07MOSCOW2527, RUSSIA: REYMAN’S RIO-CENTER LOOKS FOR ALTERNATIVE

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Reference ID Created Released Classification Origin
07MOSCOW2527 2007-05-30 13:21 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO9987
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #2527/01 1501321
ZNY CCCCC ZZH
P 301321Z MAY 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 0708
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEBAAA/DEPT OF ENERGY WASHDC 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 03 MOSCOW 002527 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/RUS; EUR/ERA; EEB/IFD 
STATE PLS PASS USTR FOR DONNELLY, MOLNAR 
DOE FOR HARBERT/EKIMOFF 
NSC FOR KLECHESKI AND MCKIBBEN 
DOC FOR 4231/IEP/EUR/JBROUGHER 
 
E.O. 12958: DECL: 05/30/2017 
TAGS: ECON EINV EIND PGOV PREL RS
SUBJECT: RUSSIA: REYMAN'S RIO-CENTER LOOKS FOR ALTERNATIVE 
ECONOMIC COURSE 
 
Classified By: Econ M/C Pamela Quanrud.  Reasons 1.4 (b/d). 
 
1. (C) Summary.  Six months before the Duma elections and 
nine months before the Presidential contest, several economic 
think-tankers are laying out strategies for the post-Putin 
period.  Most of these plans are descriptive, not 
prescriptive: they are critical of the government's record on 
modernizing and diversifying the economy, but lack specifics 
on how to right the course.  Surprisingly, most think-tankers 
do not shy away from using the word liberal to describe their 
orientation - though their liberalism is qualified as 
"pragmatic," in contrast to the "ideological liberals" in the 
government today and many actually envision an even stronger 
role for the state in the economy.  The think tanks hope to 
mirror the experience of German Gref's Center for Strategic 
Research (CSR) and shape economic policy in the next 
presidential administration.  End summary. 
. 
2. (SBU) We recently met with three of these informal policy 
advisors, Leonid Grigoriev, President of the Institute of 
Energy and Finance, Iosef Diskin, head of the Council of 
National Strategy, and Ruslan Grinberg, head of the Russian 
Academy of Science Institute of Economics.  These three were 
keynote presenters at a recent conference sponsored by the 
Center for the Development of an Information Society, or the 
RIO center, which has ties to Communications Minister Leonid 
Reyman.  Over the upcoming months, we will meet with other 
leading economic think tanks to help identify the economic 
policy direction of the next administration and possible 
candidates for Ministers Gref and Kudrin's positions. 
. 
THE THINK TANKS 
--------------- 
. 
3. (SBU) When Putin became Prime Minister in 1999, he 
established the CSR, with German Gref as its head, to develop 
an economic reform program and put the Russian economy onto a 
market path.  Over the past eight years, the Center has been 
the center of economic legislation drafting or has 
contributed to drafts of Putin's key reforms, including the 
flat tax, land privatization, pension reform, health care, 
benefits monetization, and the public private partnership 
initiative.  However, when the reform momentum slowed, the 
CSR's role in economic policy-making also diminished. 
. 
4. (SBU) The first think tank in our study is the RIO center, 
a think tank with ties to Communications Minister Leonid 
Reyman and headed by Igor Yurgens, also the Vice President of 
the Russian Union of Industrialists and Entrepreneurs and a 
Vice President at Renaissance Capital. The center was 
established in 2003 with Reyman as its head.  According to 
its website, it's mission is to promote the development of an 
information society in Russia.  However, the center's 
activities have been broadened and last year, under Yurgen's 
leadership, the center launched a program to map out a 
modernization strategy for the country. On May 16, the RIO 
center organized a conference on "Alternative Modernization 
Strategies for the Russian Economy" and commissioned three 
reports from Grigoriev, Diskin, and Grinberg.  According to 
the RIO center website and our contacts, the two 
front-runners for the 2008 presidential elections, Dmitriy 
Medvedev and Sergey Ivanov, were to attend the May 16 
conference, but were no shows. 
. 
5. (SBU) Opening the conference, Yurgens characterized the 
three reports as liberal (Grigoriev), moderate (Diskin) and 
conservative (Grinberg).  The conference was well attended by 
well-known economic researchers, and present and former 
government officials, including: Yevgeniy Yasin (the Higher 
School of Economics and former Economics Minister), Yevgeniy 
Gontmakher (former Deputy Social Development Minister), 
Andrey Klepach (Ministry of Economic Development and Trade), 
Elvira Nabiullina (head of Dep. Premier Medvedev's Expert 
Council on Realization of National Priority Projects and 
former head of CSR). 
. 
THREE ALTERNATIVE MODELS 
------------------------ 
. 
6. (C) Iosef Diskin heads the Council of National Strategy. 
 
MOSCOW 00002527  002 OF 003 
 
 
This group gained notoriety during the Yukos Affair when they 
published a report on the growing influence of oligarchs in 
the economy that played out like a Kremlin manual to deal 
with oligarchs with political aspirations.  In his 
presentation, which also mirrored his discussion with us, 
Diskin lays out a modernization strategy that provides 
political prerequisites rather than concrete policies for 
economic development. He t
old us that his main criticism of 
the current economic course was the disconnect between the 
government's reforms and the population's real needs, and 
cited the housing reform passed last year -- which did not 
address, in his opinion, the acute lack of affordable housing 
-- as an example.  He advocated building a national coalition 
-- including government, business, and society -- as the 
first step to modernization.  Diskin was also the least 
concerned out of the three authors about the economy's 
dependence on energy and even called for strengthening 
Russia's position as an energy superpower. Diskin also 
favored using the Stabilization Fund for investments into 
energy infrastructure projects, such as oil and gas 
pipelines, power stations, and electrical grids. 
. 
7. (SBU) Ruslan Grinberg also criticized current economic 
policies as liberal dogmatism with Putin's economic ministers 
too reliant on market mechanisms and low inflation, instead 
of advancing a comprehensive state industrial policy, to 
drive Russia's modernization forward.  He said economic 
policies from the 1990s to Putin's Administration have 
resulted in the "primitivization" of the economy and 
advocated a more interventionist state, employing 
preferential taxes and import tariffs to protect and nurture 
strategic industries.  He saw Russia's comparative advantage 
in the following sectors: ballistic/space, aviation, nuclear, 
armaments, power machines, shipbuilding, transportation 
machinery, nanotechnology, and bio- and genetic engineering. 
The two priorities of building an innovation/hi-tech economy 
and reviving the old industrial economy also needed to be 
coordinated. 
. 
8. (SBU) Leonid Grigoriev presented a more balanced 
assessment of current economic policies and credited the 
macroeconomic stability of recent years and improvements in 
the business climate to prudent economic policies.  However, 
he painted a dire picture for Russia's economic future if 
these immediate challenges were not addressed: creating 
sustainable sources of growth, increasing the value-added 
component to production, stimulating innovation, leveling out 
the regional disparities in development, and reducing the 
energy-intensiveness of production.  After laying out four 
different scenarios for Russia's future development, using 
his terms -- Energy Rents, Mobilization, Inertia, and 
Modernization -- he concluded that the most difficult, but 
promising course is the Modernization scenario.  Under this 
framework, the three main actors -- the State, civil society, 
and business -- will compromise and exercise self-restraint 
to balance their parochial interests and achieve 
modernization of the country.  Grigoriev was not optimistic 
that this scenario will win out, and gave it only a five 
percent chance.  He viewed the Inertia scenario -- the 
current course -- as the most likely in the next eight years. 
. 
9. (SBU) All three authors concluded that modernization 
cannot occur without a broad base coalition.  This reflects 
the authors' main criticism of the current economic course: 
the lack of an overall strategy and the growing alienation of 
the population from government policies.  All three pointed 
to the perception of a growing income disparity between the 
rich and the poor as a troubling development that required a 
change in policies.  Another common factor in all three 
reports was their use of polling data to support their 
arguments. 
. 
COMMENT 
------- 
. 
10. (C) The three think-tankers were quite adamant in their 
conversation with us that their policy prescriptions were 
liberal in nature.  This appears to reflect their conviction 
that markets will have to play a role in Russia's 
modernization.  However, all three authors also advocate a 
 
MOSCOW 00002527  003 OF 003 
 
 
larger role for the state.  For Grigoriev, the role appears 
limited to coordinating coalition building, whereas Grinberg 
supports state policies that pick winners and losers.  As 
Troika Dialog chief economist Gavrilenkov puts it, the next 
administration will have to exercise greater professionalism 
and discipline, having less room to maneuver with declining 
budget surpluses, growing energy constraints, and neglected 
reforms in the social services sector.  The next economic 
team will face the unfinished business of the Putin years, 
including, revamping the pension, health, housing, and 
education system, with less resources to solve them.  With 
these challenges, it's not surprising that Grigoriev gives 
the modernization scenario only an outside chance of success. 
 End comment. 
BURNS

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