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RR RUEHDBU RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHMO #0320/01 0431615
ZNR UUUUU ZZH
R 121615Z FEB 10
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6221
INFO RUCNCIS/CIS COLLECTIVE
RHEHAAA/WHITE HOUSE WASHDC
RHEHNSC/NSC WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 05 MOSCOW 000320 
 
SIPDIS 
 
STATE FOR EUR/RUS, S/P 
NSC FOR MCFAUL, SOLOMON 
WHITE HOUSE FOR CHOPRA 
 
E.O. 12958: N/A 
TAGS: ECON PGOV PREL SOCI RS
SUBJECT: SCENESETTER FOR INNOVATION DIALOGUE DELEGATION'S 
VISIT TO MOSCOW AND NOVOSIBIRSK 
 
----------- 
Introduction 
------------ 
 
¶1. (U) Your visit to Russia can help advance several of the 
goals Presidents Obama and Medvedev set out in their 
Bilateral Presidential Commission (BPC) to foster greater 
connectivity in key areas, including education, culture, 
business, and government, between the U.S. and Russia.  The 
public-private composition of your delegation will be 
especially useful in promoting innovative use of internet 
technology and social media to achieve BPC objectives.  The 
senior executives of connection technology companies will 
have the opportunity to communicate a vision for a 
modernization/innovation dialogue and discuss possible joint 
initiatives with Russian interlocutors from a wide array of 
public an private sector, and non-governmental organizations 
in Moscow and Novosibirsk. 
 
¶2. (U) For USG officials on the delegation, the visit will 
continue the dialogue that several of you began during the 
visit by senior Russian officials to Boston in January.  For 
the entire delegation, your meetings in Moscow and 
Novosibirsk will provide a people-to-people dimension to the 
"reset" in the bilateral political, economic and cultural 
relationship.  It will also emphasize our support for the 
modernization agenda that President Medvedev advocates for 
Russia, with the understanding that greater interaction 
between our countries' business, civil society and 
educational institutions will help strengthen market and 
social reforms. 
 
----------------------- 
The Political Dimension 
----------------------- 
 
¶3. (U) After almost two years of tandem leadership, President 
Medvedev and Prime Minister Putin appear to be working 
closely together to coordinate government policy.  Medvedev 
has been a steady advocate of modernization in the economy, 
in use of technology, and in the political sphere.  These 
themes have generated considerable public debate about the 
connection between political openness and economic 
prosperity.  Constitutionally, President Medvedev has the 
lead on foreign policy and PM Putin handles the economic 
portfolio.  Putin is the leader of the United Russia 
political party, which dominates national and regional 
politics.  Putin continues to be slightly more popular (with 
approval ratings about 75 percent) than Medvedev (whose 
ratings are slightly under 70 percent). 
 
¶4. (U) Civil society remains very active in Russia even under 
strict government regulation.  The introduction of federal 
NGO registration in January 2006 caused a number of smaller 
NGOs to close and several high-profile organizations to 
experience intense scrutiny.  In July 2009, President 
Medvedev signed amendments to the laws governing NGOs that 
simplified reporting requirements for small organizations and 
reduced the number of times NGOs can be inspected. 
Nonetheless, Russian NGOs continue to face challenges, 
including a frequently changing legal environment and uneven 
enforcement of regulations. The Russian government formally 
recognized NGOs in their role as social service providers but 
in practice is skeptical of NGOs as valued partners. 
Municipal and local governments tend to be more responsive to 
interacting with civil society than those at the federal 
level.  The recent financial crisis decreased significantly 
government funding for civil society activities and 
initiatives.  Support for NGO activity in the media sector 
remains challenging and NGOs are often unable to promote 
effectively their activities broadly through public 
communications. 
 
---------------------- 
The Economic Dimension 
---------------------- 
 
¶5. (U) In an effort to revive Russia's economy, President 
Medvedev has called for modernizing the country, including 
diversifying the economy from its dependence on extraction of 
natural resources, developing an innovation economy based on 
strong intellectual resources and commercialization of 
scientific research, integrating Russia into the global 
economy and its institutions such as the WTO, OECD, and G20, 
and fighting corruption. 
 
MOSCOW 00000320  002 OF 005 
 
 
 
¶6. (U) Russia remains an attractive market for U.S. 
businesses, but Russia's foreign investment regulations and 
notification requirements can be confusing and contradictory. 
 Corruption and legal incongruity are rampant, which 
adversely affects foreign investment.  Scientific an 
technology cooperation is bedeviled by visa problems, Russian 
taxation of cooperative science projects, cumbersome customs 
duties, and lengthy and opaque bureaucratic processes for 
receiving permission to undertake certain types of joint 
work.  GOR rhetoric of integration into the global economy 
often gets ahead of follow-on actions. While senior GOR 
officials have reiterated their commitment to accede to the 
WTO and OECD, the accession process has been slow and fitful. 
 The U.S. trade relationship with Russia recently has 
experienced setbacks due to Russian non-tariff restrictions 
on meat, including a virtual prohibition on all poultry 
imports from the United States.  The Russian Customs Union 
with Kazhakstan and Belarus, launched on January 1, further 
complicates Russia's accession to the WTO.  The U.S. and the 
EU, however, continue to support Russian efforts to accede to 
the WTO. 
 
¶7. (U) The Russian government has yet to realize a long-term 
growth strategy for modernizing and diversifying the economy, 
still dependent largely on oil and gas exports.  Complicating 
matters is the fact that Russia is just now recovering from 
its severest economic downturn in a decade (GNP declined by 
7.9 percent last year).  While the country's currency and 
stock markets have stabilized, borrowing for non-state 
companies (particularly SME's and start-up companies in the 
high tech sector) remains expensive and largely unavailable. 
 
------------------------------------ 
Modernization - Medvedev's Leitmotif 
------------------------------------ 
 
¶8. (U) Modernization of the Russian economy has become a 
central theme of Medvedev's presidency.  In his article 
"Forward Russia!" (September 2009), President Medvedev 
identified "endemic corruption, negative demographic trends, 
and the inveterate habit of relying on the state, foreign 
countries of some all-powerful doctrine to solve our 
problems" as key obstacles to Russia's progress.  Some 
estimates place Russia 30 to 40 years behind developed 
economies in the technology sector and it will lag further 
without increased innovation.  A recent Thomson Reuters 
report concluded that the political turmoil of the nineties, 
brain drain, and S&T budget reductions have transformed 
Russia from a leading science research nation into an 
increasingly minor player in the work of science.  The core 
of Russia's problem, according to many observers, is the lack 
of a qualified high-tech labor force and the absence of a 
productive and dynamic environment for domestic business 
development and FDI.  Scientific prowess is hamstrung by 
insufficient funding (with the budgets of some of Russia's 
best research institutes only 3-5% of comparably sized U.S. 
institutes) and a rapidly aging cadre of scientists, in 
marked contrast to the trend in growing, research-based 
economies. 
 
¶9. (U) The Russian government is clearly searching for ways 
to promote modernization. In May 2009, President Medvedev 
established the Presidential Commission on Modernization and 
Technological Development.  To achieve a high technology 
breakthrough, the Commission recommended that Russia should 
spend 10 billion rubles ($333 million) in 2010 for five 
areas: energy efficiency, medical science, telecom, nuclear 
and information technologies. 
 
---------------------------------- 
Information Technology and Telecom 
---------------------------------- 
 
¶10. (U) The Russian government recognizes that the 
information technology and telecoms sectors are essential to 
their modernization goals.  Russia already has a solid cell 
phone network, with multiple providers.  Introduction of new 
technology has been hampered, however, by restrictive 
notification and licensing requirement for importation of 3G 
and 4G equipment.  Internet penetration in Russia is 
increasing rapidly, from 8% of the population with access in 
2002 to 36% in 2009, although much is still dial-up.  The 
Russian government is looking to move to broadband, with 
Telecom Minister Igor Shchegolev announcing that by 2015, 62 
 
MOSCOW 00000320  003 OF 005 
 
 
of the country's 83 regions will have broadband internet 
access available, supported by 4G WiMax technology, for which 
the Ministry of Defense will provide frequencies. 
 
¶11. (U) The government is counting on private companies to 
provide the infrastructure.  Some companies have lobbied to 
have broadband access added to the list of "universal 
services' that receive subsidies from the government, 
although the government has not agreed to this approach. 
Recently, the Russian government approved a program to 
provide "IT companies" a tax break.  The target beneficiaries 
appear to be software firms, and so far no company that has 
applied for this tax break has been turned down. 
 
----------- 
Health Care 
----------- 
 
¶12. (U) Russia's health situation remains poor despite 
economic gains.  The country's antiquated health care 
infrastructure continues to deteriorate, and access to 
adequate and affordable health care is limited, particularly 
in the vast rural sections of the country.  The Deputy 
Minister of Health and Social Development has raised with USG 
officials Russia's interest in developing a system of 
telemedicine.  In particular, the health ministry seeks a 
system that would allow medical specialists to provide 
diagnosis and recommend treatment over long distances, 
thereby helping to expand access to health care in Russia's 
vast rural areas.  The United States included high-technology 
applications in health care among the proposals for 
cooperation under the Health Working Group of the Bilateral 
Presidential Commission, plus USAID has initiated several 
activities and small scale model telemedicine programs. 
Further work in this area may be explored under the Health 
Working Group. 
 
¶13. (U) Alcoholism and smoking are primary contributors to 
poor health and a rising tide of chronic diseases, including 
cardiovascular disease (the nation's number-one killer), 
diabetes, and cancer.  Non-infectious diseases account for 
well over half of Russia's deaths every year. As a result of 
these factors, Russia's overall life expectancy was 67.8 
years in 2008 - well below that of other developed countries. 
 Recognizing that excessive smoking and alcohol consumption 
are driving Russia's high mortality and low life expectancy, 
the government has made the promotion of healthy lifestyles a 
central plank in its national health plan.  Innovative 
approaches, including the potential to use new technologies 
to address some of these endemic problems, offer interesting 
possibilities. 
 
--------- 
Education 
--------- 
 
¶14. (U) Russia has a long history of excellence in the 
sciences and technological innovation, but the Russian 
educational and research sectors currently face several 
challenges, including 'brain drain' to the West and lack of 
financial incentives to lure young people into these fields. 
As part of the National Education Project, inaugurated in 
2005, the government has taken steps to reverse this trend, 
including consolidating smaller regional educational 
institutions into seven 'Federal' universities to concentrate 
resources, improve the quality of research and, ultimately, 
enable Russia to compete on the international stage.  As a 
further step in this direction, this month Prime Minister 
Putin created a new Department of Science, High Technology 
and Education within the Cabinet. 
 
¶15. (U) To strengthen links between scientific research - 
particularly scientific research with commercial applications 
- and education, the Russian government conferred 'national 
research university' status on 14 universities through a 
competitive process.  These institutions will receive federal 
funding for 5-10 years (approximately $6 million in 2009), on 
the condition that they also raise an additional $22 million, 
either from their own funds or from the local business 
community, and commit 50-60% of the funding to developing 
advanced laboratory facilities. The government expects these 
national research universities to create home-grown 
technological advancements, grow Russia's economy outside the 
sphere of natural resources, and rank among the world's top 
200 institutions within 5-10 years. 
 
MOSCOW 00000320  004 OF 005 
 
 
 
--------- 
The Media 
--------- 
 
¶16. (U) Russian media is a study in contradictions.  Freedom 
of the press is formally guaranteed by the Russian 
constitution, and yet -- even with no formal censorship 
organs is place -- few voices opposed to the Kremlin can be 
found in any of the national broadcast media.  Most of the 
major television broadcasters are either owned directly by 
the State or controlled by corporations, such as Gazprom, 
which have close ties to the Russian government.  This helps 
create a system of self-censorship where journalists and 
networks refrain from showing reports which may displease the 
authorities out of concern over economic retribution and 
other consequences that may follow.  According to the 
International Press Institute, Russia is the most dangerous 
European country for journalists.  Numerous opposition 
reporters have been attacked or killed in Russia over the 
past decade, including the well-publicized murder of Anna 
Politkovskaya.  A few independent voices still exist, 
however, and more balanced journalism can be found on the REN 
TV network and the radio station Ekho Moskvy.  There are more 
opposition voices in the print media, but none of the 
newspapers or journals has the reach of the national 
broadcasters. 
 
¶17. (U) Traditional media have been reluctant to make the 
jump into new electronic forms of communication, and most 
strategies remain focused on broadcast and print outlets. 
That said, some organizations are adapting to the change and 
this has not gone unnoticed by the forces that wish to stifle 
dissonant voices.  Novaya Gazeta, one of the main opposition 
newspapers also has a popular website.  Recently, however, 
their servers have come under a denial of service attack that 
has led the newspaper's leadership to consider moving the 
site's hosting out of Russia.  The Embassy is an active user 
of social media and online news services.  The Ambassador has 
a regular Russian-language blog; we use Twitter to get out 
news of upcoming events and Skype and CO.NX (the State 
Department's version of Adobe's Connect Pro) to communicate 
with remote audiences. 
 
------------------- 
Note on Novosibirsk 
------------------- 
 
¶18. (U) By all accounts Novosibirsk, the largest city in 
Siberia and Russia's third most populous, has largely escaped 
the worst of the economic crisis due to its multifaceted, 
technology-based economy, large student population and 
stimulus policies implemented by the local leadership for the 
hard-hit constructQn industry.  The region's lack of natural 
resources turned out to be a blessing, keeping it from 
becoming a one industry town.  Relations between the city of 
Novosibirsk and the oblast of the same name remain close due 
to the fact that current government Viktor Tolokonskiy and 
his predecessor were both previously deputy mayors and then 
mayors of Novosibirsk.  In September 2009 the city hosted the 
first Interra Investment Forum which attracted potential 
investors in Novosibirsk's fledging free trade zone near the 
airport as well as its planned TechnoPark within the historic 
Akademgorodok (Academic City).  While in Novosibirsk, the 
delegation will meet with Governor Tolokonskiy as well as 
visit Akademgorodok to engage students, faculty, 
entrepreneurs and local technology start-up companies. 
 
------- 
Comment 
------- 
 
¶19. (U) The government of Russia has committed to increasing 
resources to support science, technology and innovation.  At 
the same time, the government has focused on large, top-down 
approaches for stimulating innovation, with goals that sound 
similar to the old 'State Planning Agency' approaches during 
the Soviet era, and reliance on large, politically 
influential state corporations. President Medvedev has taken 
up the 'innovation and commercialization' mantra, but many in 
the Russian government appear not to understand the risky, 
decentralized, independent and long-term nature of developing 
an innovation economy.  As part of its mission, the 
innovation dialogue delegation can help encourage key 
government and private sector leaders to energize their 
 
MOSCOW 00000320  005 OF 005 
 
 
efforts to create the business and intellectual environment 
necessary to foster innovation in Russia. 
Beyrle