IS CHECHNYA BUILDING A NATIONAL ECONOMY?

News about the Chechen banking system and renovation of its energy infrastructure is beginning to compete with stories about kidnappings and political instability. Under an agreement concluded earlier this year with federal officials, the Chechen government is to receive $4-5 in transit fees for every ton of crude oil that passes through the 153-kilometer-long section of the Baku-Novorossiisk pipeline located on Chechen territory. (Russian agencies, July 25) A wide-ranging campaign against the illicit tapping and refining of crude oil has therefore been initiated by the Interior Ministry and Chechnya’s state-owned YUNKO oil company. Law enforcement agencies are not only empowered to confiscate and destroy the equipment and vehicles used in these activities: they may keep up to 20 percent of the market value of the crude oil they confiscate. (Itar-Tass, July 26) Some 400 special troops from among Chechnya’s war heroes are to be selected to guard the pipeline and other infrastructures. Chechen officials are also awaiting the arrival of some 200 repair technicians from Russia’s Gazneft pipeline firm to help repair and maintain the pipeline. Each Russian worker will reportedly be protected by two bodyguards.

Less sensational, but perhaps more important, are efforts to reform Chechnya’s banks and separate them from the Russian financial system. Chechen National Bank (CNB) chairman Abdurashid Zakaev told Itar-Tass on July 24 that a "two-tier" banking system, in which the central- and commercial-banking activities are separated and vested in different institutions, has been introduced, in accordance with agreements signed in Moscow in early June. (Itar-Tass, July 24) Such central-banking functions as payment clearing will now be handled by the CNB and its 5 regional cash centers, rather than by the Russian Central Bank’s clearing system. Moreover, Chechen commercial banks no longer fall under federal regulatory supervision, and must therefore interact with Russian (and other "foreign") financial institutions via accounts at the CNB. (Russian agencies, July 17) Were it not for the fact that the Russian ruble remains Chechnya’s national currency, the Chechen banking system would in many ways resemble that of an independent country.

These developments pose something of a dilemma for federal officials. While Moscow obviously does not want to promote Chechen economic independence, the federal government badly wants to expedite the flow of oil through the Baku-Novorossiisk pipeline. And the Russian Central Bank, which is currently attempting to reduce the number of weak commercial banks it must supervise, may well be glad to be rid of responsibility for regulating Chechnya’s rickety financial institutions. In sum, Moscow and Djohar-gala seem to have concluded that, at least for the time being, it is best to cooperate with one another in economic policy.

Ossetian-Ingush Crisis Puts Kremlin in Difficult Position.