VZCZCXYZ0000
PP RUEHWEB

DE RUEHMO #2902/01 2750729
ZNY CCCCC ZZH
P 010729Z OCT 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0174
INFO RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 002902 
 
SIPDIS 
 
STATE FOR EUR/RUS; NSC FOR JELLISON 
 
E.O. 12958: DECL: 09/29/2018 
TAGS: ECON EINV ETRD PREL PGOV RS
SUBJECT: MEDEVEDEV'S ECONOMIC ADVISOR ACKNOWLEDGES 
FINANCIAL CRISIS; DEFENDS RUSSIA'S WTO APPROACH 
 
Classified By: Ambassador John R. Beyrle for Reasons 1.5 (b) and (d). 
 
------- 
Summary 
------- 
 
¶1. (C) In a September 25 meeting, President Medvedev's 
Economic assistant, Arkadiy Dvorkovich, told the Ambassador 
that Russia was also in the midst of a serious financial 
crisis and that the U.S. and Russia needed to work together 
to restore confidence to the world financial system.  He 
defended Russian actions to reopen bilateral trade 
agreements, which he said were in response to the lack of 
progress in Russia's WTO accession.  Dvorkovich questioned 
U.S. silence at WTO negotiations in Geneva and the 
postponement of G8 meetings.  He said that after a delay 
caused by the Georgian conflict, the GOR was working to get 
Medvedev's economic reform agenda back on track.  Finally, he 
noted that he plans to be in the U.S. twice in coming months 
and hoped to be able to meet with U.S. officials in 
Washington on one or both occasions.  End Summary. 
 
---------------- 
Financial Crises 
---------------- 
 
¶2. (C) Dvorkovich acknowledged that the Russian economy was 
going through a serious financial crisis.  He said Russia's 
problems were similar to those of the U.S. as tightening 
credit was threatening to spill over into the real economy. 
We faced common challenges and needed to coordinate action in 
order to restore confidence to the world financial system. In 
that regard, he noted that U.S. firms, including U.S. banks, 
were cutting back on their activities in Russia.  To the 
extent that this was in reaction to economic conditions this 
was understandable.  However, there were rumors that the USG 
had pressured U.S. firms to disinvest or reduce credit lines. 
 
¶3. (C) The Ambassador responded that this was not U.S. 
policy.  The Ambassador in turn took issue with Medvedev's 
recent comment about an economic "depression" in the U.S. 
That had been both inaccurate and unhelpful.  A serious 
recession was possible but we were far from a depression. 
 
¶4. (C) Dvorkovich took the point and added that the GOR was 
working to restore investor confidence in the Russian 
economy.  For instance, the TNK-BP dispute had been settled 
and the case against Mechel closed.  Dvorkovich also 
dismissed any comparisons between either of these cases and 
Medvedev's comments to the Polyus gold mining firm to stop 
"whining" about a lack of government support.  Polyus had 
purchased the license without such guarantees and could 
afford to develop the deposit through its own resources. 
 
--- 
WTO 
--- 
 
¶5. (C) On WTO, Dvorkovich claimed that a few months ago, the 
GOR had decided to make a major push on accession.  The 
results had been disappointing.  Neither the U.S. nor the EU 
had provided a positive signal.  In late July, the GOR had 
decided that under the circumstances it was not prepared to 
continue with unilateral commitments that it had made in the 
expectation of accession.  What was needed at this point was 
a clear indication from the U.S. and the EU: do this and you 
will get in. 
 
¶6. (C) The Ambassador responded that the politics of 
accession were difficult.  No country had pushed harder the 
last two years than the U.S. to help speed Russia's 
accession.  The U.S. and the EU both still saw Russia's 
accession as in everyone's long-term interests but to say 
that it was not going anywhere right now was a statement of 
fact.  Compromise was needed to resolve the remaining issues 
and the space for compromise had been much reduced in the 
current climate.  The Ambassador added that we were deeply 
concerned that the GOR was embracing protectionist measures 
in response to its WTO bid slowing.  In particular, we had 
been concerned about the recent letter from the Veterinary 
Service (VPSS) that the GOR no longer recognized the 
bilateral agreement and its side letters.  The MFA and 
Economics Ministry had claimed it was not government policy 
but nonetheless the signal the letter had sent was that 
Russia was no longer interested in WTO accession. 
 
¶7. (C) Dvorkovich said Russia did still want membership. 
Accession would bring benefits both to Russia and to its 
 
trading partners, including the U.S.  However, Russia would 
not stand outside knocking on the door forever.  There were 
few substantive issues preventing accession; in the GOR's 
view, it was a question of political will.  In that regard, 
the GOR hoped to see signs of progress at the next round of 
negotiations in Geneva in early November and hoped that the 
U.S. would not remain silent again.  If Russia was not 
welcome, he added, it would continue to operate as it was 
now, resolving disputes bilaterally.  Dvorkovich added that 
Russia was also looking to preserve cooperation in the G8 and 
other multilateral fora.  As G8 Sherpa, he was concerned by 
the U.S. prompted postponement of meetings.  This did not 
hurt Russia so much as it did third countries that were 
counting on the world's leaders to work together to resolve 
pressing transnational issues such as climate change, or 
infectious diseases. 
 
--------------- 
Economic Reform 
--------------- 
 
¶8. (C) The Ambassador told Dvorkovich that he had been 
impressed with Medvedev's speech last February at the 
Krasnoyarsk Economic Forum and at the vision it had laid out 
of a prosperous, integrated and competitive Russian economy. 
The U.S. strongly supported this vision because it would be 
good for Russia and because it would be good U.S. economic 
interests.  Our impression was, however, that the promised 
reforms appeared to have been sidetracked in the aftermath of 
the Georgian conflict. 
 
¶9. (C) Dvorkovich responded that there had been a delay 
because of Georgia but that the plans were now moving forward 
again.  For instance, a key package of anti-corruption 
measures that would bring Russia into compliance with 
international standards would be submitted to the Duma on 
September 30.  In addition, the GOR was moving forward on 
legislation that would improve competition, on laws that 
would better support SMEs, and on increased budgetary support 
for higher education, health care, and infrastructure 
projects such as roads.  The GOR was also introducing 
targeted tax reductions, though VAT reform had been out off 
until 2009. 
 
¶10. (C) The Ambassador asked if Dvorkovich was concerned 
about the effect of all of these priorities on the GOR's 
budget.  Dvorkovich said not all of the reforms would cost 
money; some were regulatory changes.  In any event, in 
implementing these reforms, the GOR would be careful not to 
overspend. 
 
----------- 
U.S. Visits 
----------- 
 
¶11. (C) Dvorkovich said he had been invited to the USRBC 
Annual Conference in Washington the week of October 6-10.  In 
addition, he would likely be in the U.S. in mid-November for 
a ceremony inaugurating a university-to-university 
partnership between Duke University's Fuqua Business School 
(where Dvorkovich was a student) and the Sokolov Business 
school in St. Petersburg.  He planned to visit Washington 
during one or both of these trips and hoped to see a variety 
of U.S. officials. 
 
¶12. (C) The Ambassador responded that he would also be in 
Washington for the USRBC Conference and would see what could 
be done about scheduling meetings.  November, after hoped-for 
progress by Russia in meeting its Georgia commitments, might 
be a better opportunity. 
 
------- 
Comment 
------- 
 
¶13. (C) The same day he met with the Ambassador Dvorkovich 
claimed in a speech that Russia was well-positioned to emerge 
from the financial crises on "top" of the world's financial 
system.  There was little such bravado in private.  Instead, 
Dvorkovich, like Finance Minister Kudrin earlier in the week, 
seemed sobered by Russia's financial problems, the 
seriousness of which we believe caught him and other senior 
GOR economic policy-makers by surprise. 
BEYRLE