VZCZCXRO4324
RR RUEHDBU RUEHLN RUEHPOD RUEHSK RUEHVK RUEHYG
DE RUEHMO #1507/01 1601415
ZNR UUUUU ZZH
R 091415Z JUN 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 3714
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 03 MOSCOW 001507 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PHUM PINR ECON ETRD KDEM KCOR SOCI RS
SUBJECT: KALUGA REGIONAL GOVERNMENT SPENDS ON DEVELOPMENT 
AT EXPENSE OF SOCIAL AID 
 
¶1. (SBU)  Summary:  During a recent visit to the ruling 
United Russia-dominated Kaluga Region, local government 
officials took great pains to portray it as one of the most 
attractive regions in Russia for foreign investment and, 
despite the current economic crisis, one that is thriving 
with virtually no unemployment.  Other non-government and 
opposition contacts painted a more somber economic picture, 
with cuts in social services required to continue funding 
massive economic development projects.  The region does have 
several successful programs related to human rights, teen 
participation in government, and adoptions, indications of a 
stable society.  End Summary. 
 
Kaluga Poised for Economic Success 
---------------------------------- 
 
¶2. (SBU)  During a May 27-28 visit to Kaluga Oblast, 
government officials portrayed the region as one of the most 
attractive in Russia for foreign investment.  The region 
earned the title, "The Cradle of Space Exploration" because 
of its association with Soviet rocket science pioneer 
Konstantin Tsiolkovsky, who conducted his modern space 
research in Kaluga.  In recent years, however, Kaluga has 
evolved into an important Russian automotive industry and 
manufacturing center.  Alluring tax benefits and regional 
government support have enabled foreign companies such as 
Volkswagen, Volvo, PSA Peugeot Citroen, Mitsubishi Motors, 
L'Oreal, General Electric, John Deere, and Samsung to locate 
production facilities there. 
 
¶3. (SBU)  Kaluga's Governor Anatoliy Artamonov and Mayor 
Nikolay Lyubimov, both from Prime Minister Vladimir Putin's 
ruling United Russia party, had participated in a March 17 
event in Moscow to promote foreign investment in the region. 
Russian Foreign Minister Sergei Lavrov described how recently 
the amount of direct foreign investment in the Kaluga Region 
reached over one billion dollars and stressed both Kaluga's 
great scientific potential and the federal development plan 
to become a regional nanotechnology center by 2015.  The 
governor and mayor personally extended an invitation to us to 
visit Kaluga to witness its development successes. 
 
Portraying Kaluga as a Model of Capitalism 
------------------------------------------ 
 
¶4. (SBU)  On May 27, Kaluga Deputy Governor Maxim Akimov told 
us that the regional administration has built foreign 
investment portfolio of multiple agreements with foreign 
investors worth about four billion dollars and is in talks 
with new investors on projects worth almost the same amount. 
According to Akimov: 
 
-- The Kaluga region ranks first in Russia's industrial 
output; 
 
-- In 2008, the Kaluga region's growth rate was more than 30 
percent compared to the national average of only 3.7 percent; 
 
-- Companies project that in 2009 they will manufacture 2.2 
million vehicles in Kaluga; 
 
-- Partners from 90 countries trade with Kaluga; 
 
-- Kaluga's main foreign trading partners are Germany, 
France, Sweden, Italy, Austria, the Czech Republic, Finland, 
the Netherlands, China, and Japan; 
 
-- The Kaluga Region boasts a population of just over a 
million, with a high number of skilled workers; 
 
-- There are 28 academies, universities, and institutes in 
the region, as well as more than 40 scientific institutes; 
 
-- More than 4,000 students of higher educational 
establishments and more than 3,000 students of vocational 
schools graduate each year; 
 
-- Unemployment is virtually non-existent as new jobs are 
constantly being added; and 
 
-- Efficient railway lines link Kaluga to Moscow in only two 
and a half hours. 
 
¶5. (SBU)  In addition to investing in stand-alone companies, 
the Kaluga Regional government is focusing on the creation of 
a number of industrial parks to attract industry, technology, 
and tourism.  The region's permanent representation in Moscow 
acts almost like an embassy, aggressively promoting 
 
MOSCOW 00001507  002 OF 003 
 
 
cooperation with foreign trade organizations and companies. 
The Kaluga Regional government assists by investing a portion 
(generally through "Vneshekonombank" State Corporation), 
while the private investors pay the remainder.  In this way, 
the government essentially acts as a public investment fund. 
 
Scratching Beneath the Potemkin Village 
--------------------------------------- 
 
¶6. (SBU)  On the second day of our trip, when local 
government handlers no longer controlled our schedule, 
opposition-oriented interlocutors painted a picture of ruling 
party domination and economic woes.  Kaluga Regional Duma 
Deputy Sergey Fadeyev, from the opposition Yabloko party, 
told us that Kaluga's Regional Duma rarely votes against 
Governor Artamonov.  The situation concerning Mayor Lyubimov 
is the same, with his control over the Kaluga City Duma 
absolute.  Although KPRF, LDPR, Just Russia, and Yabloko hold 
a few seats in the Kaluga Regional Duma, Fadeyev told us that 
everyone other than Yabloko representatives nearly always 
votes the same as United Russia.  Currently 20 Regional Duma 
members were elected from a party list and 20 were 
single-mandate.  Fadeyev characterized the political 
situation in Kaluga as a "cooperative closed system," meaning 
that it is undemocratic. 
 
¶7. (SBU)  Despite the presence of many businesses in Kaluga, 
the economic crisis clearly is having a negative impact in 
the region.  Fadeyev told us that the economic crisis has 
resulted in a shortage of tax revenues and that the 
government has had to obtain bank credits totaling ten 
percent of the Kaluga regional budget in order to finance the 
massive infrastructure investments rather than to supply 
social benefits.  Fadeyev stated that social problems are 
developing as the regional government diverts money from 
education, social services, and healthcare to keep the 
factories operational.  He was irritated that taxpayers will 
need to carry the burden of financing the interest on these 
loans. 
 
¶8. (SBU)  Fadeyev claimed that all businesses are linked to 
the government and are absolutely controlled by it.  Although 
the growth rate is officially high in Kaluga, he told us that 
the statistics are skewed since Volkswagen just started 
working in the region.  Initially the plan was that, by 2013, 
the Kaluga regional government would see a return on these 
investments, but it is already clear that this timeframe is 
unrealistic, given the economic crisis.  (Note:  When we put 
in a request to the governor's staff to visit the VW plant 
and thereby observe the situation for ourselves, the staff 
refused permission stating that this "excursion" was not 
available.  End Note.)  Fadeyev said this is likely because 
production was recently cut and the work days went from six 
to only three or four.  Finally, Fadeyev told us that the 
crisis has hit some areas in the region very hard; in 
Ludinova City in the Kaluga Region, for example, four out of 
the five main factories were recently closed. 
 
¶9. (SBU)  According to Fadeyev, there is "absolute 
censorship" of media in Kaluga.  He told us how Nika, the 
government television channel, is allocated substantial state 
budget resources so the governor and mayor get all the media 
attention.  It is also nearly impossible to find articles 
about opposition groups in local print media.  Veronika 
Alekseyeva, an editor at Zmanya newspaper, told us that there 
are few journalists in the area and definitely no serious 
ones who would report on controversial issues since "people 
are afraid to complain."  In her opinion, political apathy is 
pervasive in Kaluga -- the top priority is for the region to 
look good so it can attract foreign investment. 
 
An Instrumental Human Rights Ombudsman 
-------------------------------------- 
 
¶10. (SBU)  Despite the above-mentioned shortcomings, we were 
glad to see a number of development successes in Kaluga. 
Yuriy Zelnikov, Kaluga's Human Rights Commissioner, told us 
that he had received 2,571 complaints in 2008, focusing 
mainly on social problems including pensions and taxes, as 
well as immigration issues such as registration and 
passports.  Zelnikov told us that immigrants were moving to 
Kaluga because it is easy to find work and to obtain Russian 
citizenship there.  He showed us how he used federal grant 
money to produce a number of brochures and posters on women's 
rights, children's rights, and various human rights 
situations and that he widely distributes the literature. 
Zelnikov regularly updates an award-winning, comprehensive 
website: www.ombudsman.kaluga.ru.  He is also active in the 
 
MOSCOW 00001507  003 OF 003 
 
 
schools where he recently launched a pilot program with six 
student Ombudsmen who promote human rights.  If the program 
goes well, he plans to expand it throughout the region. 
 
¶11. (SBU)  Concerning opportunities for Kaluga's youth, three 
years ago, a pilot-program for youth government started in 
Kaluga.  There are now replicas of this successful program in 
a number of other regions in Russia.  In Kaluga, the youth 
government includes 20 members, while the youth parliament 
has 40 members.  The participants of these programs are 
generally around 14 years-old.  The youth government and 
parliament include separate political parties and committees, 
and they vote on issues.  Roughly half of the student 
participants are women.  The students work on a number of 
projects related to orphans, businesses, and banking, so they 
develop a variety of skills and connections with the broader 
public. 
 
¶12. (SBU)  Kaluga is also known for its model treatment of 
orphans.  We visited the Azerovski Detski Dom which has 92 
children, ages 3-18.  After a choreographed talent show, 
Director Natalia Pinaeva described to us how every year the 
orphanage has temporarily placed 20 children with Russian 
foster families.  Pinaeva said that the foster families 
receive money for the kids, and some families have taken in 
up to ten children.  While overall the program appeared 
successful, Fadeyev told us that some families are reluctant 
to adopt the kids officially because they would no longer 
receive the additional income. 
 
BEYRLE