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C O N F I D E N T I A L MOSCOW 004540 
 
SIPDIS 
 
SIPDIS 
 
NSC FOR WARLICK 
EUR/RUS; EUR/ERA; EB/IFD/OMA 
TREASURY FOR MEYER/BAKER 
USDOC FOR 4321/ITA/MAC/EUR/RISA BROUGHER AND BEADLE 
USDOC FOR 3004/CS/ADVOCACY/BLOOM 
 
E.O. 12958: DECL: 09/14/2017 
TAGS: ECON EINV PGOV RUS
SUBJECT: RUSSIA: FINMIN KUDRIN CONFIDENT ABOUT STAYING ON, 
TALKS ABOUT LIQUIDITY CRISIS, IRAQ DEBT, AND IMF DURING 
SEPTEMBER 14TH MEETING WITH AMBASSADOR 
 
Classified By: Ambassador William J. Burns for reasons 
1.5 b and d. 
 
¶1. (C) Summary:  In a September 14 meeting with the 
Ambassador, Finance Minister Kudrin expressed confidence that 
he would remain in office despite the recent change in Prime 
Ministers.  Kudrin's self-assurance seemed to have been 
boosted by his meeting a little earlier on September 14 with 
Chief of Presidential Administration Sobyanin at the Kremlin, 
and a phone call the evening of September 13 with new PM 
Zubkov.  Regarding the growing global liquidity crisis, 
Kudrin stated that Russian banks should brave the storm.  But 
given Russia's large gold and dollar holdings, the GOR felt 
more strongly than ever that it should have a seat at the G7 
Finance Ministerials.   Kudrin pressed for U.S. support for 
re-starting discussions about the next IMF Managing Director. 
 He argued strongly that the current selection process was 
unfair, and that Russia and many other emerging economies 
were increasingly dissatisfied with the process.  On Iraq 
debt, he was cautiously optimistic an agreement would be 
signed by December, but that Russia still wanted some 
tangible demonstration of Iraqi support for Russian business, 
and a Memorandum of Cooperation, similar to the one signed 
with Afghanistan, was desired.  End Summary. 
 
A Confident Kudrin 
------------------ 
 
¶2. (C) Kudrin said Russia's new Prime Minister, Viktor 
Zubkov, indicated that he would not be dismissed.  Zubkov 
would make significant changes in both those occupying 
Ministerial posts but also the structure of the Ministries 
themselves.  Over the next few days, discussions about the 
shape of this new government would take place, and perhaps 
even as early as Monday, would become known.  (Comment: 
Kudrin has had a close relationship with Zubkov, who headed 
the Federal Financial Monitoring Service ) FFMS - until 
appointed Prime Minister; FFMS is in titular terms under the 
Finance Ministry.  Kudrin seemed very confident throughout 
the meeting.  End Comment.) 
 
¶3. (C) Zubkov was not expected to pursue any change in 
economic policies, said Kudrin.  The focus would be to 
maintain stability and calm in the market.  Kudrin spoke 
highly of Zubkov, calling him a man of integrity, highly 
skilled and serious about cracking down on corruption. 
Combating corruption would be a major theme during the 
electoral cycle and he noted that even some of the political 
parties were talking about anti-corruption strategies. 
 
The Liquidity Crisis 
-------------------- 
 
¶4. (C) Kudrin noted that the worsening global liquidity 
crisis was being felt in Russia.  There had been a 
significant outflow of capital, the current account was 
shrinking and there was decreased confidence in the banking 
sector.  Significant trouble in the banking sector was not 
expected, but the liquidity crisis might force some banks to 
close and accelerate banking sector consolidation.  The 
Russian Central Bank stood ready to intervene with Russian 
banks if necessary.  He urged the United States to take 
serious measures to stabilize the situation and infuse more 
liquidity into the global financial system. 
 
The G7 should become Eight 
-------------------------- 
 
¶5. (C) Kudrin argued that now more than ever before, it 
seemed critical from Russia's point of view to be invited to 
be part of the G7 Finance Ministers, discussion.  Russia 
held significant dollar and gold reserves and should have a 
say in how the liquidity crisis would be managed.  It was 
high time, he argued, that Russia became a member and urged 
that Russia be invited to the G7 Finance Ministers' 
discussion on the liquidity issue at the World Bank/IMF 
October meetings.  (Note: We were told that Kudrin, Deputy 
Finance Minister Storchak and Central Bank Governor Ignatiev 
would attend the Bank meeting.) 
 
IMF Politics 
------------ 
 
 
¶6. (C) Explaining why Russia nominated Josef Tosovsky, former 
Czech PM and Central Bank Governor, for the IMF Managing 
Director position, Kudrin stated that reform of the selection 
process was long overdue.  The European candidate 
Strauss-Kahn was opposed by many non-EU countries, as his 
conversations with his counterparts from China, India, 
Australia, South Africa, Saudi Arabia, Switzerland and others 
had highlighted.  Russia and many others were frustrated with 
the opaque nature of nomination process.  Tosovsky was 
extremely competent and more qualified than even 
Strauss-Kahn.  The latter, Kudrin said, was all things to all 
people, and would not take the disciplined approach needed 
for the IMF, whose effectiveness as an institution would be 
especially important if the global liquidity crisis were to 
worsen.  The United States, as the largest shareholder, 
should be most concerned about the IMF's effectiveness, 
especially now, and he pressed for active U.S. engagement in 
the debate.  He heard that  Treasury Secretary Paulson would 
meet with Tosovsky on the 18th and asked for the U.S. to keep 
an open mind. 
 
Iraq debt 
--------- 
 
¶7. (C) Kudrin reiterated that the debt forgiveness agreement 
was nearly finalized in technical terms, but the GOR needed a 
demonstrated and public commitment by the Iraqis that they 
would give Russian businesses the chance to compete.  Russia 
wanted a Memorandum of Cooperation, similar to one signed 
with Afghanistan, before the debt agreement would be 
ultimately completed.  Russia's MFA was preparing such a MOU, 
which would likely be presented to Iraqi Foreign Minister 
Zebari during his visit to Moscow next week. 
 
Comment 
------- 
 
¶8. (C) Besides Kudrin's close relationship with Zubkov, the 
brewing global liquidity crisis and the shivers it has 
started to send to the Russian market might have sealed his 
continuation as Finance Minister.  Kudrin has been long been 
rightfully credited for keeping a tight rein on spending and 
for Russia's fiscal discipline. 
 
Burns