WikiLeaks: Russia’s “Vanity” Project in Iceland

I’m not sure who said it first, but it’s often said that one of the key problems in the U.S.-Russia relationship is that both capitals see the other in decline (most explicitly illustrated by the Joe Biden).  This perspective is again reiterated in one of the latest Moscow Embassy cables from Wikileaks, commenting on Russia’s 4 billion euro bailout of Iceland’s economy in 2008.  While Icelandic officials were keen to emphasize to the State Department that their policies would be unaffected by the Russian loan, the cable makes the following parting shot:

The Russian loan to Iceland strikes us yet another in a proliferating series of GOR “vanity” projects that Russia may no longer be able to afford. The financial crisis has hit Russia hard and the Russian economy is starting to feel the effects. The loan to Iceland suggests that the GOR has still not come to terms with this, nor with the country’s rapid fall from economic grace.

Ouch.  Again, one of the most interesting revelations of Wikileaks is not any scandalous secrets (every Russian who has ever been pulled over by the traffic police already knows it’s a corporate mafia state), but rather how often the State Department is wrong.  The Russian economy, for example, might feature seriously troubling fundamentals and a dependence on commodity price swings, but it’s far from failure.  The economy grew by about 3.8% in 2010, the ruble is at a three month high against the dollar, and oil prices are showing no sign of climbing back down below $90 a barrel.

Washington might have to come to terms with the idea of more and more “vanity projects” orchestrated by Russian government, because the economy isn’t slowing down as fast as they might have thought.