Moscow Reduces Aid to the North Caucasus: Jeopardizing the Precarious Security Environment

Publication: Eurasia Daily Monitor Volume: 6 Issue: 169

Russian minister for regional development Dmitry Kozak

On September 11, the Russian minister for regional development, Dmitry Kozak, announced that because of the ongoing economic crisis, Moscow will have to divert some of the financial aid earmarked for the North Caucasus republics to other regions of Russia (, September 12). The move came as a surprise, because the senior political leadership in Russia had pledged significant sums of money to support local governments facing escalating militant attacks in North Caucasus.

Observers have emphasized that the loyalty of the North Caucasus republican elites depends on the financial aid they receive from Moscow. Given the region’s political volatility and separatist trends, a continuous flow of monetary assistance into the region was almost guaranteed despite the fact that Russia was badly hit by the worldwide economic crunch.

Kozak tried to put some of the blame for the decision on the republican leaders, claiming that while other regional administrations have reduced their expenditures on bureaucracy, these expenditures have increased in the North Caucasus. He also argued that the overall economic situation in the North Caucasus is now better than in some other regions of Russia. Kozak said the overall sum of 397 billion rubles ($13 billion) dispersed by Moscow to the Russian regions would not change in 2010, but that some of the regions which used to be able to sustain themselves, like the northern regions of Tyumen and Vologda, would receive federal subventions next year at the expense of the North Caucasus (, September 11).

According to the independent Russian economist Mikhail Delyagin, the North Caucasus republics receive significant subsidies from Moscow, totaling $2.3 billion in 2009 and ranging from $0.1 billion for Adygea to $1 billion for Dagestan. This total includes only budgetary transfers designed to make budgets more equal across Russia and does not include pensions and other federal government disbursements (Komsomolskaya Pravda, July 24).

Responding to the surge of violence in the North Caucasus over the past several months, President Dmitry Medvedev said that the roots of the regional problems were to be found in poverty and unemployment, as well as in corruption and clan structures (, August 19). In particular, in order to stabilize violent Ingushetia, Medvedev pledged 29 billion rubles ($1 billion) for the republican government over the course of the next several years, as well as an increase in the republic’s budget by 20 percent this year (, January 21).

The budgets of the North Caucasus republics are heavily subsidized by Moscow. Even the least dependent republics of the region, like Adygea and North Ossetia, receive 60 percent of their budget money from Moscow, while Chechnya receives 93 percent of its budget’s money from Moscow and Ingushetia – 90 percent (, August 26). The trend in the past decade has been increasing the dependence of the republics on Moscow’s financial assistance. In 1998, for example, North Ossetia depended on federal funds for only 44 percent of its budget, Karachaevo-Cherkessia for 47 percent of its budget and Kabardino-Balkaria for 50 percent of its budget (

As long as energy prices kept growing, Moscow was confident it could extinguish the problems in the North Caucasus with additional financial assistance, instead of by promoting reforms and changing its own approach to regional problems. However, as the federal government’s financial obligations piled up, its ability to finance what many analysts describe as the manifestly flawed socio-political arrangement in the North Caucasus clearly decreased. President Medvedev pointed to the economic problems of the region as one of the main causes of the mounting violence. So it is unclear how the federal government will address this challenge, if it is set to cut subsidies to the North Caucasus. According to the Russian state statistical service, the average salary in the North Caucasus republics in 2007 was approximately twice as low as the national average. In the largest North Caucasian republic, Dagestan, the average salary was reported to be only 42 percent of the Russian average.

The situation was so bad in the North Caucasus republics before the crisis, and they were so heavily subsidized, that the crisis almost did not affect them directly; only North Ossetia and Kabardino-Balkaria experienced a reduction in industrial output. At the same time, economists warn that because of the size of the shadow economy in the region, it is very hard to provide an accurate assessment of the population’s real incomes (, August 26).

Besides fewer opportunities to finance the North Caucasus due to the economic slump in Russia, additional factors may have been at play when Moscow decided to steer its resources away from the region. Many Russians are unhappy about financing the North Caucasus at their own expense, because they often regard the region as an alien body in the Russian Federation. While these Russian nationalist views are not openly represented at the highest political levels, they certainly influence the decision-making process in the Kremlin to a certain extent.

The fact that Moscow does not have enough money to finance its much-criticized policies in the North Caucasus may sound like good news. Indeed, if Moscow cannot cover up its policy-related mistakes with money, it may be forced to undertake reforms and change its approaches to address the growing problems of the region. However, this positive outcome should not be taken for granted, given Russia’s current rigid political system. Instead of reforms, Moscow may simply revert to using greater amounts of crude force or, if things really get out of hand, even promote interethnic conflicts in order to keep local political forces in check. In either case, it seems that unless Moscow opts for radical political reforms, the violence in the North Caucasus is likely to increase even further as a result of shrinking resources.