07MOSCOW3344, TREASURY DEPUTY SECRETARY KIMMITT’S JUNE 20

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Reference ID Created Released Classification Origin
07MOSCOW3344 2007-07-09 12:45 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXYZ0011
PP RUEHWEB

DE RUEHMO #3344/01 1901245
ZNY CCCCC ZZH
P 091245Z JUL 07
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 1920
INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 003344 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EUR/FO, EUR/RUS, EB/IFD 
TREASURY FOR KIMMITT, DALY, HAUSER, MEYER, CETINA 
NSC FOR KLECHESKI 
 
E.O. 12958: DECL: 06/25/2017 
TAGS: EINV EFIN ECON RS
SUBJECT: TREASURY DEPUTY SECRETARY KIMMITT'S JUNE 20 
MEETING WITH FINANCE MINISTER KUDRIN 
 
Classified By: Ambassador William J. Burns, Reasons 1.4 (b/d). 
 
1.  (C) Summary.  In a June 20 dinner meeting with Treasury 
Deputy Secretary Kimmitt and Ambassador Burns, Finance 
Minister Kudrin raised the issue of Iraqi debt forgiveness. 
Kimmitt expressed appreciation for Russia's assistance  with 
the transfer of funds from Banco Delta Asia to the Far 
Eastern Commercial Bank.  He outlined the U.S. commitment to 
an open investment policy and discussed the Committee for 
Investment in the U.S. (CFIUS) process and pending CFIUS 
legislation and Russia's new investment law.  Kudrin 
explained changes to the Stabilization Fund into the Reserve 
Fund and National Welfare Fund (aka Fund for Future 
Generations), noting that the investment policy for the 
Reserve Fund would remain conservative and that the National 
Welfare Fund may adopt a riskier investment strategy.  End 
Summary. 
 
2.  (C) Iraq Debt.  Kudrin raised the issue of Iraqi debt 
forgiveness.  Deputy Secretary Kimmitt noted that the GOR was 
the only Paris Club member that had not forgiven Iraqi or 
Afghanistan debt.  He also noted that Iraqi President Jalal 
Talabani was traveling to China to meet with President Hu 
Jintao to sign an agreement on Iraq debt, and also noted that 
the oil minister Al-Shahristani would also be in attendance. 
 
3.  (C) North Korea Funds/Iran.  Deputy Secretary Kimmitt 
relayed the USG's appreciation for Russian assistance in 
facilitating the transfer of funds from Banco Delta Asia in 
Macau to a North Korean account with the Far Eastern 
Commercial Bank in Khabarovsk, Russia and noted that North 
Korea would be obliged to comply with the February 13 
Framework Agreement.  He also observed that the financial 
measures imposed on the Iranian regime are having an impact 
and that the U.S. hopes for continued Russian support within 
the UN to pressure Iran to meet its obligation to suspend 
sensitive nuclear activities. 
 
4.  (C) Open Investment.  Deputy Secretary Kimmitt reaffirmed 
the commitment of the United States to its longstanding open 
investment policy.  He noted that while much attention has 
been focused on trade flows, investment flows are 
considerably larger and, as detailed in the G8's Heiligendamm 
communique on investment, will only grow in importance. 
Kimmitt stressed that the United States welcomed investment 
from abroad, including from Russia.  However, he recognized 
that fallout from the failed bids for U.S. assets by the 
China National Overseas Oil Corporation (CNOOC) and Dubai 
Ports World had generated a misperception that the United 
States was becoming less open to foreign investment, 
particularly from state enterprises.  He noted that for this 
and other reasons, the President released an open investment 
policy statement on May 10.  Kimmitt explained that his trip 
to China and Russia, and future trips to the Middle-East and 
other regions would serve to reinforce the President's 
message. 
 
5.  (C) CFIUS.  Deputy Secretary Kimmitt described in general 
terms the narrow scope of CFIUS reviews and summarized how 
pending legislation on the matter would preserve a narrow 
"national security" based review.  He observed that only a 
small percentage of cross-border investments, less than 8 
percent of total mergers and acquisitions in 2006, were 
reviewed by CFIUS and suggested that the pending legislation 
was likely to pass this summer.  Kudrin expressed a keen 
interest in CFIUS current operations as well as 
implementation of the pending CFIUS bill.  Kudrin asked many 
detailed questions focused on the potential U.S. approach 
toward transactions that could have national security 
implications, including those dealing with critical 
infrastructure. 
 
6.  (C) Strategic Sectors Law.  Kudrin discussed Russia's 
draft law on strategic sectors that is currently before the 
Duma.  He explained that the law centered on 39 sectors and 
came about as a result of a memo that President Putin had 
drawn up in 2005.  According to Kudrin, Putin asked for new 
investment legislation to clarify Russia's investment review 
process.  Kimmitt conveyed support for the GOR's approach in 
considering outside parties' comments on the draft law, 
encouraged a transparent process, and urged a balance between 
national security considerations and maintaining open 
investment policies.  He expressed hope that neither the 
United States nor Russia would adopt laws or policies that 
could be viewed as protectionist in the eyes of the rest of 
the world. 
 
7.  (C) Changes to the Oil Stabilization Fund (OSF).  Kudrin 
provided an overview of the upcoming changes in the 
organization and investment guidelines affecting the 
Stabilization Fund.  In early 2008, the Stabilization Fund 
will be transformed into a Reserve Fund and a National 
Welfare Fund (aka Future Generations Fund, National 
Prosperity Fund, National Well-Being Fund).  I
n approximately 
three years, the Reserve Fund will serve as the GOR's 
collection point for all of Russia's oil and gas tax 
revenues.  The target size for the Reserve Fund is 10 percent 
of GDP, and its resources will be used to cover budget 
expenses in the event of an economic downturn.  Once the 
Reserve Fund equals 10 percent of GDP, the National Welfare 
Fund will be the destination for all subsequent oil and gas 
revenues.  The Reserve Fund will likely maintain the 
Stabilization Fund's conservative investment approach, that 
is, high-quality government securities.  The National Welfare 
Fund is likely to invest in a broader set of assets that 
could include foreign blue chip stocks.  Kudrin indicated 
that the the GOR might eventually consider using the National 
Welfare Fund's assets for direct investments abroad in 
non-sensitive sectors. 
 
8.  (U) Deputy Secretary Kimmitt has cleared this message. 
BURNS

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