08MOSCOW2603, FORMER PM KASYANOV DOWNBEAT ON COSTS OF WAR,

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Reference ID	Created	Released	Classification	Origin
08MOSCOW2603	2008-08-29 15:34	2011-08-30 01:44	CONFIDENTIAL	Embassy Moscow

VZCZCXRO1872
RR RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHMO #2603/01 2421534
ZNY CCCCC ZZH
R 291534Z AUG 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 9773
INFO RUCNCIS/CIS COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE

C O N F I D E N T I A L SECTION 01 OF 02 MOSCOW 002603 
 
SIPDIS 
 
E.O. 12958: DECL: 08/28/2018 
TAGS: PREL PGOV RS BO UP
SUBJECT: FORMER PM KASYANOV DOWNBEAT ON COSTS OF WAR, 
OPPOSITION PARTIES 
 
REF: MOSCOW 2550 
 
Classified By: Ambassador John Beyrle for reasons 1.4 (b) and (d). 
 
¶1. (C)  Summary: In an August 28 meeting, Ambassador and 
former PM Mikhail Kasyanov discussed the Russian-Georgian 
conflict, its economic consequences, and the future electoral 
prospects for liberal opposition parties.  Kasyanov, who 
heads the liberal Russian People's Democratic Union (RNDS) 
party, argued that Russia had employed disproportionate force 
against Georgia and should withdraw its troops from Georgia. 
According to Kasyanov, the Russian people -- fed only 
propaganda from pro-Kremlin media -- did not realize the 
Western stance toward Georgia before the conflict.  Kasyanov 
added that the potential economic fallout from the conflict 
could lead to international investor skepticism and broader 
financial repercussions.  Regarding opposition parties, 
Kasyanov observed that most Russians are too afraid to oppose 
the government publicly, which limits opposition 
effectiveness.  Kasyanov described himself and his party as 
the true voices of democracy in Russia.  Kasyanov also 
revealed that he had canceled his planned September trip to 
Washington.  End Summary. 
 
Economic Costs of "Disproportionate" War, Lower Oil Prices 
--------------------------------------------- ------------- 
 
¶2. (C)  Opening a wide-ranging discussion with the Ambassador 
August 28, former PM Kasyanov stated firmly that Russia 
should withdraw its troops immediately from Georgian 
territory, adding that Russia's actions against Georgia had 
been aggressive and disproportionate.  The "buffer zone" that 
Russia aspires to create in Georgia, he added, does not 
reflect a "real zone" in any meaningful sense that keeps 
Russian troops off Georgian soil.  Kasyanov acknowledged, 
however, that Russia's actions are now a fait accompli, which 
he predicted will beget numerous negative consequences. 
 
¶3. (C)  Ambassador discussed the difference between broad 
Russian popular support for actions against Georgian 
President Saakashvili and less-than-unanimous support for 
recognition of Abkhazia and South Ossetia, noting that 
Russians may feel differently about the long-term costs of 
the latter.  Kasyanov agreed that the financial costs of 
recognition would be enormous for Russia.  The sharp decline 
of the Russian stock market after the conflict began, 
Kasyanov observed, has "left the business community 
depressed," and a continuing economic downturn would threaten 
to "destroy their business structures."  For example, 
Kasyanov said, deflated stock prices and decreased investor 
confidence could result in major margin calls.  Kasyanov 
predicted that after the new fiscal quarter begins on October 
1 investors will begin to pull money out of Russia, which 
would result for the first time in years in a weaker ruble 
and shrinking foreign reserves. 
 
¶4. (C)  Kasyanov said that decreasing oil prices worry him 
the most, however.  Although oil prices remain above 100 USD 
per barrel, Kasyanov said that the price has dropped sharply 
this summer.  According to Kasyanov, Russia will have 
significant difficulties financing its deficit if oil drops 
to near 70 USD per barrel because the Russian budget assumes 
oil prices above 67 USD per barrel.  Looking at the mid-term, 
Kasyanov warned that lower oil prices together with investor 
angst stemming from the Georgian conflict would lead to 
inadequate refinancing and then "within one to two years 
there will be serious problems" because "state monopolies 
have destroyed competition" that otherwise could buoy the 
economy.  The added direct costs of the war with Georgia and 
of supporting Abkhazia and South Ossetia would compound these 
difficulties, Kasyanov said.  "Russian leaders are 
unprincipled," Kasyanov noted, observing that in Russia money 
equals power and the current Russian leadership is not overly 
concerned with the economic hardships of average Russians. 
Instead, he added, prestige and money are the leadership's 
goals. 
 
Nervous Neighborhood: Ukraine and Belarus 
----------------------------------------- 
 
¶5. (C)  Ambassador noted some analysts' view that the 
situation in the Caucasus would freeze as it did in Cyprus, 
with the more worrisome prospect now being possible Russian 
provocations toward Ukraine.  For example, Russia could begin 
issuing Russian passports to Ukrainians as Russia did in 
South Ossetia.  Kasyanov agreed that Ukraine poses a serious 
situation that requires close observation.  Noting the role 
of Europe in resolving the current situation, Kasyanov 
observed that the European Parliament now realized that 
everything is not normal in Russia.  Kasyanov said that he 
 
MOSCOW 00002603  002 OF 002 
 
 
was not convinced that Europe knows how to deal with Russia, 
with one exception: German Chancellor Merkel.  "She is the 
only one in Europe who can quietly say strong things" since 
"she understands how to treat Russians."  Kasyanov also 
speculated that the Russia-Georgia conflic
t may lead 
Belarusian President Lukashenko to open more to the West now 
that he has witnessed Russian aggression against a former 
Soviet republic.  "Lukashenko was shocked to see that he 
could be next," Kasyanov observed, adding that the Belarusian 
leader may now consider it wiser to democratize rather than 
face Russian tanks down the road. 
 
¶6. (C)  Ambassador said that the United States does not seek 
a relationship of enmity with Russia, but the conflict would 
have consequences for bilateral relations.  Russians, 
according to Ambassador, perceive the situation now as 
"everyone versus us."  Kasyanov agreed that such negative 
relations and perceptions are unfortunate.  However, this 
current row is not permanent since Russian "government elites 
are not ideological opponents of the West" as they were in 
Soviet times. 
 
¶7. (C)  Explaining how the conflict had unfolded with such 
strong Russian public support, Kasyanov stated that Russians 
"did not understand Georgia or its Rose Revolution."  For 
this reason, 90 percent of Russians oppose Saakashvili 
because of what they perceive as the Georgian leader's 
unilateral actions, even if they were provoked by Russia. 
Without access to a free mass media (in particular 
television), Russians did not know enough beforehand about 
the West's position on Georgia to understand that the United 
States would not instigate a war in Georgia.  "People who see 
Western media, BBC or CNN, see the other side," Kasyanov 
remarked.  Ambassador confirmed that the USG in no way 
encouraged Saakashvili to act militarily against Russia. 
 
Opposition Prospects Low 
------------------------ 
 
¶8. (C)  Ambassador raised the prospects for liberal 
opposition parties in Russia, asking about the recent August 
19 joint statement signed by Kasyanov, Vladimir Ryzhkov of 
the Republican Party, and Nikita Belykh of the Union of Right 
Forces (SPS).  Kasyanov described a recent rally held on 
August 22 (Russian National Flag Day) at the White House in 
Moscow, which he described as peaceful but underattended (see 
reftel: Only 500 people attended despite Kasyanov's 
prediction that more than 1,000 would come).  A major 
problem, Kasyanov lamented, is that Russians are afraid to 
oppose the ruling government publicly.  When pressed on 
whether other members of the new liberal party coalition are 
speaking out enough to encourage wider public opposition, 
Kasyanov quickly and firmly responded, "No."  Kasyanov 
identified Yabloko leader Sergey Mitrokhin in particular as 
unwilling to do any heavy lifting for the liberal opposition. 
 (Note: Mitrokhin's signature was conspicuously missing from 
the August 19 joint statement.)  Kasyanov described himself 
as alone in being a voice for democracy in Russia.  In an 
aside to the Ambassador, Kasyanov also noted that many in 
Russia believe that he is an American spy because of his ties 
to the West and government opposition. 
 
Canceled Trip to United States 
------------------------------- 
 
¶9. (C)  Kasyanov informed Ambassador that he had canceled his 
planned trip to Washington in September ("I was advised that 
this was not the best time" by his U.S. hosts) but hopes to 
reschedule at some point. 
 
¶10. (C)  COMMENT: Kasyanov is one of Russia's more outspoken 
liberal opposition voices, and he was frank in criticizing 
the Russian leadership for its limits of press freedoms and 
its inability to comprehend long-term economic consequences. 
However, Kasyanov is unable to muster more than minimal 
support to his cause, and his opposition now to the hugely 
popular war with Georgia will not engender new support among 
Russians.  The intermittent unity of the deeply fractured 
opposition parties leaves little hope for them to make any 
inroads on the public support and legislative bloc of the 
major "ruling parties" and the Communists.  Kasyanov's 
statement that he is a lone voice for democracy succinctly 
captures that disunity, since it is exactly what Yabloko's 
Mitrokhin said about himself at his own August 21 press 
conference.  However, Kasyanov's experience as Finance 
Minister, Prime Minister and now owner of a large consulting 
firm make him uniquely credible regarding economic trends in 
Russia. 
BEYRLE

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