SCENESETTER FOR VISIT OF CODEL LEVIN TO MOSCOW,

UNCLAS SECTION 01 OF 04 MOSCOW 000895

SENSITIVE
SIPDIS

H FOR CODEL LEVIN

E.O. 12958: N/A
TAGS: PGOV PREL OREP PINR MARR PARM PHUM RS
SUBJECT: SCENESETTER FOR VISIT OF CODEL LEVIN TO MOSCOW,
APRIL 13-15


1. (SBU) Embassy Moscow warmly welcomes your visit to Russia
next week. Your trip comes following the first meeting
between President Obama and President Medvedev in London on
April 1, which was welcomed by both sides as reaffirming the
mutual desire to "reset" the U.S.-Russia relationship. While
Russia values this high-level engagement, which it sees as
affirming its status as a global power, the political
establishment has had the wind knocked out of it by the
economic crisis. With the Russian economy contracting
rapidly, the fiscal accomplishments of the Putin years are
quickly being erased, and the social compact of economic
growth in exchange for political stagnation is coming under
question. It is in our interest that Russia engage on a new
footing with the West, but after ten years of sharp policy
conflicts that culminated in the Georgia war, we need to
reinvest in our joint strategic interests and rebuild a badly
eroded foundation of trust. Good relations with Russia are
not an end unto themselves; they are a means to help us
achieve our most vital national security interests.

Rebuilding U.S.-Russian Relations
--------------


2. (SBU) The U.S. and Russia issued two joint statements
following the Presidents' meeting: A Joint Statement defining
areas where we will work together to address common
challenges such as non-proliferation, the economic crisis,
and terrorism, while seeking to resolve our differences over
issues such as missile defense and European security; and a
Joint Statement committing to negotiate a legally-binding
follow-on agreement to the START Treaty which expires in
December of this year. The latter effort will be the top
priority this year, as we endeavor to reach agreement on a
new treaty which will reduce the number of strategic
offensive arms below the level of the 2002 Moscow Treaty,
while maintaining a strong verification and transparency
regime.


3. (SBU) Many Russian commentators here have noted the
positive "tone and spirit" of the Presidents' meeting, and
have expressed the hope that it would translate into better
cooperation and concrete actions. Still, the level of
anti-Americanism in the official Russian media remains high,
and the temptation to blame the U.S. for Russian problems,
including the economic crisis, will persist. You will have
an opportunity to ask your Russian interlocutors for their
vision of U.S.-Russian relations under the new U.S.
administration, and how best to manage a relationship that
will be defined as much by cooperation as by competition. We
share an important agenda, with on-going cooperation in
safeguarding and reducing nuclear weapons stockpiles,
preventing the emergence of a nuclear Iran, countering
terrorism, advancing peace in the Middle East, pushing North
Korea to wind down its nuclear program, and working
collaboratively in space on projects that advance health and
understanding of climate change. Congressional ratification
of a "123" agreement, set aside after the Georgia conflict,
could open significant new cooperation and trade in civilian
nuclear energy and build on our Global Nuclear Energy
Partnership. Your interlocutors will also be looking for
indications that the President will follow through on his
commitment to assist Russia's accession into the World Trade
Organization, and may press you for repeal of Jackson-Vanik.
We do not lack for a positive agenda, but will need to
rebuild an architecture to our bilateral relationship that
allows wide-ranging engagement on all issues of concern --
especially those on which we disagree.

The Economic Crisis
--------------


4. (SBU) The international financial crisis has replaced the
war with Georgia as the defining issue for Russia's political
class and the Russian public, with the "real economy" now
taking a hit -- GDP contracted by 7 percent in the first
quarter of 2009, following years of robust growth. The
crisis actually started in Russia earlier than elsewhere, as
foreign investors reacted to the fighting in Georgia by
withdrawing capital, leading to a collapse of Russia's stock
markets. Capital flight accelerated as the global financial
crisis deepened and, adding to Russia's woes, the price of
oil, gas and other commodities plunged and the ruble lost
nearly 40 percent of its value. In short -- a "perfect
storm," after seven years of steady growth.


5. (SBU) The weaknesses in the Russian economy, especially
its lack of diversification and its dependence on foreign

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capital, were painfully exposed by the end of 2008. Even
with growth rapidly contracting, inflation has remained in
double-digits, complicating efforts to stimulate demand.
That said, years of budget surpluses and rising oil prices
had lifted the country's foreign currency reserves to almost
$600 billion, third highest in the world, and the government
has used this cushion to respond to the crisis. It committed
more than $200 billion of its reserves to a gradual
depreciation of the ruble, which improved competitiveness
while avoiding the panic that might have accompanied a sudden
drop in the ruble (a la 1998) and another $200 billion in
budgetary resources via a substantial budget deficit to
supply liquidity, recapitalize banks, assist corporations,
and support social spending. Nevertheless, tight credit
markets at home and falling demand globally are causing
continued contraction and increased unemployment.


6. (SBU) Putin and Medvedev are as close to economic
modernists as Russia has, holding the line on fiscal policy
in the face of opposition from liberal and conservative
forces that want more spending, but disagree on priorities.
The real debate here is whether to resume efforts to
modernize, open, and diversify the economy. The uptick in
Soviet-era nostalgia and xenophobic violence that has
accompanied this economic crisis is a reminder of the
autarkic forces also at play here, who advocate an alternate
vision of militarization and state intervention.

Tandem Politics
--------------


7. (SBU) Today, a year after Medvedev's election, questions
remain about Russia's political succession. As Prime
Minister, Putin continues to play a major decision-making
role. Medvedev has yet to prove that he has the wherewithal
to supersede Putin as the preeminent decisionmaker. Although
there have recently been indications of friction between
their advisors and deputies, the two camps, there is little
daylight between Putin and Medvedev on major decisions or
domestic or foreign policy issues. There is intense
speculation inside the Moscow beltway over whether the
economic crisis will hasten Medvedev's rise or speed Putin's
return to the Kremlin. Both men are polling in the mid-60's,
but this reflects a drop from Putin's 80 percent approval and
a rise from Medvedev's 40 percent approval rate six months
ago.

Other Key Issues
--------------


8. (SBU) In addition to seeking agreement on a post-START
treaty and a common approach to the economic crisis, the key
priorities in our relationship with Russia are:

-- IRAN: Russia has welcomed the Administration's
willingness to engage in dialogue with Iran, but continues to
balk at additional sanctions or other "sticks" if Iran is
recalcitrant. In the Joint Statement, the two leaders
recognized Iran's right under the NPT to a civilian nuclear
program, but stressed that Iran needed to restore confidence
in its exclusively peaceful nature, and fully implement all
relevant UN and IAEA resolutions. Russia
continues to juggle competing strategic interests toward
Iran: while it has no desire to see a new nuclear neighbor,
it also has strong trade and historical ties to Iran, seeks
Iranian restraint in the North Caucasus and Central Asia,
anticipates future arms and civilian nuclear energy deals,
and needs Tehran's flexibility to permit more oil and gas
exploration in the Caspian Sea.

-- MISSILE DEFENSE: Moscow continues to maintain that a U.S.
missile defense system in eastern Europe is -- or could be --
aimed at Russia, and has threatened to deploy Iskander
missiles in Kaliningrad if the U.S. deployment goes forward.
Russia hopes the Obama administration will revisit missile
defense plans in Europe, and will argue that its offer of
cooperation at the Qabala radar facility in Azerbaijan was a
missed opportunity to present a common front against Iran.
Russia's offer of cooperation was premised on the U.S.
halting the development of radar and interceptor sites in the
Czech Republic and Poland. Russia rejects the geometry
driving the geographic selection of the two sites, and the
U.S. decision to provide Poland with Patriot batteries is
produced as evidence of the "anti-Russian" nature of the
program. Since October 2007, we have proposed a number of
transparency and confidence-building measures to reassure
Russia, providing extensive technical briefings on the threat

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from Iran as well as on the characteristics of the system,
showing that it could not be effective against Russia's
nuclear arsenal. While Russia is slowly coming to accept
that the threat of Iran developing a medium-range missile is
increasing, there is no let-up in the fierce opposition to
U.S. MD plans.

-- AFGHANISTAN: Russia has signaled interest in playing a
greater role in efforts to stabilize Afghanistan. Its
Special Conference on Afghanistan in Moscow under auspices of
the Shanghai Cooperation Organization brought together
countries of the region, international organizations, and
Europe and the U.S. to address counternarcotics and
counterterrorism issues. In February, the U.S. and Russia
reached agreement to allow transit of non-lethal U.S.
equipment to ISAF across Russia. The first shipment of 100
containers successfully crossed Russian territory to
Afghanistan in late February, and we expect more to follow
soon. Russia has also hinted at the possibility of
concluding an agreement to allow the transit of lethal
equipment, but there has been no discussion to date.

-- MIDDLE EAST: Russia has expressed the intention of
hosting a Moscow conference as the follow-on to Annapolis,
possibly this summer. Russia has been a useful peace process
partner, playing a positive role in the Quartet, and
reinforcing U.S. messages in the region. We have differed in
the past over the virtues of engagement with Hamas, Damascus,
and Tehran, with Russia generally having little to show for
its diplomatic efforts. Nevertheless, Russia's much improved
relations with Israel, with whom it now has a visa-free
regime and a vigorous strategic dialogue, and the presence of
a pro-Israel lobby at home (tied to the substantial Israeli
Russian community),has transformed Russia from its
reflexively pro-Arab stance of Soviet days. The advent of a
Russian-speaking Israeli Foreign Minister may further
accelerate this shift.

-- NATO/NEIGHBORHOOD: Although Russia welcomed NATO's
decision to resume engagement in the NATO-Russia Council
post-Georgia as a "return to realism," it continued its
policy of demanding greater cooperation even as it decried
the security organization as an existential threat to Russian
security. Russia continues to strongly oppose NATO
enlargement, particularly to Georgia and Ukraine. In the
Joint Statement, the Presidents agreed to explore a dialogue
on Medvedev's European Security Treaty (EST) proposal, which
is less an initiative than an
expression of Russia's dissatisfaction with existing security
structures. While denying that Russia is seeking to
reestablish a "sphere of influence," Moscow asserts that
Russia and the former states of the Soviet Union have
"mutually privileged interests," and has made relations with
the CIS its top foreign policy priority. Moscow uses this to
justify its actions in Georgia in August 2008, asserting that
it has a right to protect Russian citizens
in countries where it has dispensed passports to former
Soviet citizens. While we continue to disagree about
Russia's actions in Georgia, both Presidents agreed that we
must continue efforts toward a peaceful and lasting solution
in the region, which for us means more UN, OSCE and EU
monitors and more frequent discussions among the parties in
Geneva on ways to reduce tensions.

-- ECONOMIC DIALOGUE: Building on the G20 process, economic
issues offer a way to generate early momentum in the
bilateral relationship. Russia seeks to play a responsible
role in coordinated global efforts to address the crisis and
to reform the international financial architecture. In the
Joint Statement, the two Presidents committed to launch an
intergovernmental commission on trade and economic
cooperation and to intensify our business dialogue.

-- DEMOCRACY, HUMAN RIGHTS AND OTHER AREAS OF DISAGREEMENT:
We have underscored to Russia that our efforts to reset the
relationship do not mean we will compromise on our values and
our commitment to democracy and human rights throughout the
former USSR. The challenge is to dissuade Russia from
viewing our support for these core American values as an
effort to humiliate or weaken Russia. Both sides recognize
that there are areas where we will disagree, but our goal is
to minimize the harsh exchanges over those disagreements that
characterized our relationship in recent years. We will
continue to differ over issues such as missile defense, NATO
enlargement, Russian arms sales to countries of concern, and
the status of Abkhazia and South Ossetia, but are committed
to seeking ways to address these differences more effectively.

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