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How Putin is going to save on the Crimean Autonomous Republic

How Putin is going to save on the Crimean Autonomous Republic
Article by: Yuriy Lukanov
Translated by: Christine Chraibi
Edited by: A. N.

7 March 2014, 09:36

According the Russian newspaper “Vedomosti”, Russia needs to invest 3 billion dollars per year to ensure that Crimea reaches the Russian Federation’s standards by 2025. However, Russians are not going to allocate such an amount, especially if it accedes to the RF.

Why do Russians insist on accession of Crimea to Russia? There are two answers. The first answer, a standard one: in order to bargain with the West afterwards. However, it is unlikely that Putin is interested in such bargaining. As Saakashvili justly pointed out, Putin simply does not believe that the West will apply any sanctions against him. The second answer is more pragmatic: he is no longer interested in creating quasi-states which can, at least sometimes, put a spoke in the wheel. Putin is still upset with Ossetia’s refusal to hold a referendum regarding the accession to the Russian Federation. The President of Russia has started a new phase of “re-arrangement of the world”, where only one instrument is to be used – annexation. Putin apparently believes that without this he will fail to fulfill his mission of recreating an empire. Moreover, according to Kremlin analysts, in a long-term perspective, annexation is more economically sound than maintenance of quasi-states. Especially, because Putin is not afraid of sanctions, as was already stated above.

In order to understand the economic component of everything that may happen in Crimea, it is worth it to have a look at Abkhazia and South Ossetia which subsist entirely on Russian money. The first “independent” budget of the breakaway South Ossetia in 2009 looked like this: Russian subsidies amounted to 8.5 billion rubles, own revenues –139 million. rubles. That is, 98.4% of the local budget made up investments from the Russian treasury. In the following years, the ratio of Russian and local taxes in the budget remained roughly the same.

In July 2013, Mr. Alexandr Khloponin, Presidential envoy to the North Caucasus Federal District, informed that the amount of financial assistance provided by Russia to South Ossetia since 2008 amounted to 34 billion rubles. South Ossetia’s budget for the current year is the following: total revenues – 6.171 billion rubles, including 5.6 billion rubles of financial assistance from Russia.

Abkhazia’s budget is compiled almost the same way: since 2009, the share of Russian investments in its revenues ranges at the level of 70%. Moreover, given the size of the Russian budget investments per capita, Abkhazia is in seventh place among the top 10 the most subsidized regions of Russia, which certainly should be an inspiration for the Crimeans.
However, it’s not certain at all that the Russian Federation will be equally generous in sponsoring the Crimean budget. Firstly, because financial contributions to the budgets of the state entities in the Caucasus started even before the South Ossetia and Abkhazia had officially declared their independence, which is not the case in Crimea. “Starting from 2007, all the budgets of the Republic of Abkhazia are implemented with assistance of Russian financial investments, that make up more than 60% each year”, said Raul Khajimba back in 2010, and his statements are trustworthy. On various times he worked for the KGB, was the head of the State Security Service of Abkhazia as well as Minister of Defense, and Deputy Prime Minister, Prime Minister and Vice President of Abkhazia.

The exact amount of financial assistance provided to Abkhazia in 2008 is unknown. This is due to the fact that at that time Moscow still recognized the integrity of Georgia, therefore financial assistance was channeled not directly to the budget, but through various charities.

Secondly, taking into account Russia’s current economic situation that is far from being the most prosperous, Moscow has already started to reduce the amount of cash assistance to Abkhazia and South Ossetia. According to the Chamber of Accounts of the RF, in 2012-2013 their allocations for financial assistance for the implementation of the budget investments in South Ossetia amounted to 2.9 billion rubles (in 2012) and 1.68 billion (in 2013). In 2014, the earmarked funds for this purpose are not known.

In 2012 there were 4.863 billion rubles allocated in the Russian budget on financial assistance for budget investments to Abkhazia. For the period of 2013-2014, allocations for this purpose were not included at all. However, the Ministry of Construction, Housing and Communal Services of Russia announced earlier this year that within three years (2014 to 2016) the each of two republics would receive 1 billion rubles annually, in the framework of the Russian program of international cooperation. And this amount is considerably lower than the capital investment funds allocated earlier.

However, these figures say nothing to the majority of average people. But here are some quite comprehensible details: for example, the last time an increase of social benefits in South Ossetia was officially mentioned in January 2012. At that time, the minimum monthly wage was increased to $42, the minimum monthly pension – up to $46. By contrast, official minimum wage in Russia at that time was at least $126 (now – $152), the minimum pension was $140 (in 2014 – $189). In other words, with Russian money South Ossetia’s authorities guarantee its citizens a wage that makes up only 28% of the minimum wage gained by the Russians, and pensioners got 24% of the minimum pension set by Russia.
The worst thing is that the self-proclaimed Caucasian republics are deprived of any outlooks for improvement. The fact is, despite declared capital investments, Russian funds are not allocated to real economic development of the breakaway republics. At best, they are used to reconstruct houses or power engineering facilities.

70% unemployment in Abkhazia after almost six years since its act of self-determination is very significant indicator. The majority of industrial companies which worked in the territory of South Ossetia since the Soviet times are either closed or have been reduced to 5-10% of their former capacity; that is, all of them are unprofitable while no new ones were not created during the period of independence.

Local authorities hooked on the Russian financial dope are in no hurry to change the situation. They are quite happy to use money given by Russians. At the same time, Moscow, knowing all too well how her money is being spent in most cases, does not want to deal with the issue of mass corruption among the local Caucasian authorities. Still, in spite of this pretended mutual affection of the breakaway republics’ authorities with Russia, relationships between Moscow and the quasi-states “under her care” are not ideal. So far, none of them have made a decision to join the Russian Federation. It is quite possible that current budget cuts are due to the fact that the Kremlin is going to speed up the process of adjoining the unrecognized republics to the Russian Federation. Putin is getting tired of waiting. And, unfortunately, this is one of the key factors behind the current aggression [in Crimea].

Translated by Tanya Kononenko, edited by Alan J Beckett and Alya Shandra


Translated by: Christine Chraibi
Edited by: A. N.
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