Foreign Minister Kevin Rudd has stressed to his Russian counterpart the need to be transparent with the development assistance it gives to Pacific island nations, amid ongoing concerns Moscow is using aid to buy diplomatic support in the region.

Mr Rudd met Russian Foreign Minister Sergei Lavrov in Sydney on Tuesday.

With Mr Lavrov due to visit Fiji later this week, Russia’s role in the South Pacific was high on Mr Rudd’s agenda.

Russia has been accused of giving vast sums of money to Pacific island nations like Tuvalu and Nauru in exchange for those countries recognising the sovereignty of the disputed territories of South Ossetia and Abkhazia, which are officially part of Russia’s enemy Georgia.

The claims last year prompted the government’s Parliamentary Secretary for Pacific Island Affairs, Richard Marles, to accuse Russia of “cheque-book diplomacy” that could undermine efforts to eradicate poverty in the region.

There are also fears Russia’s dealings with Fiji could set back the diplomatic campaign to coax the country’s military regime to restore democracy.

Mr Rudd stressed to Mr Lavrov on Tuesday the importance of maintaining democratic norms in the region.

“They discussed the engagement many countries have with Fiji, and Mr Rudd explained Australia’s engagement, which includes substantial development assistance,” a summary of the meeting provided by Mr Rudd’s office said.

“He stressed the importance of transparency in development assistance with the region.”

The pair also discussed the worsening bloodshed in Syria.

Australia and other Western governments want the United Nations Security Council to pass a resolution adopting an Arab League peace plan that calls on Syrian President Bashar al-Assad to resign and hand power to his deputy.

But Russia has signalled it will use its permanent member veto powers to sink the resolution and has offered a softer alternative resolution.

“Mr Lavrov explained the Russian approach to the issue, reflected in its draft resolution before the Security Council,” the summary reads.

“Mr Rudd explained that Australia supported the resolution presented by the Arab League which contains elements in common with the Russian draft and calls for measures to be implemented against the Syrian regime, and for Assad to hand over power to his deputy.”

An estimated 5400 Syrians have been killed since anti-government unrest broke out in March last year.

In October, Mr Rudd took aim at Russia and China for using their veto powers to block a resolution demanding Assad’s regime end its crackdown on anti-government rebels.

“China and Russia must now bear a particular responsibility for persuading Syria to end the violence and implement meaningful change,” he said at the time.

“Think of all the beautiful moments we had together. Think of your international commitments. Don’t do it, Fiji!”

That’s essentially the message from Tbilisi as the tiny South Pacific country of Fiji prepares to welcome Russian Foreign Minister Sergei Lavrov on February 1 for what Georgia fears could be a lot of sweet talk from Moscow about recognizing the independence of breakaway Abkhazia and South Ossetia.

“We really hope that the government of Fiji remains loyal to international principles . . .and good relations and partnership with us…. and resists this temptation,” was how Georgian Deputy Foreign Minister Davit Jalaghania put it officially.

And, in an apparent attempt to provide some small incentive for the island country to stick to those principles, the Georgian government delivered 200 notebook computers to Fiji this weekend. But will Georgia’s entreaties do the trick?

Moscow has denied having any plans to bribe Fiji, a developing country, in exchange for recognition of Abkhazia and South Ossetia. It says it’s just in the region for  (with apologies to Rodgers and Hammerstein) some  “happy talk.”

But the Pacific island country of Nauru is alleged to have fallen prey to $50-million-worth of Russian persuasion. Hefty assistance is believed to have been offered to Tuvalu, as well. Russian pressure and Western counter-pressure on Fiji’s neighbor, Vanuatu, almost left that country with a split personality disorder.

In nearby Australia, Fiji’s largest benefactor, there seems to be little doubt what Lavrov’s neighborhood call is all about. Australia’s Parliamentary Secretary for Pacific Island Affairs Richard Marles described Russia’s international campaign to collect signatures for Abkhazia and South Ossetia’s independence as “checkbook diplomacy.”

One New Zealand foreign policy specialist dismissed that label, but expressed the wish that Moscow will be open about “what the Russians are doing.”

“We’d like to know what the figures of aid are. We’d like to coordinate our aid with their aid, if it’s legitimate, because we’re all working towards the betterment of the Pacific peoples,” University of Auckland Associate Professor Stephen Hoadley told ABC Radio Australia.

Meanwhile, some Georgians are keeping an eye on the weather.

Heavy rains have been lashing Fiji, but Lavrov has pledged that the downpour will not derail his mission.”We can hold talks in any weather, as long as we don’t get washed away,” the foreign minister said, wryly.

There’s a growing risk that Iran might launch terror attacks against U.S. targets, including in the homeland, as tensions rise over Tehran’s nuclear program and the U.S.-led sanctions against the Islamic regime, according the U.S. intelligence chief.

Last year’s discovery of a plot by Iranian officials to kill a Saudi diplomat in Washington “shows that some Iranian officials — probably including Supreme Leader Ali Khamenei — have changed their calculus and are now more willing to conduct an attack in the United States,” Director of National IntelligenceJames R. Clapper said in testimony prepared for the Senate Intelligence Committee Tuesday.

“We are also concerned about Iranian plotting against U.S. or allied interests overseas,” Mr. Clapper said during a committee hearing on global threats against the United States.

Iran has joined Russia and China as one of the “most menacing foreign intelligence threats” to the U.S., Mr. Clapper told the committee. Foreign intelligence services from these three countries “will remain the top threats to the United States in the coming years.”

“Iran’s intelligence operations against the United States, including cyber capabilities, have dramatically increased in recent years in depth and complexity,” he said.

The Washington Times reported in October that an Iranian hacker, possibly state-sponsored, is widely believed to have been behind several breaches last year of the Internet security system known as Secure Sockets Layer (SSL). Computer users know the system as the padlock in the browser that shows that online shopping, banking and other communications are secure.

Without mentioning Iran, Mr. Clapper said the SSL breach “represents a threat to one of the most fundamental technologies used to secure online communications and sensitive transactions.”

Previous assessments of the foreign spy threat, like last year’s report to Congress by the National Counter-Intelligence Executive, had identified economic espionage by Russia and China as a top-tier intelligence threat, but had not highlighted Iran.

Foreign intelligence services “have launched numerous computer network operations targeting U.S. government agencies, businesses, and universities,” said Mr. Clapper, without naming them. “Foreign cyber actors have also begun targeting classified networks.”

Winning Russia’s March presidential election could be the easy part for Prime Minister Vladimir Putin, who has called for a “decisive tax maneuver” to put the country’s increasingly oil-dependent public finances on a more sustainable footing.

Although Russia, the world’s largest energy producer, ran a fiscal surplus last year thanks to strong oil prices, the high and rising price at which the budget balances poses the real risk of a fiscal crisis in the next six-year presidential term.

“The Russian government needs to carry out a major budget consolidation over time,” said Odd Per Brekk, the International Monetary Fund’s resident representative in Russia. Without one, he warned, “Russia is much more exposed to an oil price shock.”

Since 2006, the volume of government expenditures has risen by an average of over 20 percent each year – double the rate of inflation. Their share of Russia’s gross domestic product has rocketed from 29 percent to 39 percent.

That now places Russia in the same league as relatively high-spending, high-tax European economies rather than low-tax emerging markets such as China and India.

The challenge for Putin, assuming he takes office in May as appears highly likely, will be to squeeze revenues out of an economy that is already stuttering under a mounting tax burden.

The so-called “tax maneuver,” aimed at reducing taxation on entrepreneurs by shifting it onto under-taxed sectors and activities, is one solution gaining favour among policy makers.

CRUSHING BURDEN

Putin stated the rationale for the tax maneuver in a 5,000-word newspaper article on Monday.

“We have reserves for increasing tax revenues in several directions: expensive property, consumption of luxury goods, alcohol, tobacco, the collection of rents in those sectors where it is currently low,” he wrote.

Putin has borrowed the idea from Business Russia, a lobby group for small and mid-sized businesses that backs selective tax hikes – on oil and gas extraction, tobacco and alcohol and property – to finance business tax cuts.

“In Russia, those taxes that hinder development are either very high or very uncompetitive, and those taxes that don’t hinder development are on the contrary very low,” Alexander Galushka, president of Business Russia, told Reuters.

Business Russia’s initiative reflects widespread discontent over high payroll taxes levied on employers to fund ballooning state outlays on pensions, healthcare and welfare benefits.

The government last year attempted to raise payroll taxes from 26 percent of employee salaries to 34 percent. Following a backlash from business, it scaled back the rate to 30 percent, but businesses complain that the tax is still crushingly high.

ROOM FOR MANOEUVRE

In contrast, some other taxes – such as the 13 percent flat-rate of income tax – are incongruously low.

Yet tax dodging remains a rampant problem, with around 40 percent of economic activity unreported to the taxman.

“If they set a higher rate for rich people, that will increase tax evasion,” said Evsey Gurvich, head of the Economic Expert Group, which advises the finance ministry.

Officials are focusing instead on consumption taxes that are harder to evade. According to Business Russia, were Russia to raise its low excise duties on tobacco and alcohol to the European average, the government could raise an extra $35 billion in tax yearly.

The taxman now takes only 51 roubles ($1.70) on a half-liter bottle of vodka and 9 roubles on a packet of 20 cigarettes.

Business Russia also backs higher taxes on Russia’s oil and gas sectors. “You’re simply taking away rent – unearned income – which is fair from the point of view of the economy, and politically and socially just,” argued Galushka.

Most analysts are skeptical over the potential to squeeze yet more tax out of the oil industry, where high taxes are widely blamed for curbing investment and stunting output growth.

But the case for upping the tax take from Gazprom, the state-controlled gas export monopoly, is more compelling.

Gurvich calculates that the gas sector’s share of value added paid as tax, around 35 percent, is less than half the 80 percent level paid by the oil sector.

Closing that gap would raise an additional 1.5 percent of GDP – around $25 billion dollars per annum – in tax.

The discrepancy is even more obvious when looking at the taxes paid by the metals and mining sector, where the average tax take represents around 25 percent of profits.

“Oil is overtaxed, metallurgy is undertaxed, and the gas sector is in the middle,” said Kingsmill Bond, chief strategist at Citigroup in Russia.

STIFF OPPOSITION

Russia may in practice have less wiggle-room than appears on paper.

Higher excise duties could backfire by hurting the pockets of ordinary Russians. They also face stiff opposition from the tobacco and alcohol lobbies, which argue that higher taxation would encourage counterfeit production.

Proposals to bring taxation of the gas and metals sectors closer into line with the oil sector would entail challenging even more powerful lobbies with good connections in government.

“There is substantial potential to increase taxation of the gas sector, but the political feasibility is not substantial,” said Gurvich.

When it comes to metals, he said “only a minor increase is politically realistic,” which would be “insignificant from the macroeconomic viewpoint.”

Nor would property taxes produce a bonanza. Russia’s slow-moving bureaucracy has struggled for years with the complicated preparations needed to register and value property holdings.

“It costs more to administer this tax than the tax collects. It collects very, very little,” said Galushka.

FISCAL CONDUNDRUM

A more basic problem is that simply shifting the tax burden will not address the root cause of Russia’s fiscal conundrum: ever-rising government spending.

“The government should focus primarily on raising the efficiency of public expenditure,” said Gurvich. “It concerns everything: public investment, public procurements, more focused social support, and pension reform.”

Without a convincing answer to such problems, businesses are wary about planning more than a couple of years ahead, said Alexei Shestoperov, a researcher at Moscow’s National Institute for System Studies of Entrepreneurship.

“The budget demands more and more resources and where are they going to come from? It’s hard to understand,” he said.

Russia is considering a protective grain export duty to put a brake on record exports, Deputy Agriculture Minister Ilya Shestakov told Reuters on Tuesday.

“We are actively discussing it. It is an important aspect of our activity. No one is denying the likelihood,” Shestakov said on the sidelines of a grains conference held by the Institute for Agricultural Markers Research (IKAR).

“We are constantly monitoring export volumes. The decision will be made in advance,” he added. “There are quite a few precursors for introduction of a duty.”

Traders and analysts said last week they expected Russia’s government, which has said Russia should export no more than 23-25 million tonnes of grain during this crop year, would consider imposing export duties from April, when exports are likely to hit that level.

Shestakov said assumptions that the duty could be introduced from April were “groundless”. He declined to comment on the government’s target volume.

The head of Russia’s Grains Union, however, said the government was discussing a levy from April onward, according to plans now under discussion by the Russian government.

Arkady Zlochevsky said the Grains Union had approached Prime Minister Vladimir Putin before the new year to ask that the government abandon consideration of the duty.

Putin was due to meet the agriculture minister later on Tuesday to discuss the meat industry.

His government raised the possibility of a duty as its preferred method of controlling exports before it lifted a ban on exports imposed to protect domestic supplies after a catastrophic drought in the summer of 2010.

“If no duty is introduced, I think we’ll call a halt at about 27-28 million tonnes,” Zlochevsky told reporters at the conference, adding that domestic prices would become a limiting factor on exports.

Russia has been a bullish factor on world wheat markets in the last week, first because of speculation that the duty would be imposed to limit exports, then because of hard frosts which caused concern about Black Sea exporters’ crops.

The government would base its decision on February exports, Shestakov said. By the middle of February, he said, the government would be able to forecast shipments for the full month and announce its decision.

“It is a matter of about two weeks,” Shestakov said.

Prices for Russian export wheat jumped as much as $6 per tonne last week as traders confronted bare elevators in Russia’s southern export regions and hesitated to buy grain inland for export, fearing export duties.

One trader said talk of a ban was pressing exporters to maximise shipments before the ban made them unprofitable, pressing toward the government’s declared limits more quickly.

“It’s a chicken-egg situation,” a trader said.

Putin, who is seeking to return to the Kremlin in a March 4 presidential vote, says Russia needs to grow at least 6 percent a year to become one of the world’s five largest economies and should be less reliant on energy exports.

Retail sales jumped 7.2 percent in 2011, faster than a 6.3 percent increase in the previous year, as consumer prices rose at the slowest pace since the collapse of the Soviet Union two decades ago, the service said last week. Inflation totaled 6.1 percent last year, according to the central bank, which is seeking to trim price growth to 6 percent in 2012.

OAO Magnit, the country’s largest food retailer by market value, was among the companies that benefited from the surge, posting a 20 percent gain in net income last year.

“Domestic demand rose thanks to lending growth, the pre- New Year’s mood and higher incomes toward the end of the year,” Ksenia Yudaeva, chief economist at OAO Sberbank (SBER) in Moscow, said yesterday by e-mail.

The International Monetary Fund on Jan. 24 cut its forecast for Russian growth to 3.3 percent in 2012, saying the global economy poses risks. GDP will expand 3.5 percent this year and 3.7 percent in 2013, according to the median estimates of 17 economists in a Bloomberg survey.

Higher energy prices benefited some of Russia’s largest oil producers, including OAO Lukoil, TNK-BP (BP/), and OAO Gazprom (GAZP) Neft, all of which are projected to have record profit last year, according to forecasts compiled by Bloomberg. OAO Gazprom, the country’s gas export monopoly and largest company, is also forecast to record its biggest-ever profit in 2011.

Urals crude, Russia’s main export blend, averaged $109 a barrel in 2011, 40 percent more than $78 in the previous year. That helped the budget return to a surplus of 0.8 percent of GDP from initial forecasts of a shortfall.

“The oil price has a major impact on Russia and the international financial situation has a major impact on Russia,” Roland Nash, chief investment strategist at Moscow- based Verno Capital, said yesterday in a telephone interview. “Russia grew by 4 percent even though the developed world was going through a major international financial crisis.”

The ruble-denominated Micex Index fell 17 percent in 2011 as net capital outflows more than doubled to $84.2 billion, according to a preliminary estimate by the central bank. The ruble weakened 4.9 percent against the dollar to 32.1475.

Agricultural output surged 16.1 percent last year from a 9.7 percent contraction in 2010 after a drought and forest fires ravaged crops. Construction rose 4.8 percent in 2011, up from a 3.2 percent gain the previous year. Natural resources production advanced 1.7 percent, down from 7.1 percent in 2010, and manufacturing growth slowed to 6.1 percent from 8.3 percent, the service said in the statement.

“Industrial production is in large part tied to trends on export markets and demand for the goods Russia exports,” Vladimir Osakovskiy, chief economist at Bank of America Merill Lynch in Moscow, said yesterday by phone. “The slowing world economy, including Europe, certainly has a negative effect on industrial output.”

Exports of raw materials such as energy and metals account for more than a quarter of Russian GDP, Prime Minister Vladimir Putin, who earlier had estimated last year’s growth at 4.2 percent, wrote in an article published yesterday in the Vedomosti newspaper.

Russia’s economy grew faster than forecast last year after falling unemployment and record-low inflation helped bolster consumer demand in the fourth quarter.

Gross domestic product, the value of all goods and services produced, rose 4.3 percent, matching a revised 4.3 percent increase in 2010, the Federal Statistics Service in Moscow said in an e-mailed statement today. The median forecast of 17 economists in a Bloomberg survey was for 4.1 percent.

The world’s biggest energy exporter is recovering from an economic slump of 7.8 percent in 2009, when commodity prices sank after the collapse of Lehman Brothers Inc. Retail-sales growth unexpectedly accelerated to the fastest pace in more than three years last month as the jobless rate fell and inflation reached a two-decade low.

“The figure came in above market consensus because of consistently strong consumer demand and an acceleration in investments toward the end of the year while imports growth decelerated,” Dmitry Polevoy, chief economist for Russia and Kazakhstan at ING Groep in Moscow and one of two economists who predicted the gain, said by e-mail.

The 30-stock Micex Index was 0.8 percent stronger at 1,507.66 at 4:40 p.m. in Moscow and the ruble strengthened 1.2 percent to 30.0706 per dollar.

The head of Russia’s space agency said Tuesday that cosmic radiation was the most likely cause of the failure of a Mars moon probe that crashed to Earth this month, and suggested that a low-quality imported component may have been vulnerable to the radiation.

Vladimir Popovkin also said a manned launch to the International Space Station is being postponed from March 30 because of faults found in the Soyuz capsule.

The statements underline an array of trouble that has afflicted the country’s vaunted space program in recent months, including the August crash of a supply ship for the space station and last month’s crash of a communications satellite.

Since the end of the U.S. space shuttle program last year, Russian craft are the only means to send crew to and from the ISS.

The unmanned Phobos-Ground probe was to have gone to the Mars moon of Phobos, taken soil samples and brought them back. But it became stuck in Earth orbit soon after its launch on Nov. 9. It fell out of orbit on Jan. 15, reportedly off the coast of Chile, but no fragments have been found.

The failure was a severe embarrassment to Russia, and Popovkin initially suggested it could have been due to foreign sabotage.

But on Tuesday he said in televised remarks that an investigation showed the probable cause was “localized influence of heavily radiated space particles.”

Popovkin, speaking in the city of Voronezh where the report was presented to Deputy Prime Minister Dmitry Rogozin, said two units of the Phobos-Ground probe’s onboard computer system went into an energy-saving “restart” mode, apparently due to the radiation, while the craft was in its second orbital circuit.

It was not immediately clear why the units could not be brought out of that mode.

Popovkin said that some microchips used on the craft were imported and possibly of inadequate quality to resist radiation. He did not specify where the chips were manufactured.

Yuri Koptev, a former space agency head who led the Phobos-Ground investigation, said 62 percent of the microchips used in the probe were “industrial” class, a less-sophisticated level than should be used in space flight.

Popovkin said the craft’s builder, Moscow-based NPO Lavochkin, should have taken into account the possibility of radiation interfering with the operation and said Lavochkin officials would face punishment for the oversight.

Popovkin later announced that a March 30 planned launch of two Russian cosmonauts, Gennady Padalka and Sergei Revin, and NASA’s astronaut Joseph M. Acaba — to the space station will be postponed “likely until the end of April” because of problems with the capsule. He did not specify, but the state news agency RIA Novosti cited the director of Russia’s cosmonaut-training program as saying leaks had been found in the capsule’s seals.

It would be the second significant postponement of a manned Russian launch in the past year. The August crash of the supply ship pushed back a manned launch to the ISS because the booster rocket that failed in the crash was similar to the ones used in manned missions.

Currently, the ISS hosts a crew of six, including three Russians, two Americans and a Dutchman.

The Soyuz capsule is scheduled to bring back two Russian cosmonauts — Anton Shkaplerov and Anatoly Ivanishin and U.S. astronaut Daniel Burbank.

Russia is warning that a Western and Arab effort to push the U.N. Security Council into adopting a resolution on Syria will put that nation on a path to civil war.

Russian Deputy Foreign Minister Gennady Gatilov said Tuesday the Western and Arab-backed draft resolution will not achieve a compromise in the 10-month long rebellion against Syrian President Bashar al-Assad’s 11-year autocratic rule.

Syrian opposition activists said government troops were consolidating control over eastern suburbs of Damascus Tuesday after several days of heavy fighting with rebels who briefly seized the communities just several kilometers from Mr. Assad’s seat of power.

The activists said Monday’s fighting between pro-Assad forces and the loosely-organized rebels in the Damascus suburbs and the central province of Homs killed about 100 people, many of them civilians. It was not possible to confirm the casualties independently because Syria bars foreign media from operating freely in the country.

The Moroccan-sponsored draft resolution is expected to be formally presented to the Security Council later Tuesday. Key supporters of the draft are due to appear at the session, including Arab League chief Nabil Elaraby, Qatar’s prime minister, U.S. Secretary of State Hillary Clinton and her counterparts from Britain and France.

Western news agencies that obtained copies of the document say it endorses an Arab League plan requiring Syrian President Assad to transfer power to a deputy and form a unity government to prepare for elections under international supervision. They say the draft also warns of unspecified further measures if Syria does not comply. The Assad government already has rejected the plan as a violation of its sovereignty.

Russia has vowed to oppose any Security Council measure that it believes could give Western powers a pretext for military action against the Assad government. Syria is a long-time Russian military ally that provides Moscow with a naval base on the Mediterranean coast and frequently buys Russian military supplies.

U.N. Secretary-General Ban Ki-moon said Tuesday he hopes the Security Council will act in a coherent manner that reflects the wishes of the international community for an end to Syria’s unrest. He was speaking on a visit to the Jordanian capital Amman.

The Syrian government accuses armed terrorists of driving the anti-Assad revolt and killing 2,000 security personnel. The United Nations estimated the death toll from the unrest at 5,400 earlier this month, before it stopped updating the figure because of difficulties in obtaining information.