07MOSCOW1981, RUSSIA: AMBASSADOR’S APRIL 27 MEETING WITH DEPUTY

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Reference ID Created Released Classification Origin
07MOSCOW1981 2007-04-30 14:37 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO1273
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHRN RUEHROV RUEHSR
DE RUEHMO #1981/01 1201437
ZNY CCCCC ZZH
P 301437Z APR 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 9813
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RUEHSS/OECD POSTS COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 001981 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS 
STATE FOR EB/IFD 
NSC FOR KLECHESKI AND MCKIBBEN 
TREASURY FOR BAKER 
USDOC FOR 4231/IEP/EUR/JBROUGHER 
 
E.O. 12958: DECL: 04/30/2017 
TAGS: ECON ETRD EINV PGOV PREL RS
SUBJECT: RUSSIA: AMBASSADOR'S APRIL 27 MEETING WITH DEPUTY 
PRIME MINISTER ZHUKOV 
 
REF: A. MOSCOW 1354 
 
     B. STATE 51895 
 
Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d). 
 
Summary 
------- 
 
1.  (C) In an April 27 meeting with the Ambassador, Deputy 
Prime Minister Aleksandr Zhukov emphasized the GOR's strong 
interest in WTO accession, mentioning he hoped to have an 
opportunity to discuss the issue with USG officials 
participating in a May 21 conference on corporate governance 
in New York.  He said the GOR is also ready to begin taking 
steps toward OECD membership.  He outlined the transformation 
of the Stabilization Fund that President Putin had described 
a day earlier in his national address.  Zhukov downplayed the 
need for a financial markets mega-regulator, provided a 
bullish outlook on the growth of non-oil, non-gas sectors, 
and expressed strong hope that senior-level USG officials 
would participate in the St. Petersburg Economic Forum in 
June.  End Summary. 
 
WTO Accession 
------------- 
 
2.  (C) Deputy Prime Minister Aleksandr Zhukov told the 
Ambassador he had agreed to participate in the U.S.-Russia 
Roundtable on corporate governance and cross-border 
investment on May 21 in New York.  Zhukov said he hoped the 
conference, sponsored by the New York Stock Exchange and 
Russia's Council for Corporate Governance, would provide an 
opportunity to meet informally with USG officials to discuss 
issues related to Russia's WTO accession.  He said meetings 
on the margins of the May 21 conference could provide some 
much-needed perspective as Russia works toward this 
objective.  Like other GOR officials (Reftel A), he 
acknowledged in general terms the disagreements impeding the 
conclusion of the multilateral process, but he added that the 
problems were not "fundamental" and could be resolved "rather 
quickly."  He said WTO membership remained a priority and 
that the GOR wanted to finalize the process before 
parliamentary elections in December so that Russia could 
announce its membership on January 1, 2008. 
 
Upcoming OECD Vote 
------------------ 
 
3.  (C) Zhukov described the GOR's position supporting 
Russia's membership in the OECD.  He said Russia deserved 
positive consideration during the May 15-16 ministerial 
meeting, and that a vote in Russia's favor would signify 
support for the accession process to begin.  He suggested 
that, if the OECD approves the launching of talks, the May 21 
corporate governance conference would also allow for an 
informal dialogue with USG officials to begin Russia's OECD 
accession process. 
 
Too Early for Financial Mega-Regulator 
-------------------------------------- 
 
4.  (C) Responding to the Ambassador's question about a 
unified financial markets regulator, which has been the topic 
of much press speculation, Zhukov said that Russia may need 
such an institution in the future but that it had more 
pressing economic changes to pursue.  He acknowledged that 
the debate had resurfaced as a result of disappointment in 
some circles with the Central Bank.  Zhukov praised the 
Central Bank's reform-minded leadership, emphasizing the 
benefits that the deposit insurance program had rendered in 
terms of cleaning up the sector.  He said that removing the 
bank supervision function from the Central Bank would be 
disruptive with few benefits. 
 
Budget Changes 
-------------- 
 
5.  (SBU) Zhukov highlighted some of the changes in budget 
programs that President Putin had described a day earlier in 
his national address.  One of the most significant changes is 
 
MOSCOW 00001981  002 OF 002 
 
 
the transformation of the current Stabilization Fund into the 
Reserve Fund and the National Well-Being Fund.  Zhukov said 
that as the GOR reduces the budget's dependence on oil and 
gas revenues, transfers from the Reserve Fund to cover budget 
shortfalls in the early stages will probably be the same 
magnitude as budget surpluses in recent years.  In 2008, 
Zhukov said Reserve Fund transfers to the budget would 
probably equal 6.5 percent of GDP, declining to 3.7 percent 
of GDP soon thereafter. 
 
6.  (SBU) The National Well-Being Fund will consist of two 
components.  The first will support the GOR's pension reform 
efforts by encouraging investment.  Although Zhukov noted the 
rules were still being finalized, the plan calls for the GOR 
to match workers' contribution to private sector account, 
ruble for ruble.  The second component will support 
development objectives.  The fund will supply th
e seed 
capital for the government's Nanotechnology Corporation, the 
Russian Development Bank, and the Venture Fund. 
 
7.  (SBU) Zhukov observed that the dynamism among the sources 
of budget revenue have been diversifying away from oil and 
gas extraction and export taxes.  He said that in 1Q07, tax 
revenue from oil and gas extraction grew only 4 percent, 
compared to 14 percent for manufacturing.  Profit and 
personal income tax revenues grew more than 12 percent and 
revenue from import tariffs is expected to double in the next 
three years.  Zhukov noted that the composition of revenue 
from import tariffs was moving away from retail and consumer 
goods toward capital goods. 
 
St. Petersburg Economic Forum 
----------------------------- 
 
8.  (C) After providing a brief overview of Russia's recent 
economic achievements and efforts to improve its image as a 
destination for foreign direct investment, Zhukov made a 
strong, special request that senior-level USG officials 
attend the St. Petersburg Economic Forum in June.  He 
stressed that this year's event would have a higher profile 
than in recent years.  The Ambassador pledged to revisit the 
issue with Washington. 
 
Comment 
------- 
 
9.  (C) Zhukov exhibited his characteristic optimism as he 
talked about economic diversification and Russia's WTO 
accession timetable. He was especially intent upon 
emphasizing Russian interest in high-level USG participation 
in the St. Petersburg Economic Forum. End Comment. 
BURNS

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