Identifier
Created
Classification
Origin
09MOSCOW923
2009-04-10 10:57:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Moscow
Cable title:  

BANKING CONFERENCE HIGHLIGHTS DIVISIONS OVER

Tags:  ECON EFIN PGOV RS 
pdf how-to read a cable
VZCZCXRO5200
PP RUEHDBU RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHMO #0923/01 1001057
ZNR UUUUU ZZH
P 101057Z APR 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 2835
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
UNCLAS SECTION 01 OF 02 MOSCOW 000923 

SENSITIVE
SIPDIS

STATE FOR EUR/RUS
TREASURY FOR TORGERSON
DOC FOR 4231/MAC/EUR/JBROUGHER
NSC FOR ELLISON

E.O. 12958: N/A
TAGS: ECON EFIN PGOV RS
SUBJECT: BANKING CONFERENCE HIGHLIGHTS DIVISIONS OVER
CRISIS RESPONSE

-------
SUMMARY
-------

UNCLAS SECTION 01 OF 02 MOSCOW 000923

SENSITIVE
SIPDIS

STATE FOR EUR/RUS
TREASURY FOR TORGERSON
DOC FOR 4231/MAC/EUR/JBROUGHER
NSC FOR ELLISON

E.O. 12958: N/A
TAGS: ECON EFIN PGOV RS
SUBJECT: BANKING CONFERENCE HIGHLIGHTS DIVISIONS OVER
CRISIS RESPONSE

--------------
SUMMARY
--------------


1. (U) Officials from Russia's Central Bank and Sberbank
presented opposing views of the duration of the economic
crisis and the possibility of a second banking crisis at this
week's Moscow Higher School of Economics annual conference.
Aleksei Ulyukaev of the Russian Central Bank argued the most
difficult part of the crisis was over, and that Russia was
learning to operate in its new economic environment. German
Gref of Sberbank contended Russia's banking crisis was only
beginning and pressed for swift GOR action to address bad
assets. Presidential Aide Aleksei Dvorkovich agreed that
another wave of the crisis would pose serious problems for
the banking sector. He predicted the economy would not begin
to stabilize until the third or fourth quarter of 2009.
Dvorkovich also accepted the inefficiency of some state
corporations, but asserted attempts to change strategies now
would be unproductive. End summary.

-------------- -
BANKERS DISAGREE ON CRISIS LENGTH AND RESPONSE
-------------- -


2. (U) Aleksei Ulyukaev, First Deputy Head of the Russian
Central Bank, declared the most difficult part of the
economic crisis in Russia was over during a presentation at
the Higher School of Economics, annual conference on social
and economic development on April 8. While not indicating
Russia had already "hit bottom," Ulyukaev contended the
country was learning how to operate in its new economic
environment, since a "bounce back" to pre-crisis conditions
would not occur. Ulyukaev distinguished the liquidity crisis
at the end of 2008 from the current problem of bad assets in
the banking sector. The asset problem will not spread like
the liquidity "lightning fire" of the fall. Although the
liquidity crisis required quick action, he stated the process
of addressing bad assets in the banking system should be
thoughtful and gradual. In addition, Ulyukaev was confident
the ruble had stabilized and stressed the possibility of
keeping inflation under 13 percent in 2009.


3. (U) In contrast to Ulyukaev, German Gref, Chairman of
Sberbank, argued Russia's banking crisis was only beginning.

He stated the crisis would come from the real sector. Gref
also claimed Russian banks did not fully experience the
crisis last fall because they were not involved in derivative
operations. Gref asserted non-performing loans, whose rate
of accumulation was currently 20 percent per month,
constituted the greatest threat to banks. He commented,
"Slow government action allows banks to hide bad debts and
leads to the accumulation of bad assets." Gref appealed to
the GOR to adopt a strategy for dealing with the problem
swiftly. In addition, he referenced Sberbank's analysis of
past crises to demonstrate the point that economy recovery
would only be possible after bad assets were cleaned from the
banking sector. Sberbank's analysis also concluded the
average time for economic recovery was twice the duration of
the recession.

-------------- --------------
DVORKOVICH PUSHES BANK AID AND LONG-TERM DEVELOPMENT
-------------- --------------


4. (U) Presidential Aide Arkady Dvorkovich also underscored
the importance to the GOR of swift anti-crisis measures,
particularly in the banking sector. Dvorkovich was
pessimistic regarding the possibility of a rapid recovery
from the crisis. He stated "all the waves of the crisis had
not yet passed." In addition, Dvorkovich argued that
stabilization would not begin to set in until the third or
fourth quarter of 2009, although the fall in the second
quarter would not be as sharp as in the first quarter. He
noted another wave of the crisis would pose serious concerns
for Russia's banking sector. Support for the banking system
was therefore an absolute priority for the GOR. However,
Dvorkovich contended the GOR should not directly intervene in
banks' normal operations and decisions regarding loan
recipients. Instead, the GOR needed to create the conditions
in which banks could use their resources appropriately, not
simply placing them in foreign currencies abroad.

MOSCOW 00000923 002 OF 002




5. (U) In addition to immediate anti-crisis measures,
Dvorkovich emphasized the importance of the GOR's long-term
development strategy and the need to improve Russia's
productive capacity. He stated the priorities specified in
the 2020 Long-Term Development Strategy, in particular
quadrupling labor productivity and doubling energy
efficiency, were absolute necessities without which the
dominant part of the Russian economy would not survive.
Dvorkovich also noted the inefficiency of some state
corporations, noting the possibility that the GOR is "overly
fascinated" with creating such enterprises in various
sectors. He said it was necessary "to create new, effective
production." However, he added that changing the GOR,s
strategy in this area now would be "incorrect and
counterproductive."

--------------
COMMENT
--------------


6. (SBU) Government officials and private lenders believe
the level of non-performing loans may hit 10 percent by the
year's end. However, Gref's estimates of 20 percent may in
fact be closer to the mark given that many Russian banks have
traditionally understated their troubled assets. The real
level of bad loans is often concealed by debt restructuring.
Banks are now reportedly increasing their provisions against
the anticipated growth in non-performing loans later this
year, and many are hoping - as Gref suggested - that the
government will adopt preventative measures by recapitalizing
them. End Comment.
BEYRLE