Daily Archives: September 27, 2006


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Reference ID Created Released Classification Origin
06MOSCOW10861 2006-09-27 11:16 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

DE RUEHMO #0861/01 2701116
P 271116Z SEP 06

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 010861 
E.O. 12958: DECL: 09/18/2016 
REF: MOSCOW 10620 
Classified By: Ambassador William J. Burns: 1.4 (b, d). 
1.  (C)  Summary:  Russia's "democrats" remain in 
near-terminal disarray.  Personality disputes, disagreements 
over accommodating with the Kremlin, differences over the 
viability of political activity, and difficulties in 
political party registration undercut efforts aimed at 
uniting in advance of the 2007 Duma elections.  While some 
believe the Kremlin wants a unified democratic (or 
"rightist") opposition, if only for appearances sake, the 
democrats remain stymied by Yabloko chairman Yavlinskiy's 
insistence on a paramount leadership role.  In meetings with 
the Central Election Commission and other senior government 
officials, the Ambassador will continue to underscore concern 
over the failure of the Russian Republican Party under 
Vladimir Ryzhkov to be registered to date; separately, the 
democrats will need to make tough decisions about their 
political future.  End Summary 
2.  (C)  In recent introductory calls on Yabloko's Grigori 
Yavlinskiy and Republican Party's Vladimir Ryzhkov, a picture 
of disorganization, backbiting, and alleged pandering to the 
Kremlin emerged, further complicating the prospects of a 
unified democratic opposition capable of crossing the seven 
percent threshold to the Duma. 
"Democrats" divided 
3.  (C)  The real issue, according to Ryzhkov, is that there 
are three camps within the democratic opposition: those who 
despise Putin and "argue for war crimes tribunals" (Committee 
2008's Kasparov, former Prime Minister Kasyanov), who have 
scant public traction; those who are prepared to seek some 
degree of accommodation with the Kremlin (SPS' Belykh and 
Yabloko's Yavlinskiy) and in return allegedly receive party 
registration, under the table support, some access to the 
media, and occasional meetings with Presidential 
Administration Deputy Head Vladislav Surkov; and those, like 
Ryzhkov, who oppose Putin, but continue to play within a 
"managed" system and are denied party registration, as well 
as access to the media and Kremlin leadership.  While Belykh 
doubted whether a union of rightist parties would cross the 
seven percent Duma threshold, Ryzhkov optimistically argued 
that they could garner between 10-15 percent of a general 
vote.  However, Ryzhkov stressed that personality and 
attitude towards the Kremlin are significant hurdles to the 
otherwise rational calculus to unite. 
4.  (C)  First and foremost, Ryzhkov, Belykh and SPS Chubays 
all agreed, Yavlinskiy is a pill, and his leadership of a 
combined democratic opposition would be a bitter one for many 
to swallow, given his insistence that all other parties 
subordinate themselves to Yabloko and admit to the policy 
errors of their past.  Yavlinskiy himself told us that the 
other democratic opposition "will all come to me, they have 
no other option," given the amendments to the electoral law 
that encourage the consolidation of political parties.  In 
his meeting with us, Ryzhkov accused Yavlinskiy of promising 
to "deliver" a united rightist opposition to Surkov, thereby 
rounding out the political spectrum.  Yavlinskiy dismissed 
Ryzhkov as "a nothing," while insisting that if he had access 
to the media, Yabloko alone would draw 15 percent.  Political 
consultant Dmitri Oreshkin told us that it's "psychological" 
-- Yavlinskiy does not want to come into the Duma as part of 
a rightist union, but as the undisputed leader of the 
"democratic" forces.  When Duma member and Party of 
Entrepreneurs representative Oksana Alekseyeva was asked what 
was the main obstacle to a coalition of Russia's 
traditionally democratic parties, she said without 
hesitation: "Yavlinskiy." 
5.  (C)  Second, tactics among democratic parties diverge. 
The Other Russia conference organized in advance of the G8 
summit clarified the divisions: Yabloko and SPS rejected the 
conference outright -- Yavlinskiy declined to be one of a 
crowd, and Belykh said that he didn't like the company that 
the conference organizers were prepared to keep in order to 
show that opposition to Putin's Russia was alive and well. 
Outside observers, including Oreshkin, Indem President 
Georgiy Satarov and Ekho Moskvy chief editor Aleksey 
Vennediktov, endorsed the line that both parties chose to 
continue their tacit understanding with the authorities, 
according to which the Kremlin tolerates their fundraising 
and views them as politicians with whom they are prepared to 
do business.  As evidence of this tacit accord some point to 
Surkov's invitation of both Belykh and Yavlinskiy to a public 
roundtable debate on his conception of "sovereign democracy." 
 (In the case of SPS, Oreshkin argued that an additional 
MOSCOW 00010861  002 OF 002 
factor dictating compromise with the Kremlin was Chubays' 
focus on securing Administration support for the reform of 
RAO UES.)  While Ryzhkov endorsed the Other Russia 
conference, he subsequently repudiated Kasyanov's efforts to 
transform the conference into a party that would further 
Kasyanov's presidential bid.  The Republican Pa
rty will no 
longer attend Other Russia functions. 
6.  (C)  Finally, there are disagreements over the political 
landscape and room for maneuver in the presidential 
elections.  Yavlinskiy was dismissive of electoral politics 
-- predicting that Putin's inner circle would prevail upon 
him to remain in power for a third term; indifferent to the 
unification of leftist parties -- characterizing it a Kremlin 
project doomed to fail; and fatalistic about his role -- 
arguing that he was waiting "for the fall" of Russia and 
devoting his time to preparing the next generation of 
intellectual elite.  In contrast, Ryzhkov reiterated that he 
was prepared to play in the system and was actively working 
to establish credible party chapters, despite continuing 
difficulties with the election commission authorities, 
including the party's removal from the electoral list in 
Chechnya.  Ryzhkov believed that there was still political 
room for maneuver, and heralded the unification of leftist 
parties as a "positive development" since it weakened the 
hold of United Russia. 
Ryzhkov's Moral Dilemma 
7.  (C)  Ryzhkov acknowledged that unless he compromised with 
the Kremlin along the lines of Yabloko and SPS, there was 
little prospect of success for his party, which remains 
unregistered, and his political future.  While he accepted 
this intellectually, he noted that morally it continued to 
cause him pause.  Ryzhkov reiterated his rejection of the 
political stance of Kasyanov and Kasparov, stating that it 
was important to recognize Russia's political realities, and 
gave us the impression that he was leaning toward compromise 
with Yabloko and SPS.  Ryzhkov requested US assistance in 
underscoring concern over the difficulties faced by the 
Russian Republican Party in securing its registration.  While 
the CEC has until the end of the year to complete its review 
of the Republican Party, Ryzhkov predicted that the party's 
application would be rejected, following a series of 
"technicalities" that have plagued his party's efforts to 
organize over the last year. 
8.  (C)  As the rightist parties continue negotiations, many 
observers believe that the Kremlin also seeks a union of 
democratic parties, if only to round out the political 
spectrum and provide legitimacy to the electoral process. 
Efforts by Republican Party and Yabloko regional leaders in 
Astrakhan (septel) to unite are indicative of pressures 
within both party structures to create viable political 
alliances, and last year's agreement between SPS and Yabloko 
to join forces secured the democrats a presence in the Moscow 
Duma.  The Ambassador will continue to raise the status of 
the Russian Republican Party in meetings with the Central 
Election Commission and senior government officials. 




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Reference ID Created Released Classification Origin
06MOSCOW10855 2006-09-27 08:34 2011-08-30 01:44 UNCLASSIFIED Embassy Moscow

DE RUEHMO #0855 2700834
R 270834Z SEP 06

E.O. 12958: N/A 
     B. MOSCOW 6926 
1.  Since its consolidation in 1996, the Russian stock market 
has experienced growth that has led emerging markets and 
rivaled developed markets.  Capitalization was close to USD 1 
trillion by the end of August, compared to USD 346 billion at 
the end of August 2005, and USD 177 billion at the end of 
2003.  The Russian Trading System's (RTS) index of 40 common 
and 10 preferred shares climbed from its 1998 low of 40 to an 
all-time high of 1,765 in May. 
2.  Natural resource firms have fueled the vast majority of 
this growth, thanks to a favorable ruble exchange rate 
following the 1998 crisis and global increases in commodities 
prices.  The participation of foreign and domestic 
institutional investors is rising, as are market trading 
volumes and liquidity.  Perhaps the most unsung factor 
accompanying Russia's swelling market valuations has been the 
trend among established and emerging firms in Russia to raise 
primary market equity capital at home. 
3.  It is true that Federal Financial Market Service Chief 
Oleg Vyugin lamented that Russia's capital was "escaping" 
abroad when as much as 60 percent of trading in Russian 
stocks occurred on foreign exchanges in the 2003-2004 period. 
 It is also true that, in an effort to regain this capital, 
the FFMS instituted new rules in February to limit the 
percentage of new stock issuances that Russian firms can list 
abroad.  Nevertheless, the apparent preference among Russian 
firms for raising equity domestically had already 
materialized.  The decrease in net capital outflows during 
2005 suggests that a portion of the increasing volume of 
capital remaining in Russia is funding Russian companies 
(Reftel B).  Russian-sourced issuances in 2005 roughly 
doubled those of 2004.  More recently, Vyugin observed during 
the 10th Annual Renaissance Capital Conference in June that a 
bullish outlook on the market was justified.  He said the 
reason for optimism centered on results from 2005: growing 
capitalizations; an increase in household demand for 
ruble-denominated assets; and an increase in the number of 
non-resource firms that had completed equity issuances. 
4.  And now the rest of the story.  First, market 
capitalization remains highly concentrated in the energy 
sector.  Gazprom alone claims around 25 percent of total 
capitalization.  The next four largest firms account for 
another 40 percent.  The stock market's fortunes, 
consequently, have risen and fallen on traders' valuations of 
these firms.  Second, the GOR has approved a Financial Market 
Development Strategy to address systemic deficiencies that 
impede Russia's market competitiveness.  A top priority in 
this regard is the establishment of a central depository that 
would improve efficiency in settlement activity.  Since 
settlements can take months in some cases, many foreign 
investors opt to hold depository receipts.  Finally, the 
GOR's control over the shares of listed firms is 
considerable, although estimates vary on just how much market 
capitalization that is. 
5.  The Russian stock market, unlike the NYSE or the LSE, is 
not driven by the "small, individual investor" whose presence 
and diversified nature create "sticky stock prices" and more 
capably copes with financial fluctuations.  Although the 
Director of the Moscow Interbank Currency Exchange (MICEX) 
Aleksey Rybnikov has reported an increase in Russian 
investors trading in Russian equities, particularly after the 
liberalization in trading Gazprom shares last year, recent 
studies indicate that less than five percent of Russians own 
stocks or other financial investments.  Consequently, the 
Russian stock market is not yet "creating wealth" among small 
investors, as has happened in western markets.  This will be 
the next step on its path to becoming a major player in the 
global trading market. 



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Reference ID Created Released Classification Origin
06MOSCOW10842 2006-09-27 05:02 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

DE RUEHMO #0842/01 2700502
P 270502Z SEP 06

C O N F I D E N T I A L SECTION 01 OF 03 MOSCOW 010842 
E.O. 12958: DECL: 09/21/2016 
1. (C) Russian Federal Registration Service officials have 
clarified that foreign NGOs that have not been re-registered 
by October 18 will have to stop their external activities, 
but will be able to continue "internal operations."  NGOs are 
hurrying to submit their paperwork, but according to 
registration service data and our own informal poll, very few 
have done so.  Although some have benefitted from individual 
consultations with the Federal Registration Service, NGO 
representatives complain that they are being forced to 
prepare huge packages of "unnecessary documents," which can 
be filed only once a week. Those that have submitted 
successfully have usually had to correct minor technical 
problems identified by the registration service before 
applications are formally accepted. Ambassador continue to 
press senior officials to avoid any suspension of NGO 
external activities, given the complexities of the 
registration process. We are also urging US-based NGOs to 
submit their applications before the end of September.  END 
September 20 Meeting with Zhafyarov 
2.  (C) In a September 20 meeting with the Mission, Federal 
Registration Service (FRS) Chief of the Directorate of 
Political Parties, Non-Governmental, Regional, and Other 
Organizations Aleksey Zhafyarov clarified comments made by 
FRS Director Movchan in an August 30 meeting with Ambassador 
(reftel).  (In that meeting, Movchan had said those NGOs that 
make a good-faith effort to be registered by October 18 would 
be issued a voucher that would allow them to continue to 
operate beyond October 18 while their registration process 
continued.  According to Zhafyarov, those NGOs not registered 
by October 18 would only be permitted to conduct "internal 
activities" until all of the registration requirements of the 
NGO law were met.  By "internal activities," he meant 
operations necessary to keep the office running, like paying 
electricity bills and keeping staff on the payroll. 
3. (C) Zhafyarov suggested that "no one in the Russian 
government" would actively attempt to shutter or close bank 
accounts of unregistered NGOs that continue operating after 
the October 18 deadline, but the FRS was in no position to 
offer written assurance to that effect.  Zhafyarov added 
that, "of course," it was possible that landlords and banks 
might be uncomfortable working with unregistered NGOs.  We 
note that Zhafyarov had initially announced that NGOs would 
have to suspend activities at an AmCham forum September 14. 
His deputy Anatoliy Panchenko made similar statements in a 
separate public session with NGOs on September 19. 
4.  (C) Zhafyarov said he wanted to debunk the "myths" that 
if documents were rejected twice it would not be possible to 
apply again, and that no documents would be accepted after 
October 18. Neither are true, he said.  The FRS will continue 
to accept applications after the October 18 deadline and has 
one month to check the documents and include the organization 
into the Registry but he said, in practice, within 2-7 days 
the organization could expect a call from the FRS to discuss 
the application documents. 
5.  (C) Zhafyarov mentioned that each foreign NGO was 
entitled to register one and only one branch or 
representative office in Russia, insisting that this is what 
the new NGO law requires, and challenged any applicant to 
raise the issue in court.  He expressed his assurance that 
any court would side with the FRS interpretation, but would 
abide by any court decision to the contrary.  According to 
Zhafyarov, representative offices and branches are allowed to 
open "small offices" in the regions, and with a power of 
attorney, sign lease agreements and be able to function in 
the regions, but they need to register with the local tax 
service as "special branch offices." 
6.  (C) Zhafyarov said a working group will be meeting next 
week to develop instructions on what kind of information has 
to be included in the annual/quarterly and periodic reports 
required under the new law.  The working group will consist 
of representatives from the Public Chamber, Ella Pamfilov's 
Presidential Commission on Human Rights and Civil Society, 
MOSCOW 00010842  002 OF 003 
and the Tax Service.  He said their recommendations would be 
in place by mid- to late October. 
7.  (C) We reviewed Zhafyarov the process by which NGOs are 
registered in the U.S.  Zhafyarov seemed satisfied with the 
information, and agreed that the FRS would, as part of its 
effort to clarify the registration process, begin to post on 
its website authorita
tive answers to questions it was 
receiving from NGOs.  He stressed that it would be a good 
idea to put English translations of the NGO law, regulations, 
and forms on the FRS website to avoid confusion.  Zhafyarov 
urged interested U.S. organizations to collect questions from 
NGO representatives and e-mail them to the FRS website. 
September 21 One-On-One Sessions At FRS 
8.  (C) FRS has made some efforts to address NGO concerns 
about the difficulty in obtaining authoritative information. 
FRS now offers consultations three days a week and has also 
made staff available for Q&A sessions organized by others, 
such as AmCham. AmCham staff told us that only eight NGOs 
participated in the one-on-one sessions it organized at the 
FRS.  They were somewhat disappointed at the 
lower-than-expected turnout. 
9. (C) IRI told us on September 20 that it had planned to 
attend the session, but having received the application 
documents from their headquarters in the U.S., noticed a 
mistake and decided to fix it before submitting its 
application on September 25. 
The Scorecard 
10.  (C) As of September 19, only 28 foreign NGOs had been 
re-registered out of approximately 500, and 98 had applied. 
NGOs such as Ford Foundation, AmCham, Human Rights Watch, 
Carnegie Center, Amnesty International, and Doctors Without 
Borders still had not submitted their applications but expect 
to submit them shortly.  Although some have benefitted from 
individual consultations with the Federal Registration 
Service, NGO representatives continue to complain that they 
are being forced to prepare huge packages of "unnecessary 
11.  (C) The FRS's "clarification" that foreign NGOs would 
have to be registered by the deadline or suspend their 
programs caught many off guard.  Several we have spoken to 
had been advised by FRS personnel that as long as their 
applications had been accepted by the deadline, they could 
continue working; therefore they assumed they could submit up 
until October 18.  Those NGOs are now scrambling to submit 
their applications as soon as possible, since the FRS can 
take up to 30 days to render its decision.  In canvassing 38 
U.S.-based NGOs receiving USG funding, we found two -- 
International Rescue Committee (IRC) and Project Harmony -- 
whose applications have been accepted by the Federal 
Registration Service.  Another 12 implementing 
U.S.Government-funded projects, among them NDI, IRI, 
ACDI/VOCA and World Vision, intend to submit their 
applications by the end of September, as do AmCham, Ford 
Foundation, Carnegie Center, and Human Rights Watch.  A 
handful of others expected to apply in October, closer to the 
deadline, when they received the documents from their 
headquarters necessary to complete their applications. 
12.  (C) Although the registration service has taken steps to 
be more transparent and helpful, such as agreeing to the 
one-on-one sessions, NGO representatives told us that 
frustrations with the FRS bureaucracy continued.  Despite the 
expanded consultation hours, the FRS continues to accept 
applications only on Wednesdays during a three-hour period. 
IRC Country Director Amir Omanovich said IRC's application 
was meticulously reviewed by FRS staff when it was submitted; 
then returned for minor wording changes.  These changes 
required the packet to be sent to IRC's New York headquarters 
via courier so it could be corrected, re-notarized and 
re-apostilled before being re-submitted.  Kharborovsk-based 
Winrock International submitted its documents to the FRS via 
courier on September 13.  A week later, the FRS called, 
saying the packet needed corrections and recommended that 
someone from Winrock make the seven-hour flight to Moscow to 
pick it up and then fly back to Moscow to re-submit it once 
corrections were made. 
13. (C) Carnegie's Rose Gottemoeller told us that the 
Center's staff was confident their documents package would be 
MOSCOW 00010842  003 OF 003 
approved, based on consultations with the FRS over the last 
several weeks.  Carnegie will submit its documents this week, 
after finding and notarizing founding documents from the N.Y. 
archives, certifying death certificates of original board 
members, and proving that Carnegie has a D.C.-based parent 
organization.  Gottemoeller was unaware of the possibility of 
a suspension of programming after October 18 which, she said 
would be a major blow to her organization. She noted that a 
consulting company "4 Business" was advertising assistance in 
completing the registration process for ten thousand Euros. 
14. (C)  Zhafyarov's interpretation of the law, which was 
buttressed by an "informational communique" issued by the FRS 
September 20, is less compromising than that offered the 
Ambassador by Movchan and would leave those foreign NGOs not 
registered by October 18 unable to continue with programs 
underway until formally registered by the FRS. (The 
communique also explicitly prohibits funding from 
non-registered foreign NGOs to Russian NGOs.)  The FRS's 
timing of its clarification is less than ideal. With the FRS 
allowed up to thirty days to review applications, NGOs that 
did not apply by September 19 face a greater likelihood of 
having to suspend their activities an FRS decision is not 
made by October 18, or if the FRS finds significant problems 
with the application during its review.  As noted (septel), 
Ambassador raised this looming problem with Human Rights 
Ombudsman Vladimir Lukin September 22, underscoring that 
western reaction would view this as further GOR suppression 
of civil society.  Lukin agreed to intervene if his office 
received a formal, written complaint from the affected NGOs 
which they may be unwilling to do, as they are leery of 
potential GOR attention to their individual cases. 
Ambassador will bring the FRS's interpretation to the 
attention of Presidential Commission on Human Rights and 
Civil Society Director Pamfilova and DFM Yakovenko the week 
of September 25