Daily Archives: February 28, 2008

08MOSCOW558, MEDVEDEV AND RUSSIA’S NATIONAL PRIORITY PROJECTS

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Reference ID Created Released Classification Origin
08MOSCOW558 2008-02-28 15:53 2011-08-30 01:44 CONFIDENTIAL//NOFORN Embassy Moscow

VZCZCXYZ0002
RR RUEHWEB

DE RUEHMO #0558/01 0591553
ZNY CCCCC ZZH
R 281553Z FEB 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 6863
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHNSC/NSC WASHDC
RUEAIIA/CIA WASHDC

C O N F I D E N T I A L MOSCOW 000558 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS TO EUR/RUS 
 
E.O. 12958: DECL: 02/08/2018 
TAGS: ECON PGOV RS SOCI
SUBJECT: MEDVEDEV AND RUSSIA'S NATIONAL PRIORITY PROJECTS 
-- ALL HAT, NO CATTLE? 
 
REF: A. MOSCOW 431 
     B. MOSCOW 5924 
 
Classified By: ECMIN Eric T. Schultz for reasons 1.4 (b) and (d). 
 
------- 
SUMMARY 
------- 
 
1. (C) President Putin's choice of Dmitry Medvedev as his 
successor has been cause for optimism among much of Russia's 
business elite, who point to Medvedev's calls for more 
economic freedom.  However, Medvedev's public record provides 
little substance to support this rhetoric.  In addition to 
his problematic chairmanship of Gazprom, Medvedev's other 
high profile responsibility has been running Russia's 
National Priority Projects (NPPs) in healthcare, education, 
housing, and agriculture since 2006.  Under Medvedev, the 
NPPs have accomplished relatively little, providing grist for 
cynics who see the NPPs as window dressing and leading to 
public disillusionment. 
 
-------------------------- 
Medvedev as Closet Liberal 
-------------------------- 
 
2. (C) Echoing the prevailing business sentiment in Russia, 
Renaissance Capital's Senior Russian partner, Igor Yurgens, 
told us that President Putin had chosen the successor with 
the "higher ceiling."  He said Dmitry Medvedev was more 
likely to allow greater economic and political freedom and to 
bring Russia closer to Europe and to the West than the other 
alternatives.  This sense of optimism in Russia's business 
community has been further reinforced by Medevdev's campaign 
for the presidency and in particular his speech February 15 
at the Krasnoyarsk Economic Forum, when he called for reduced 
corruption and greater economic freedom (Ref a).  A European 
diplomatic colleague present at the speech said it received a 
strongly favorable response from the audience, which had been 
composed largely of Russian businessmen. 
 
3. (SBU) The international business community has also 
reacted positively to Medvedev's rhetoric.  They have 
interpreted the Krasnoyarsk and other comments by Medvedev 
and his surrogates as a signal that Medvedev's presidency 
will pursue more market-oriented economic policies.  In a 
recent internal meeting, the Director of the American Chamber 
of Commerce highlighted Medvedev's four "I"s: investment, 
innovation, institutions and infrastructure, which he said 
would mean a much improved business climate for investors, 
foreign and domestic. 
 
---------------------- 
Record versus Rhetoric 
---------------------- 
 
4. (C) Medvedev's liberal economic rhetoric is not matched by 
a record of accomplishments.  Critics of Medvedev, such as 
former Deputy Energy Minister Vladimir Milov, have pointed to 
his record as Chairman of Gazprom, when the company used 
Russia's energy wealth to pursue political objectives, as 
evidence that Medvedev is unlikely to back up his words with 
deeds.  Lending further fuel to critics has been Medvedev's 
other high profile responsibility of the past few years -- 
his chairmanship of Russia's National Priority Projects 
(NPPs).  The NPPs were started in 2005.  President Putin gave 
Medvedev responsibility for them the following year, 
reportedly to help develop a positive public image for his 
protege. 
 
5. (C) From the beginning, critics of the projects contended 
that the NPP were "window dressing" intended to provide cover 
for the government's broader economic policies.  Lending fuel 
to this criticism has been the performance of the NPPs, 
including under Medvedev.  The projects were intended to 
address key social deficiencies and help nurture a Russian 
middle class.  The first three sectors identified were 
education, health and housing.  Agriculture, which still 
employs a large percentage of Russian workers, was later 
added as a fourth priority.  However, nearly three years 
after their launch, and despite Medevdev's personal 
involvement, most experts agree that the projects have been 
too small in scope and have failed to reform social systems 
in need of deep structural changes. 
 
--------------------------- 
Performance of the Projects 
 
--------------------------- 
 
6. (SBU) To assess whether the criticism is deserved we 
decided to take a closer look at each of the four projects. 
What we found is a mixed record.  Some of the projects have 
been more successful than others but even the more successful 
projects have been fairly modest in their scope and in none 
of them did the reality match the GOR's lofty rhetoric of 
fundamental reform. 
 
Education: the Most Successful Project 
---------------------------------------- 
 
7. (SBU) The modernization of the education system has been 
the most successful of the four projects.  In 2007, USD 1.85 
billion (50 billion rubles) funded 1400 new buses, internet 
connectivity in every school, teacher salary increases 
averaging 25-30 percent, and awards for innovative teachers 
and schools.  Marina Kiseleva, Deputy Head of Coordination of 
the Education National Project at the Minis
try of Education, 
told us that one of the project's main accomplishments was 
the new flexibility of schools to decide the best way to 
educate their students. 
 
8. (SBU) However, the project has not achieved many of its 
short-terms goals.  Kiseleva said that schools had a 
difficult time accepting the new responsibility for 
modernizing their institutions, especially determining how to 
make most efficient use of the money.  Kiseleva also admitted 
that there was a huge regional disparity in the quality of 
education and teacher qualifications and acknowledged that 
there were no concrete proposals for future programs or for 
spending this year's budget of USD 1.7 billion. 
 
Healthcare: Improved Technology but Costs, Access Problems 
--------------------------------------------- ------------- 
 
9. (SBU) Olga Kochetkova, Acting Head of the Department for 
Monitoring the National Priority Projects, told us that the 
health care NPP was improving the state of healthcare in 
Russia "little by little."  In 2007, the GOR claimed the 
healthcare NPP had been responsible for providing 42,487 new 
units of diagnostics equipment, higher-quality medication, 
and 13,244 new ambulances and that this in turn had led to 
lower mortality rates and increased birth rates and life 
expectancy. 
 
10. (SBU) However, most experts in the sector, such as Ksenia 
Yudayeva, Director of Research at the Center for Strategic 
Research, argued that rising incomes, not the NPP, had led to 
such improvements.  Moreover, even Kochetkova acknowledged 
that the greatest weakness of the project was its failure to 
improve affordability of and access to quality healthcare. 
She added that future plans were unclear due to rumors of a 
reorganization of the Ministry of Health and Social 
Development, but that any new initiatives would likely be 
implemented at the regional, rather than federal level. 
 
Affordable Housing -- Little Progress 
------------------------------------- 
 
11. (SBU) According to the GOR, the affordable housing 
project's 2007 budget of USD 2.3 billion led to the 
construction of 66 million square meters of new housing 
(714,000 new apartments), 30 percent more than in 2006. 
However, experts note that there is still a large imbalance 
between housing demand and supply, which has effectively 
maintained high housing prices.  The GOR estimates that only 
20 percent of Russians were able to afford a new home in 
2007, compared with 60 percent of Russians who were in need 
of new or renovated housing. 
 
12. (SBU) More important in the long run, is continued 
weakness in mortgage lending.  Alfa Bank told us that the 
mortgage market in Russia amounts to only 1.8 percent of GDP 
compared with 15-20 percent in Eastern European countries and 
80 percent in the U.S.  Moreover, Andrei Shirokov, Head of 
the Department of Real Estate and Urban Infrastructure 
Management at the Moscow Institute of State and Corporate 
Governance, noted that up to two-thirds of Russia's housing, 
or 3.8 billion square meters, needs repair and estimated that 
the repairs would require USD $200-400 billion. 
 
Agriculture NPP -- a Failure 
---------------------------- 
 
13. (SBU) In December 2007, Russian Minister of Agriculture 
 
Aleksey Gordeyev declared 
"victory" in implementation of the National Priority Project 
for Development of the Agroindustrial Complex and announced 
that it would be replaced by a five-year "Program of 
Agricultural Development and Market Regulation" (much of 
which is yet to be funded).  Gordeyev pointed to increases in 
meat and dairy production, increased loans to smallholders 
and cooperatives, and the Russian Agricultural Bank 
(Rosselkhozbank), responsible for nearly two thirds of 
agricultural loans issued under the NPP, quadrupling its 
branch network.  In addition, he claimed that the NPP had 
created 3,700 rural cooperatives. 
 
14. (SBU) In reality, however, the NPP has largely been a 
failure.  Ministry officials admitted publicly that roughly 
half of the new rural cooperatives exist only on paper. 
Other officials acknowledged that the reported increases in 
meat and milk production were unsupported, and increases in 
meat production were either unrelated to the project 
(poultry) or have led to financial hardship (pork).  Finally, 
the rapid expansion of credit cooperatives and 
Rosselkhozbank's branch network, coupled with the political 
imperative to push money out to rural areas in advance of the 
December 2007 Duma elections, resulted in many suspect loans 
that will likely lead to a ballooning default rate in 2008. 
 
---------------------- 
A Disillusioned Public 
---------------------- 
 
15. (SBU) The flawed implementation of the NPPs appears to 
have disillusioned the Russian public.  More than half (53 
percent) of respondents to a Levada Center poll said the NPPs 
had not affected them at all.  The public was also skeptical 
about continuing the NPPs, as nearly half (49 percent) of 
respondents did not believe the projects would improve the 
country's social woes.  Much of the public's cynicism appears 
to have its roots in the fact that more than half (52 
percent) of respondents thought the funding would be 
inefficiently spent.  Moreover, more respondents believed the 
money would be stolen than spent efficiently (22 and 15 
percent, respectively).  In addition, based on anecdotal 
information, between 10 and 30 percent of NPP funds was 
diverted to kickbacks in return for program award, and thus 
not spent as intended. 
 
------- 
Comment 
------- 
 
16. (C) With respect to the NPPs, Medvedev has failed to 
match a record of accomplishment with his strong rhetoric in 
favor of improved social services.  Last month he announced 
that the GOR was drafting a new long-term program for social 
and economic development through 2020.  However, most of the 
experts with whom we talked predicted that this too would 
accomplish little.  Under a Medvedev presidency, the most 
likely scenario is a continuation of the current approach of 
small scale projects and that he would avoid any large 
controversial reforms.  That said, Medvedev may come under 
pressure early in his presidency to make good on his promises 
and accelerate social spending.  How he responds to that 
pressure could be an early indicator of the direction 
economic policy will take in his presidency.  End comment. 
BURNS

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08MOSCOW553, TRANSPARENCY INTERNATIONAL ON MEDVEDEV’S LEGITIMACY

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Reference ID Created Released Classification Origin
08MOSCOW553 2008-02-28 14:58 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow

VZCZCXRO9874
PP RUEHLN RUEHPOD RUEHVK RUEHYG
DE RUEHMO #0553/01 0591458
ZNR UUUUU ZZH
P 281458Z FEB 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6859
INFO RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 02 MOSCOW 000553 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PHUM KDEM PGOV RS
SUBJECT: TRANSPARENCY INTERNATIONAL ON MEDVEDEV'S LEGITIMACY 
 
1. (SBU) Summary: Dismissing the March 2 presidential elections as 
preordained, Transparency International Director Yelena Panfilova 
nonetheless argued that the process accurately reflected Russia's 
political maturity and conferred the necessary legitimacy on First 
Deputy Prime Minister Medvedev.  Panfilova painted a bleak picture 
of Russian civil society, hobbled by ambitions and in-fighting, 
which contributed to Russia's democratic immaturity.  Placing 50/50 
odds on Medvedev's performance as a liberal, Panfilova argued that 
anti-corruption efforts could be an early litmus test of the new 
president.  End Summary 
 
Presidential Elections Predetermined, but Prettier 
--------------------------------------------- ----- 
 
2. (SBU) In a February 27 meeting, Transparency International 
Director Yelena Panfilova previewed her organization's press 
conference today, in which TI would highlight the loopholes in 
Russian legislation that facilitate the legal manipulation of 
elections.  Panfilova said the "beauty" of the process was that 
there were very few machinations required by the Kremlin during the 
presidential campaign period, since the electoral legislation 
remained weighted in favor of the ruling party's candidate and the 
race had been shaped months before the actual polling.  One of the 
most significant lacunae, she argued, was the provision allowing 
senior officials to remain in office while campaigning, which 
translated into their domination of the media and administrative 
resources. 
 
3. (SBU) Technically, Panfilova predicted an "absolutely normal" 
presidential election on March 2, which would look legitimate and be 
seen as legitimate by the Russian electorate.  She predicted up to 
68 percent voter turnout, and said there would be less of the 
obvious voter intimidation or excesses that marked the December 2, 
2007 Duma elections, with the caveat being in the North Caucasus 
republics.  "The authorities learned from the parliamentary 
campaigns -- it was too obvious."   Panfilova argued the OSCE was 
right to boycott the elections: "how do you report on a campaign 
that is not a campaign?" 
 
Medvedev Passes Legitimacy Test 
------------------------------- 
 
4. (SBU) Despite the choreography, Panfilova concluded that Medvedev 
would enjoy real legitimacy, conferred in a process that accurately 
reflected Russia's level of political maturity.  Imagine Russia as a 
17-year old teenager, she urged, who has grown bigger and taller 
(thanks to oil and gas wealth), but still wants to be liked by 
everyone, and has a hard time understanding why others get angry 
when its picks on the little kids (e.g. Estonia, Georgia) in the 
schoolyard.  While a couple of thousand Russians followed TI's work 
closely, contributed to its campaigns, and embraced its principles, 
she noted that 140 million Russians remain largely indifferent.  For 
the overwhelming majority of Russians, Panfilova argued, the 
presidential campaign was exactly what they wanted: the presentation 
of an acceptable replacement for Putin, packaged with the promise of 
stability.  Russian society would evolve over time, she maintained, 
but it made no sense to measure it against the standards of a mature 
democracy. 
 
Civil Society Self-Defeating 
---------------------------- 
 
5. (SBU) Panfilova argued that Medvedev's managed election should be 
viewed in the broader context of Russian civil society, which she 
judged was "disappointing" and as immature as Russia's electoral 
politics.  When she helped found the All Russian Civic Congress in 
2004, Panfilova said that she could not have predicted its demise in 
2008 on the basis of political jealousy and in-fighting -- with 
Moscow Helsinki Group Director Lyudmila Alekseeva and Indem 
President Georgiy Satarov resigning over the continued presence of 
Other Russia's Garry Kasparov.  Rather than fulfilling its mandate 
of providing alternatives to Putinism, the forum had degenerated 
into competing camps of NGO elites, more interested in attracting 
international grants and Russian media attention than in building 
grass-roots initiatives.  "We did this to ourselves -- it wasn't the 
result of the security services or the Kremlin." 
 
6.  (SBU)  There wasn't enough professionalism among NGO activists, 
Panfilova argued, with fewer members ready to undertake the hard 
work of mobilizing citizens at the grassroots, particularly around 
unglamorous but necessary themes, such as parking, housing, and 
municipal inattention.  It's easy to go to conferences or "to the 
barricades," Panfilova argued, but it didn't help Russian citizens 
who are marginalized.  The creation of yet another NGO front 
organization, as promised by Alekseeva and Saratov, would be greeted 
cynically, Panfilova argued, as just another platform for outsized 
egos and a launching pad for acquiring international grants. 
Panfilova said she planned to go public with her critique of civil 
society, if only to underscore to a broader audience that Russia's 
democratic growing pains could not solely be laid at the 
government's doo
r. 
 
MOSCOW 00000553  002 OF 002 
 
 
 
Anti-Corruption as Liberal Litmus Test 
-------------------------------------- 
 
7. (SBU) Panfilova gave 50/50 odds on whether Medvedev would take 
Russia in a fundamentally more liberal direction, commenting that it 
was hard to predict "what will happen in the mind of a 42-year old 
man," but noted that anti-corruption could become a key litmus test. 
 Medvedev could prove that he is a "real political leader" in the 
field of fighting corruption, playing off of widespread discontent 
over the levels of corruption and Putin's own admonishment that more 
needs to be done.  Nobody needs more conferences, she noted, but 
rather a "war" should be declared.  Panfilova said that she would 
look to see whether Medvedev backed up his campaign rhetoric on rule 
of law with real efforts to attack corruption.  A possible first 
test would be the quality and scope of the implementing legislation 
for Russia's adoption of Council of Europe and UN conventions 
against corruption, which has been under review for the last year. 
Making anti-corruption efforts systematic and permanent would 
require Medvedev to break ranks with some in the political 
establishment and be a test of political self-confidence.  As to 
Medvedev's own vulnerability, Panfilova noted only that "everyone 
with a career in the public sector in the 1990's has a skeleton in 
the closet," but that Medvedev's transgressions appeared minor. 
 
BURNS

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08MOSCOW547, RUSSIA AND TURKEY ENERGY COOPERATION: “NOTHING

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Reference ID Created Released Classification Origin
08MOSCOW547 2008-02-28 12:14 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO9683
PP RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #0547 0591214
ZNY CCCCC ZZH
P 281214Z FEB 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 6854
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RHMFISS/DEPT OF ENERGY WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L MOSCOW 000547 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR EUR/RUS, FOR EEB/ESC/IEC GALLOGLY AND WRIGHT 
EUR/CARC, SCA (GALLAGHER, SUMAR) 
DOE FOR HARBERT, HEGBORG, EKIMOFF 
DOC FOR 4231/IEP/EUR/JBROUGHER 
 
E.O. 12958: DECL: 02/04/2018 
TAGS: EPET ENRG ECON PREL RS
SUBJECT: RUSSIA AND TURKEY ENERGY COOPERATION: "NOTHING 
NEW" 
 
 
Classified By: Ambassador William J. Burns for Reasons 1.4 (b/d) 
 
------- 
SUMMARY 
------- 
 
1. (C) The Turkish Embassy told us February 22nd that while 
Russia is interested in expanding gas supplies to and through 
Turkey, as well as participating more broadly in Turkey's 
energy sector, there were no breakthroughs on energy 
cooperation as a result of Turkish Foreign Minister Babacan's 
February 19-20 visit to Moscow.  The Russian MFA reported the 
same view to us on February 26th.  End summary. 
 
------------- 
"NOTHING NEW" 
------------- 
 
2. (C) Turkish Embassy First Secretary Ahmet Tuta told us 
February 22nd that the February 19-20 visit of Turkish FM 
Babacan to Moscow resulted in "nothing new" on the energy 
front, despite various press headlines to the contrary.  He 
said the visit was merely to reciprocate Russian FM Lavrov's 
2006 visit to Turkey and to "follow up" on Putin's 2004 trip 
that resulted in an MOU between Gazprom and Turkey's BOTAS. 
Tuta explained that there have been and continue to be 
"ongoing negotiations" on expanding Russian gas exports to 
and through Turkey, but no breakthroughs have been reached 
recently.  Tuta said Babacan's visit also included general 
discussions on Russian interest in buying into refineries and 
gas stations in Turkey, as well as on the proposed 
Samsun-Ceyhan oil pipeline.  He added, however, that the 
Russian side seemed more interested in pursuing the 
Burgas-Alexandropoulis pipeline (BAP) than in Samsun-Ceyhan. 
 
3. (C) Tuta said Russia is also interested in helping Turkey 
to develop nuclear power plants and would like to finalize an 
agreement on nuclear cooperation.  Turkey is still mulling 
its options with regard to nuclear cooperation, including the 
proposed participation of U.S., Canadian, and French 
companies that are interested in doing business in Turkey. 
 
4. (C) Russian MFA Southeast Europe section head Andrey 
Buravov echoed Tuta, telling us February 26th that the visit 
was largely to reciprocate for Lavrov's visit to Turkey.  He 
said the visit was aimed at "strengthening political and 
economic ties," but could not point to any concrete results 
from the meetings.  Buravov simply noted the importance of 
the economic relationship, emphasizing relevant statistics -- 
two-way trade of between $22 and $28 billion (depending on 
whose statistics are used), total accumulated two-way FDI of 
$10 billion, and 2.5 million Russian visits to Turkey last 
year. 
BURNS

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