DFM DENISOV: RUSSIA OPEN TO INCREASED ECONOMIC AND

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 000653 SIPDIS STATE FOR EUR/RUS; NSC FOR MCFAUL, ELLISON E.O. 12958: DECL: 03/17/2019 TAGS: ECON ETRD PREL PGOV RS SUBJECT: DFM DENISOV: RUSSIA OPEN TO INCREASED ECONOMIC AND COMMERCIAL TIES; "UNCOMFORTABLE" WITH U.S. CIS POLICIES Classified By: Ambassador John R. Beyrle for Reasons 1.5 (b) and (d). -------------- Summary -------------- ¶1. (C) In a March 13 meeting, First Deputy Foreign Minister Andrei Denisov and the Ambassador agreed that we should look for an early resumption and eventual expansion of bilateral economic dialogues. The Ambassador stressed the importance of Russia's WTO accession as a focal point of the dialogues. Denisov acknowledged domestic opposition to accession, which the GOR would need to overcome, but argued that negotiations over accession were essentially complete )- what was needed now was a political decision in favor. Denisov said Russia was looking to the U.S. to lead the G20 response to the economic crisis and hoped for concrete agreements at the London Summit, including on additional financial support for countries at risk of collapse, such as Ukraine. ¶2. (C) In that regard, Denisov underscored Russia's discomfort with the U.S. approach to Ukraine and the rest of the CIS, noting that this was Russia's "zone of responsibility," as evidenced by the "unconditional" $5 billion loan Russia was prepared to offer Ukraine. The Ambassador responded that the U.S. would not recognize a Russian sphere of influence in the region and noted that the Russian loan was making it more difficult for the IMF to encourage reform and greater transparency in Ukraine. Denisov said we would need to learn to coexist in Ukraine but he and the Ambassador agreed that in Central Asia, where both Iran and Afghanistan represented tangible threats, we would need actual cooperation, while in the South Caucasus we would need to seek stability through the Geneva process. End Summary. -------------- Economic/Commercial Relations and Dialogues -------------- ¶3. (C) The Ambassador told Denisov that one of the areas where we were looking to improve relations was on economic and commercial issues, which falls into Denisov's purview. We wanted to restart a formal dialogue, accelerate commercial ties and ensure coordinated responses to the crisis. With respect to the dialogue, the Ambassador said we were considering what sort of structure would work best for a dialogue: government-to-government, business-to-business or a combination of the two. ¶4. (C) Denisov agreed that we needed to take advantage of the opportunity presented by our two young presidents to improve relations. He said that his dialogue with former Under Secretary for Economic Affairs Reuben Jeffery had been friendly and productive and he was prepared to resume it with Jeffrey's successor at an early date. The success of the dialogue had been the result of an agreement to leave out politics. ¶5. (C) Denisov said the GOR was also thinking about how best to design a dialogue that would help facilitate closer economic and commercial relations. The GOR was open to a Biden-Putin Commission or some other framework, but perhaps later, when more progress had been made. In the meantime, at least on the economic dialogue, the GOR saw a three-tiered structure. The first tier was a B2B dialogue, built on the on-going relationship between the Union of Industrialists (RSPP) and the U.S. Chamber of Commerce. The second tier was a G2G dialogue between the MFA and the Economic Development Ministry on the Russian side and the State and Commerce Departments for the U.S. Finally, the third tier was a dialogue between presidential administrations, perhaps between Presidential Assistant Dvorkovich and his counterpart in the NSC. ¶6. (C) The Ambassador responded that this structure could be a good starting point for discussion and agreed that we should start out small and that a &superstructure8 could evolve over time. On the G2G dialogue, we still lacked key personnel, including a Secretary of Commerce, a Trade Representative, and a State Department Under Secretary for Economic Affairs. On the B2B dialogue, while it seemed clear that RSPP would take the lead in the B2B for Russia, the U.S. had reached no conclusion about the U.S. Chamber of Commerce as our lead; for us, it was important that the process be inclusive. MOSCOW 00000653 002 OF 003 ¶7. (C) The Ambassador said that whatever the format, one of the key issues would be Russia's WTO accession. WTO accession could provide critical impetus to improved economic and commercial ties. To make progress, we needed a clear statement of intent by the GOR's senior leadership. President Medvedev had made such a commitment earlier in the week in his meeting with Senators Hagel and Hart, but a more public declaration was needed. It would help to have the GOR appoint someone who could enforce discipline within the GOR and move the process forward. ¶8. (C) Denisov responded that the government was in favor of accession but frankly saw it as primarily a political decision at this point rather than a negotiation over trade terms. He added that First DPM Shuvalov was in charge of WTO accession for the GOR but acknowledged that there were elements within the GOR who opposed membership, especially the agriculture sector, which had been arguing for some time that membership was not in Russia's interests because it would limit the GOR's ability to support to the sector. Denisov said the lobby was influential with First DPM Zubkov acting as their advocate, and acknowledged that it might take Prime Minister Putin's involvement to reach agreement within the GOR on accession. -------------- G20 Summit -------------- ¶9. (C) Denisov noted that the depth of the downturn could be seen in the extent to which protectionism was tempting countries, including Russia and the U.S. It was important that the G20 Summit address this issue and said U.S. leadership would be critical to the G20 process. Russia understood that the U.S. needed time for its new Administration to clarify its plans but the world was waiting for the U.S. It was impossible to discuss reform of the international financial architecture without the country that accounted for 20-25 percent of the world's economic activity. ¶10. (C) The Ambassador responded that President Obama had been focused on getting the domestic economy going again but that the U.S. would come to London prepared and that we would be looking for a strong anti-protectionism statement that would help us avoid the missteps that turned the downturn of the 1930s into a full-fledged depression. ¶11. (C) Denisov noted that the Finance Ministers were meeting that weekend and that Russia's goal was to have the Financial Stability Forum widened in advance of the Summit to include Russia and the rest of the G20 who were not currently members. (N.B. In an aside, Denisov also noted that the British hosts of the summit were planning a P5 dinner for Foreign Ministers April 1 and that Lavrov had already accepted. The discussion topic was to be UNSC reform. In addition, he said British FM Milliband was also planning a P5 plus others meeting to discuss Afghanistan and Pakistan.) -------------- Coexisting in the CIS -------------- ¶12. (C) Denisov said another set of critical issues for the G20 to consider as it discussed financial sector reforms would be increasing assistance to the developing world and providing additional assistance to countries that were in trouble financially. He said Russia was particularly concerned about its neighbors. In that regard, Russia made no pretense to a sphere of influence but rather saw the CIS as Russia's "zone of responsibility." It was prepared to do its part: Russia had offered Belarus $2 billion, Kyrgyzstan another $2 billion, Armenia another $1 billion or so and finally, and most importantly, was prepared to offer Ukraine $5 billion. ¶13. (C) Denisov said this assistance was designed to supplement the efforts of the IMF and others to help these countries avoid economic collapse. It was not, as President Yushchenko had suggested, a new Moltov-Ribbentrop pact between the GOR and his rival Yulia Tymoshenko. The $5 billion, he added, would come back to Russia anyway in payment for Russian gas. In this way, Russia and Ukraine could avoid another debilitating "gas war" and Ukraine would have the energy it needed to get its economy moving again. MOSCOW 00000653 003 OF 003 ¶14. (C) Denisov added that the GOR was frankly "uncomfortable" with the U.S. approach to the region, which painted the various political actors in the region as either black or white; free democrats or colonial stooges of Russia. Ukraine would be a litmus test for our ability to cooperate in the post-Soviet space. Russia's recognized that Ukraine was an independent country now, but saw it much the way Germany saw Austria -- two countries but with a common people and a common language. The U.S. should not make this situation more difficult. ¶15. (C) The Ambassador responded that we did not deny Russia's interests in the CIS but did reject any "sphere of influence" and that we needed to be able to talk openly about our respective approaches. For instance, on Ukraine, it was in both of our interests to prevent the country's economic collapse. However, Russia's $5 billion loan was reportedly without conditions. This undercut the efforts of the IMF to improve transparency and governance in Ukraine. Was Russia opposed to these conditions? ¶16. (C) Denisov responded that Ukraine was in a tough situation and needed to be able to maintain social spending. The old IMF schemes would not work and the conditions it had attached to its assistance needed to be eased to allow Ukraine to run a substantial budget deficit in support of that spending. He added that Russia did support greater transparency, noting that in the case of Belarus, and over the objections of President Lukashenko, Russia had insisted on giving the assistance to the general budget rather than to individual companies and ministries were it would have more easily disappeared. ¶17. (C) Denisov added that in Central Asia, we needed cooperation, not just coexistence, because both Iran and Afghanistan represented threats to both of us. He suggested that we could both learn from our respective relations with Uzbekistan, where after Andijan the U.S. had been too quick to criticize and Russia too quick to support. Both of us had since modified our positions and now viewed the country in much the same way. ¶18. (C) The Ambassador agreed that we had interests in common in Central Asia. He added that it was also in both of our interests to bring stability to the South Caucasus and that the only means to do that was through the Geneva process. Denisov responded that Russia was prepared to let Abkhazia and South Ossetia be long-term irritants in the relationship but that Russia also needed stability in the South Caucasus and was prepared to go forward with the Geneva process, though without high hopes of any breakthrough for now. He added that regardless of how long this lasted, it would not spoil the historically close relations between the Russian and Georgian people. -------------- Comment -------------- ¶19. (C) Closer economic and commercial ties, including especially WTO accession, can help Russia to become a more prosperous and more predictable partner. WTO membership in particular can help jump-start market reforms as Russia adapts to the demands of membership and opens its economy further. ¶20. (C ) The exchange on Ukraine, on the other hand, highlighted the extent to which the post-Soviet space remains the most intractable issue in our bilateral relations. While we both support Ukrainian financial assistance to avoid collapse, our approaches are diametrically opposed and mirror the internal dispute in the country. BEYRLE