06MOSCOW11002, RUSSIA: CENTER-REGIONAL RELATIONS UNDER STRESS

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Reference ID Created Released Classification Origin
06MOSCOW11002 2006-09-29 11:41 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow

VZCZCXRO4684
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHMO #1002/01 2721141
ZNR UUUUU ZZH
P 291141Z SEP 06
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 3243
INFO RUCNCIS/CIS COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 MOSCOW 011002 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV PINR PREL RS
SUBJECT: RUSSIA: CENTER-REGIONAL RELATIONS UNDER STRESS 
 
REF: 2002 MOSCOW 120552 
 
 1. (SBU) SUMMARY. Federal-local relations in Russia are 
under increasing stress due to the implementation of the 
Local Self-Government Law of 2003. This law cuts the flow of 
tax dollars to regional and local government in order to spur 
the localities to become entrepreneurial in developing their 
own tax base.  The local governments, especially cities, 
complain that while they are the engines of growth that 
create the tax revenue "hoarded" by Moscow, they are being 
left with unfunded mandates by the federal government. A 
report to be delivered to the Public Chamber on September 30 
describes in detail the deficiencies of the federal law. 
Moscow appears to be using the new law to reinforce its 
central power and keep the cities politically subdued. END 
SUMMARY. 
 
2. (U) Local, national, and private-sector representatives 
held a press conference on September 21 in Moscow to describe 
the growing conflict in federal-local relations in Russia. 
The participants included the mayors of Rostov-on-Don and 
Nizhny Novgorod, a member of the State Duma Budget and Tax 
Committee, and Vyacheslav Glazychev, an academic and member 
of the Public Chamber. 
 
--------------------------------------------- ----- 
FEDERAL LAW 131: REFORMING MUNICIPAL RELATIONSHIPS 
--------------------------------------------- ----- 
 
3. (SBU) Federal Law 131 of 2003 (FL-131), which took effect 
in January 2006, restructured local self-government and 
municipal structures throughout Russia.  In a detailed report 
that will be presented to the Social Chamber on September 30, 
Professor Vyacheslav Glazychev describes the history of the 
law, its implementation, and its intended and unintended 
consequences.  Glazychev claims that to properly implement 
the 167-page law, the federal government should provide 300 
billion rubles, but has only budgeted 15 million.  This 
leaves cash-starved cities on the front lines of receiving 
complaints from their citizens.  Glazychev writes that this 
is an "anti-urban" law that leaves cities subordinate to less 
populated municipal districts in a vertical hierarchy.  For 
example, the city of Murom (pop. 132,000) has been subjugated 
to the Murom municipal district (additional pop. 16,000). 
 
--------------------------------------------- ------------- 
MAYORS: MOSCOW MAKES US CHOOSE BETWEEN ROADS AND HOSPITALS 
--------------------------------------------- ------------- 
 
4. (SBU) The Mayors complained that Moscow had cut the flow 
of tax revenue to local levels, rendering them unable to 
provide basic services, but nevertheless leaving them with 
the responsibility (and the blame).  Mayor Bulavinov of 
Nizhny Novgorod said that this year he was forced to choose 
between funding road repairs and funding hospitals. Mayor 
Chernyshov of Rostov-on-Don said that his choices were 
between street lighting and kindergartens.  The common 
refrain was that while cities were the generators of wealth, 
they were treated like beggars when they sought access to tax 
revenues. 
 
5. (SBU) Anecdotal evidence compiled by Glazychev shows that 
many cities must now transfer 80% of their property tax 
revenue up to the regional authorities, who take a cut before 
passing it on to Moscow.  Other examples included towns that 
were forced to shut their medical clinics, budgets being 
slashed by 50 to 80 percent, streetlights left dark, and 
cities forced to sell land and public buildings to raise 
funds.  This makes life even harder for those city-dwellers 
hurt by last year's monetization of benefits.  The mayors at 
the forum and those quoted in Glazychev's reports speak of 
both the social costs of these cuts and the growing 
discontent among their citizens. 
 
--------------------------------------- 
MOSCOW TO REGIONS: WE'LL GIVE YOU MONEY 
IF YOU CAN SHOW THAT YOU DON'T NEED IT 
--------------------------------------- 
 
6. (U) Dmitry Kozak, the plenipotentiary presidential 
representative (PolPred) in the Southern Federal District 
(which includes Rostov-on-Don), said in an interview earlier 
this year that the federal government was trying to help the 
cities and regions become more "responsible" and 
self-sufficient.  "If local authorities work 
effectively...they should be granted greater freedom and 
independence.  However, if they mostly rely on subsidies 
(i.e., tax revenue from the federal government)...they should 
have less independence and freedom and should be more 
controlled by the state."  He then added that those 
territories with high economic growth rates and who do not 
 
MOSCOW 00011002  002 OF 002 
 
 
rely on federal tax revenue should be given a bonus by the 
state as a reward.  This economic incentive will spur the 
other regions to become more efficient. 
 
7. (U) Kozak, who was the architect of FL-131 (reftel) and is 
now overseeing its implementation in the Southern Federal 
District, refused to respond to the authors of the report, 
according to Glazyche
v. Glazychev accused Kozak of being 
disdainful of local authorities and to those who complained 
about the law's effects.  In his interview, Kozak argued that 
one should not expect immediate results or for everyone to 
like the changes (all reforms hurt), but that the law was 
necessary and ultimately good for the cities and the country. 
He defended the drastic budget cuts by saying that without 
serious motivation, the local authorities would become lazy, 
develop a "parasitic attitude," and discredit the role of 
government in general among citizens.  This, he said, would 
in turn generate "social apathy or political extremism." 
 
8. (SBU) COMMENT: The distribution of resources and power 
between the center and the periphery is a struggle over 
governance and control in this vast country.  Through the 
implementation of FL-131, Moscow is strengthening its 
position at the top of a "vertical of power."  The effects of 
the 2003 law are now beginning to be seen, and as the cities 
feel the pinch of the budget cuts, we expect the tension to 
worsen and the complaints of the cities to grow louder. END 
COMMENT. 
BURNS

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