryption, sanitary and phyto-sanitory
standards, state-owned enterprises, IPR, and agriculture.
The U.S. is very willing to work with Moscow to address these
issues, and the USTR is waiting for a response from officials
from Moscow addressing the U.S. concerns. Hormats added that
Congress is following this closely.


5. Ukraine gas transit: Kudrin raised Russia's concerns over
Ukraine's ability to pay for Russian gas supplies. (Note:
He also brought this up with Treasury Secretary Geithner.)
Kudrin said that Ukraine is using IMF loans to pay for gas,
but now the GOU are sending signals that they may fail to
pay. Ukraine has artificially low tariffs on gas for
domestic consumption. One of the IMF's loan conditions is
that Ukraine raise domestic gas prices, but Ukraine does not
want to do this until their January 2010 presidential
elections. If Ukraine does not pay Russia, Kudrin implied
that Russia may halt gas supplies this winter, and then
Ukraine will likely siphon off gas intended for the Western
European market. Hormats responded that we will work with
Treasury on this important issue, stressing that we don't
want a repetition of what happened last winter.


6. (Comments: In a separate meeting with Treasury, Ukrainian
officials warned that if the IMF does not follow through with
the next loan tranche, then an anti-Western leader, e.g.
Yanukovitch, will win the January presidential election and

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Ukraine may reunite with Belarus and Kazakhstan is a customs
union. The IMF is sending a mission to Ukraine in
mid-October to make an assessment regarding the next tranche.
End comment.)
WIENER