By David Lawder
MOSCOW (Reuters) - U.S. Treasury Secretary Henry Paulsonarrived in Moscow on Sunday for economic talks with Russia'stop leaders that some observers say could help shift the focusof a sometimes frosty U.S.-Russia relationship towards the moreproductive areas of trade and investment.
Paulson, on his first trip to Russia since taking over asTreasury Secretary nearly two years ago, will have dinner withRussian Finance Minister Alexei Kudrin on Sunday night beforeclosed-door meetings on Monday with new President DmitryMedvedev and his predecessor, Prime Minister Vladimir Putin,the U.S. Treasury Department said.
He also will meet with First Deputy Prime Minister IgorShuvalov before flying to Berlin as part of a five-day tripthat also will include meetings with German Chancellor AngelaMerkel, European Central Bank chief Jean-Claude Trichet, PrimeMinister Gordon Brown and Chancellor Alistair Darling.
The Treasury has said little about the meetings so far,other than that Paulson wants to discuss the global economy,the need for countries to stay open to foreign investment andefforts to protect the global banking system from abuse byIran.
But Paulson has an opportunity to strengthen economic tieswith Russia by jump-starting talks towards a bilateralinvestment treaty and persuading Moscow to buy into "bestpractices" guidelines for sovereign wealth funds, said AndersAslund, a senior fellow at the Peterson Institute forInternational Economics, a think-tank in Washington.
"I think the surprise might be something on bilateralinvestment," said Aslund, noting that Russia has similarinvestment treaties with 38 other countries.
As a result, U.S. investment in Russia has fallen farbehind Europe, which he noted supplies 57 percent of Russia'simports versus 3 percent coming from the United States.
"The U.S. has lost out on this massive boom that has takenplace in Russia since 2000," Aslund added. "They've discussedthe wrong issues. The U.S. has discussed security issues andmissile defence with Russia when they should have discussedtrade and investment."
Russia's opposition to a U.S. missile shield based partlyin Eastern Europe had cooled relations between Washington andMoscow by the time Putin stepped down, as had suggestions thatPutin was rolling back democracy in Russia.
CONCILIATORY TONE
Paulson's meetings come just after Medvedev, Putin'shand-picked successor, struck a conciliatory tone in his debutwith European Union chiefs on Friday by hailing a fresh startin their sometimes testy relations. He said a meeting to launchnegotiations on a new strategic agreement governing relationsbetween the EU and Russia had a "sincere, neighbourly" mood.
As Russia's economy booms and oil revenues pour in, thegovernment is increasingly expected to want to invest thosefunds abroad via its sovereign wealth fund, said AndrewKutchins, director of the Russia and Eurasia program at theCentre for Strategic and International Studies.
By cooperating with guidelines now being developed by theInternational Monetary Fund, Russia's wealth fund andcorporations could face less resistance when making U.S.investments. A key part of the guidelines will be a pledge toinvest only for financial returns and commercial purposes, notpolitical ends.
Russian leaders also are going to want some reassurancesfrom Paulson on the state of the U.S. economy, the housingcorrection and the declining U.S. dollar. With billions ofdollars invested in U.S. assets, including Treasury debt andmortgage securities issued by housing finance giants Fannie Maeand Freddie Mac, Moscow is taking a direct financial hit from afalling dollar, even as it has helped push up oil prices.
"The biggest economic problem Russia faces is controllinginflation," Kutchins said. "For them, the weak dollar is aproblem."
(Reporting by David Lawder; Editing by Eric Walsh)
