Moscow Increases Financial Support for the Chechen Government

Against the background of increasing rebel attacks in Chechnya and the political standoff between the Chechen President Ramzan Kadyrov and his rivals, the Yamadaev brothers, the Russian government approved a new program for developing the Chechen economy. Unlike previous programs, this one will focus not only on the reconstruction of buildings but also on the rebuilding of factories to provide jobs for ordinary Chechens.

It became clear this year that reconstruction of Chechen settlements, mainly the regional capital Grozny, alone had not achieved the most important goal of Russian economic policy towards the region: despite the construction boom, Chechens did not stop supporting the local rebels.

Late in May, Vladimir Ustinov, the newly appointed Russian presidential envoy to the Southern Federal District, visited Chechnya, where he declared that “a lot of things have been done by now, but one should do more to restore all industries that can provide new job opportunities in Chechnya” (Regnum, May 30).

On June 23, a Russian cabinet session chaired by Prime Minister Vladimir Putin approved a $5.1 billion (120 billion ruble) program to rebuild Chechnya over the next four years. That is roughly twice the amount spent by the federal government on the Chechen economy over the previous six years (RIA Novosti, June 23).

“Thousands of jobs will be created in Chechnya for the next four years, and efforts will be made to double economic growth and to improve considerably the social and transportation infrastructure,” Putin said at the session. According to Putin, the program, which will run from 2008 through 2011, also aims at financing the construction of roads, colleges and institutes, as well as hospitals and broadcasting facilities (Itar-Tass, June 23).

According to Regional Development Minister Dmitry Kozak, the new federal spending program should decrease Chechnya’s dependence on the federal budget by 25 percent in 2012 (the Chechen Republic is now 95 percent dependent on grants from the Russian government). Kozak declared after the cabinet session that tax revenues in Chechnya should more than double by 2012, private investment should grow tenfold and jobs will increase to more than 90,000. He also said that 1800 regional and 145 federal facilities in the republic should be modernized under the new program (Itar-Tass, June 23).

Every time Russian authorities announce a new plan to reconstruct Chechnya, the question arises: who will guarantee that the plan is successfully implemented? The previous federal spending program on Chechnya adopted in 2002 was closed in summer 2007 because it proved to be ineffective. In September 2006, the federal Audit Chamber issued a report analyzing expenditures made to restore the Chechen economy and the social sphere between January and June 2006, which concluded that they “did not produce any significant result.” In 2007, the program for rebuilding Chechnya was called the most ineffective of six federal spending programs and was shut down by Mikhail Fradkov, who was Russia’s Prime Minister (Vedomosti, July 5, 2007).

So, what do the federal ministers plan to do now to make the new spending program work? As before, the main problem for such programs is corruption and theft. In the language of Russian officialdom, the stealing of money from the budget is called “no-purpose expenditure.” The level of such “no-purpose expenditures” in Chechnya is still very high.

Dmitry Kozak, who is the author of the new financial program for Chechnya and the man responsible for its success, said that out of the 120 billion rubles (about $5.1 billion) allocated to finance the program, 110 billion (around $4.68 billion) will be allocated from the federal budget and 10 billion (around $425 million) will be private investments that can be controlled more easily. However, 10 billion rubles is only 12 percent of the whole amount, and it should be noted that so-called “private investments” are also indirect government investments. Most of the companies who invest in the Chechen economy are in fact state-owned operations like the Rosneft state oil company), and the genuinely private companies that invest in Chechnya do it for political rather then economic reasons at the request of the Kremlin. Still, there is no proof that private infusions could be any more effectively controlled in Chechnya than allocations from the budget.

Another new mechanism to control spending in Chechnya is to work out specific sub-programs to see where exactly the money will go. According to Kozak’s plan, sub-programs will be checked every year, and if the spending is deemed to have been ineffective, there will be no money for the sub-program the following year (Itar-Tass, May 23).

There is nothing new in this control mechanism and there is no guarantee that all the money will be spent properly. Nevertheless, the amount to be allocated is very large, so that even given the level of corruption in Chechnya there is still hope that at least some of the money will be spent for good purposes. This is what the Kremlin hopes to see by the end of 2011.

Whether the Chechen insurgency will be defeated by then is another question.