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 
 
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SUMMARY 
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¶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. 
 
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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." 
 
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COMMENT 
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¶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