Daily Archives: July 27, 2009

09MOSCOW1918, RUSSIA: MANDATE RENEWAL FOR THE UNITED NATIONS –

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Reference ID Created Released Classification Origin
09MOSCOW1918 2009-07-27 08:58 2011-08-30 01:44 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Moscow

VZCZCXRO6917
PP RUEHTRO
DE RUEHMO #1918 2080858
ZNR UUUUU ZZH
P 270858Z JUL 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC PRIORITY 4361
INFO RUEHAK/AMEMBASSY ANKARA PRIORITY 3628
RUEHBJ/AMEMBASSY BEIJING PRIORITY 4507
RUEHHI/AMEMBASSY HANOI PRIORITY 1551
RUEHKM/AMEMBASSY KAMPALA PRIORITY 0034
RUEHME/AMEMBASSY MEXICO PRIORITY 0417
RUEHOU/AMEMBASSY OUAGADOUGOU PRIORITY 0020
RUEHSJ/AMEMBASSY SAN JOSE PRIORITY 0105
RUEHKO/AMEMBASSY TOKYO PRIORITY 4283
RUEHVI/AMEMBASSY VIENNA PRIORITY 4773
RUEHVB/AMEMBASSY ZAGREB PRIORITY 0941
RUEHKH/AMEMBASSY KHARTOUM PRIORITY 0012
RUEHLO/AMEMBASSY LONDON PRIORITY 2211
RUEHFR/AMEMBASSY PARIS PRIORITY 1958
RUEHTRO/AMEMBASSY TRIPOLI PRIORITY
RUCNDT/USMISSION USUN NEW YORK PRIORITY 0504

UNCLAS MOSCOW 001918 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: KPKO PREL SU RS
SUBJECT: RUSSIA: MANDATE RENEWAL FOR THE UNITED NATIONS - 
AFRICAN UNION MISSION IN DARFUR (UNAMID) 
 
REF: SECSTATE 77701 
 
(SBU) Post delivered reftel demarche to the MFA's 
International Organizations Department's Sergei Zhdanov.  He 
told us that in general Russia supported the opinion of the 
African Union and that the International Criminal Court 
should take into account the regional organization's 
position.  However, in connection with UNAMID's renewal, 
Zhdanov said that Russia could be "flexible," and urged us to 
reach out to Russia's UN Mission in New York. 
BEYRLE

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09MOSCOW1917, RUSSIAN ANTI-CRISIS MEASURES AND POST-CRISIS

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Reference ID Created Released Classification Origin
09MOSCOW1917 2009-07-27 05:14 2011-08-30 01:44 CONFIDENTIAL Embassy Moscow

VZCZCXRO6755
RR RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHMO #1917/01 2080514
ZNY CCCCC ZZH
R 270514Z JUL 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 4357
INFO RUCNCIS/CIS COLLECTIVE
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEHAAA/WHITE HOUSE WASHDC

C O N F I D E N T I A L SECTION 01 OF 04 MOSCOW 001917 
 
SIPDIS 
 
WHITE HOUSE FOR USTR:CWILSON, MRODHE, EHAFNER 
 
E.O. 12958: DECL: 07/22/2019 
TAGS: ETRD EAGR ECON RS
SUBJECT: RUSSIAN ANTI-CRISIS MEASURES AND POST-CRISIS 
 
REFORM: A CONVERSATION WITH MINISTER OF INDUSTRY AND TRADE 
KHRISTENKO 
 
REF: A. A) MOSCOW 541 
     B. B) MOSCOW 334 
 
Classified By: Amb. John Beyrle, Reasons 1.4 (b) and (d) 
 
1. (C) Summary.  In a July 21 meeting characterized by 
wide-ranging and spirited interchange, Russian Minister of 
Industry and Trade Viktor Khristenko provided the Ambassador 
with his vision of Russia's anti-crisis measures and 
post-crisis reform.  Khristenko noted that the crisis hit 
Russia hard, in part due to structural issues of the Russian 
economy.  He stressed that, in responding to the crisis, the 
Russian government has remained true to its strategic 
economic goals, so that the anti-crisis measures will lead 
directly into the post-crisis reform--the tools may change 
but the goals remain the same.  The Ambassador also used the 
occasion to raise several continuing trade irritants, 
including tariffs on off-road heavy equipment, combine 
harvesters and other agricultural equipment, and the 
situation of International Paper.  For his part, Khristenko 
asked for information on the structure of the bilateral 
commission and encouraged U.S. participation in the Russian 
National Exhibition, scheduled for November in Chicago.  End 
Summary. 
 
2. (C)  On July 21, Ambassador Beyrle met with Russian 
Minister of Industry and Trade Viktor Khristenko.  The 
meeting took place in Russian which, according to 
Khristenko's staff, provided the Minister with the 
opportunity to speak more openly than he customarily does 
with foreign representatives.  The Ambassador summarized the 
outcome of what we viewed as a very productive summit, 
highlighting the decision to set up a bilateral commission, 
with working groups on trade and investment, energy and other 
issues.  Khristenko informed the Ambassador that his strategy 
is to have good contacts with the Department of Commerce and 
that, as long as that happens, he believes that there will be 
no problem with the work in the Commission.  (Comment: In 
other words, he can live with not being the head of the 
business and economic working group.  End Comment.)  He also 
urged that Secretary Locke travel outside Moscow on his next 
trip to Russia, to learn more about the country. 
 
The Crisis 
---------- 
 
3. (C) When asked for his views on the situation in the 
Russian economy and how the anti-crisis measures (many of 
which are carried out by the Ministry of Industry and 
Trade--MIT) had fared so far, Khristenko provided a frank and 
wide-ranging assessment.  He acknowledged that Russia was hit 
harder by the crisis than many of the developed countries 
because of structural issues within the Russian economy.  In 
particular, the Russian economy remains based on commodities, 
which make up a substantial part of exports as well as 
overall industrial production.  The steep drop in the price 
of commodities at the beginning of the crisis affected 
Russian companies' profits and investments.  These declines 
then had a negative impact on budget revenues and employees' 
incomes, leading to a decrease in private demand. 
 
4. (C) Khristenko noted that the crisis had two immediate 
impacts on Russia: price volatility and financial volatility. 
 Price volatility hit profits, and revenues declined 
significantly.  Financial volatility hit Russian banking 
system hard, as Western banks reviewed their position on 
emerging markets and withdrew money.  Khristenko argued that, 
as a result of these two phenomena, Russian GDP fell 10% in 
the first half of 2009 and industrial production declined by 
15%. 
 
5. (C) In describing the GOR response, Khristenko stated that 
government measures can only have a limited effect.  That 
said, the GOR decided to focus its actions on two areas: (1) 
support for the financial system so that it would not pass on 
risks; and (2) support to the real sector, including actions 
to prop up private spending, investment and government 
demand.  In his view, the GOR's anti-crisis measures did not 
reach the real sector until April or May 2009. 
 
6. (C)  According to Khristenko, the GOR continues to 
fine-tune its anti-crisis measures.  He used the example of 
GOR actions in support of the Russian automotive sector.  The 
GOR began with a program to subsidize financing for the 
purchase of automobiles which cost up to 350,000 rubles 
(about USD 12,000).  The GOR also provided federal and local 
 
MOSCOW 00001917  002 OF 004 
 
 
government agencies with funding and incentives to purchase 
vehicles produced in Russia.  When that did not provide the 
desired results, the GOR took additional steps, including 
increasing the value of the cars which could be purchased 
using the special subsidy program from 350,000 rubles to 
600,000 rubles.  In addition, the required down-payment from 
the borrower was reduced to 15% of the vehicles value, and 
loans were made available
for three years, instead of two. 
 
7. (C) Even with these actions, Khristenko noted that the 
Russian automobile industry continues to suffer.  Sales of 
new cars fell 55% in the first half of 2009, and production 
declined three-fold.  Khristenko acknowledged that part of 
the decline in new car sales was due to the high volume of 
used car sales in 2008, just before higher import tariffs on 
used car imports took effect.  He noted that, in 2008, used 
car sales reached 735,000 in Russia, which is a high amount 
given the overall size of the market.  Half of these imported 
cars are right-hand drive, and used primarily in the Russian 
Far East.  Khristenko argued that these gray imports of old 
technology hurt all producers in Russia, including GM and 
Ford.  In tackling this problem, Khristenko stated that the 
GOR knew it was taking on the Far East Mafia and that it 
would not be easy.  The mass inflow of used cars in 2008 led 
to overstocks that are still being sold off.  That, combined 
with the crisis, produced a situation where new cars produced 
this year in Russia won't even start to be sold until later 
this month or in August, as producers and dealers are still 
selling off cars from previous years.  Khristenko expects the 
issue will be discussed further when it is time to make the 
higher duties and restrictions on imports of used cars 
permanent. (For more information on the automobile situation, 
please see refs A and B.) 
 
Anti-Crisis Response or Post-Crisis Reform 
------------------------------------------ 
 
8. (C) In response to the Ambassador's query as to whether 
the GOR is planning any additional anti-crisis measures or is 
moving toward post-crisis reform, Khristenko said that they 
are doing both.  The GOR is starting to see some positive 
signals in a number of industries, but it is difficult to 
forecast anything now, because the current crisis in 
unprecedented in its scale.  He also emphasized that there 
were no analogies to previous crises (in particular the 1998 
crisis), because today's Russian economy is much more 
integrated into the global economy that was the case 
previously.  Despite this uncertainty, the GOR needs to 
concentrate on what is really important.  In recent years, 
MIT has been developing long-term strategies for key sectors. 
 They have set strategic industry goals and spelled out 
mechanisms for reaching these marks.  Khristenko emphasized 
that, with the crisis, it is even more important to stay 
focused on these strategic goals, in order to avoid wasting 
the limited resources available.  While the goals remain the 
same, the GOR is adjusting some of the mechanisms in response 
to new conditions created by the crisis. 
 
9. (C) As an example of this process, Khristenko cited the 
SJ100 project, undertaken with support from Boeing.  In 
Khristenko's view, it is an important project in a very 
sensitive sphere and it would have been easy to find a 
pretext for not doing it. The GOR had a general strategy for 
the aircraft sector to consolidate companies, clean them up, 
recapitalize them and then, in a very short period of time, 
have an IPO.  Thus, the state will finance R&D, while IPO 
money will go for implementation of production plans. 
Khristenko observed, however, that an IPO makes no sense 
right now, so these will be delayed.  That said, the IPO is 
just a tool or mechanism, not the goal itself, so while the 
tool might change, the goal remains the same--diversity of 
production and sales.  He noted that they have similar plans 
for the helicopter and shipbuilding sectors. 
 
10. (C) In discussing these issues, Khristenko highlighted 
flexibility.  He argued that it is important not to be afraid 
to change or update decisions, as necessary.  Returning to 
the automobile sector, he noted that it is still too early to 
tell whether the recent adjustments to the GOR program will 
produce the desired effect.  It should become clear by 
mid-August. 
 
The Irritants 
------------- 
 
11. (C) Off-Road Heavy Equipment: The Ambassador raised the 
 
MOSCOW 00001917  003 OF 004 
 
 
issue of last year's increase in the tariff on trucks which 
also applies to certain off-road heavy equipment used in 
Russian industry but not produced domestically.  Before the 
Ambassador could finish his points, Khristenko interrupted, 
stating that his Ministry supports making a separate customs 
code for off-road trucks to address the matter.  He informed 
the Ambassador that MIT has already sent its recommendation 
to the Russian Interagency Commission on Safeguards and 
Customs Policy, headed by First Deputy Prime Minister Zubkov. 
 The final decision rests with the Commission, which will 
draft a GOR decision on the matter.  Khristenko noted that 
MIT is the chief lobbyist in the Commission, but stated that, 
from a technical point of view, we should also talk with the 
Ministry of Economic Development (MED).  (Note: The matter 
has been raised previously with MED personnel, who have been 
supportive on the issue in the past. Post will use meetings 
scheduled for next week to re-emphasize our continuing 
interest. End Note.) 
 
12. (C) Combine/Harvesters: The Ambassador noted that the 
tariff increases on combine/harvesters constituted another 
trade irritant.  He expressed appreciation for MIT's recent 
decision not to increase tariffs further, and noted that we 
would appreciate assistance in addressing the matter with 
Minister of Agriculture Skrynnik.  Khristenko responded that 
agriculture was a sensitive issue for many countries, 
including the U.S.  Especially during times of crisis, the 
state provides even more resources to support agriculture, as 
it would like to build a support chain "reaching all the way 
to the ground."  He stated that MIT has resources for the 
sector, but faces challenges putting plans in place. 
Khristenko noted that MIT has been funding R&D for Rosselmash 
since 2004, as the company develops its sixth-generation 
combine.  He observed that, when he visited the area with PM 
Putin last November, they were horrified to see harvesters 
all over the city. With the crisis, there has been a complete 
stoppage in the purchasing of equipment.  Khristenko 
acknowledged that the issue is politicized.  In MIT's view, 
there is a need for production of this equipment in Russia, 
and that whatever product works best should be privileged in 
the market. 
 
13. (C) John Deere: The Ambassador then raised the issue of 
John Deere and its recently announced plans for additional 
investment in Russia.  Khristenko stated that, for John 
Deere, MIT is proposing to them the same industrial assembly 
regime as the one used in the automotive sector.  He observed 
that Russia is a huge country with lots of undeveloped farm 
land.  "Surely we must welcome such technology and encourage 
such cooperation here," he stated. 
 
14. (C) VSMPO Avisma/magnesium: Khristenko used the
 
opportunity to note that Russia, too, had trade irritants to 
raise with the U.S., including the dumping case on magnesium. 
 He noted, however, that if we just meet every half year 
because we have to do so and keep telling each other of John 
Deere and magnesium respectively each time, we won't move any 
further until we end up with a lack of confidence. With that, 
he dropped the issue.  (Note: Post understands that a team 
from MED is planning to meet with the Commerce Import 
Administration the week of August 3 on this issue.  End note.) 
 
15. (C) International Paper (IP): The Ambassador noted that 
IP was meeting the same day with the regional governor, as 
part of its efforts to obtain priority investor status.  He 
requested MIT support for the request, when it is forwarded 
from the regional authorities to MIT for decision. Khristenko 
responded that MIT is aware of the case and is ready to 
support the request. 
 
National Exhibition in Chicago 
------------------------------ 
 
16. (U) Khristenko also used the opportunity to present the 
Ambassador with information, hot off the presses, about the 
Russian National Exhibition, planned for November 18-21 in 
Chicago.  The Exhibition's theme is "Reset in Russian-US 
relations: changing ourselves, we change the world for the 
better."  The Exhibition itself will have booths covering a 
wide range of topics, from the history of Russian-American 
relations to Russian industry; civil society; financial 
systems; medical centers and pharmaceuticals; science, 
innovation and venture projects.  Organizers also plan a 
"vacancy fair" with information about jobs in the US and in 
Russia.  Parallel to the Exhibition, organizers are putting 
together a series of conferences and seminars on themes such 
 
MOSCOW 00001917  004 OF 004 
 
 
as "Nanoindustry and Nanotechnology;""200 years of diplomacy: 
myths and reality in newer and newest history;"" Innovational 
Russia;"" Oil and gas: stable development of world economy, 
the role of Russia and the US;" and "Setting up a civil 
society."  MIT is now officially in charge of organizing this 
event.  The Ministry is currently working to ensure that it 
will be a "major event," with high-level GOR participation. 
 
Comment 
------- 
 
17. (C) The meeting was the Ambassador's first extended 
discussion with Khristenko, who was as open and voluble as we 
have seen him.  (At one point, he even jovially cited a 
quoate by Yogi Berra, "It's tough to make predictions, 
especially about the future.")  Prior to the session, 
Khristenko's staff had made clear that the Ministry had been 
instructed to work with the Americans.  Khristenko spoke 
extensively on detailed issues without reference to notes. 
He displayed annoyance with having to deal with long-standing 
problems, such as combine/harvesters and John Deere.  While 
making reference to the Ministry's goals to strengthen 
markets and provide the best product for consumers, he also 
made clear his interest in ensuring that industrial 
production expands in Russia, including production by U.S. 
and other foreign firms. 
 
18.  (C) This was the first detailed look we have had at the 
Chicago Exhibition in November, which was conceived as a 
trade fair, but has now clearly assumed more ambitious 
proportions.  Several of our contacts have speculated that if 
the Exhibition lives up to these ambitions, it could serve as 
the platform for a visit to the U.S. by Prime Minister Putin. 
 End Comment. 
BEYRLE

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