Moscow Struggles to Control and Modernize the North Caucasus

Publication: Eurasia Daily Monitor Volume: 7 Issue: 34

On February 16, President Dmitry Medvedev met the President of the World Bank, Robert Zoellick. The World Bank’s possible involvement in the development of the North Caucasus became one of the three main topics of their discussion. This may signify a major retreat from the long held Russian policy of isolation of the North Caucasus from the outside world. Medvedev’s close aide Arkady Dvorkovich said that the Russian president’s envoy to the North Caucasus Aleksandr Khloponin would be entrusted with the task of carrying out further negotiations with the bank. Dvorkovich estimated the World Bank’s gross investments into new projects in Russia at over $1 billion in 2010 (, February 16).

As yet another sign of the changing policies in the North Caucasus, President Medvedev dismissed the notorious Deputy Russian Interior Minister, General Arkady Yedelev, who had been responsible for security in the North Caucasus (Ekho Moskvy, February 18).

In his state of the nation address in November 2009, President Medvedev called the unstable situation in the North Caucasus Russia’s biggest domestic problem. To deal with the issue, he proposed appointing a special presidential representative in the region. On January 19, Medvedev surprised many observers by redrawing the federal districts’ map, setting up a new North Caucasian Federal District that included Dagestan, Chechnya, Ingushetia, North Ossetia, Kabardino-Balkaria, Karachaevo-Cherkessia and the Russian-speaking Stavropol region. The appointment of Aleksandr Khloponin, the governor of Krasnoyarsk region in Siberia, as Medvedev’s representative in the new district came as another surprise. Khloponin was explicitly instructed to focus on the economic development of the North Caucasus.

Acknowledging the World Bank’s expertise in the developing countries and its applicability to the North Caucasus means that Moscow recognizes it lacks the capacity to modernize the region, be it a lack of financial resources, or of know-how, or both. It also appears to be a tentative step to open up the region to the outside world, contrary to the traditional Russian mantra about Western support for separatism and the insurgency in the region.

The Russian government has made significant efforts to limit foreigners’ access to the North Caucasus. Foreigners from non-CIS countries are not even allowed to cross the border into Russia from the South Caucasus via the North Caucasus republics. Large chunks of the territories of the republics are officially designated “border zones,” meaning that foreigners are required to receive special permits from the Federal Security Service (FSB) to visit them. Most importantly, foreign NGO’s and other organizations working in the region are regularly harassed and forced to curtail their activities or shut down. Russian visas are routinely denied to journalists and human rights activists who wish to visit the region. Given the fear of regular outbursts of violence in the North Caucasus and administrative restrictions imposed by the Russian government, the territory is virtually cut off from the outside world.

Besides trying to engage the World Bank in pursuing its new policy of economic developing the North Caucasian republics, Moscow appears to be heavily relying on the Russian oligarchs.

On February 15, after hiding in Turkey for months, the fugitive Russian oligarch Telman Ismailov suddenly appeared in Grozny. He promised to invest in economic projects in Chechnya, and his son became the vice president of the local soccer team Terek (Ekho Moskvy, February 15). Prime Minister Vladimir Putin was reportedly outraged after Islmailov opened a five-star hotel in Turkey in June 2009 –an estimated investment of over $1 billion. The businessman’s companies suffered pressure from the government, while he himself did not return to Russia until February this year.

Another fugitive oligarch, Mikhail Gutseriev, who comes from Ingushetia, may also return from the UK and invest in the North Caucasus. “The authorities intend to use Gutseriev’s ambitions,” the well-known Russian analyst Stanislav Belkovsky said in an interview with Rosbalt on February 16, adding, “He has offered his services in pacifying Ingushetia and in committing to several big investment projects in the North Caucasus.” In November 2009, Gutseriev unexpectedly reclaimed control over his oil company Russneft, while investigators simultaneously dropped the main charges against him –a coincidence that unmistakably points to the Russian government’s initiative.

Independent observers are skeptical about the Kremlin’s latest efforts to promote the economic development of the North Caucasus. In a commentary entitled “Investment Hell,” suggested that the region is too unstable to attract any sensible investors. The author specified corruption, politics and local clans as the main obstacles for substantial investments in the region. Tourism, which seems to be the only viable sphere for investment projects in the North Caucasus, can hardly develop under current conditions (, February 17).

To fight corruption, presidential envoy Khloponin is endowed with the power to dismiss any head of a federal agency branch in the North Caucasus. He might also have a decisive voice in replacing a local governor. Even though this power is not widely advertized, it seems to be very probable. Moscow keeping a closer eye on the governors of the region is a realistic interim solution to reduce corruption; in the long run, however, the corruption mechanisms are likely to adapt and prevail. To fight corruption, the Kremlin would have to undertake political reforms in the North Caucasus and in Moscow itself that are hardly thinkable under the current Russian leadership.

It is thought that the economic advancement of the North Caucasus republics will improve the quality of life and undercut the spread of militant Islam, as poverty is considered to be the breeding ground for dissent. However, there is an important internal controversy in Moscow’s policies. For example, the new strategy specifies reduction of dependence of the republican budgets on transfers from Moscow. Dependence on the money sent from Moscow ranges from over 60 percent in North Ossetia to nearly 100 percent in Ingushetia. But significant reductions of this dependence would undermine Moscow’s ability to ward off rise of separatism, according to a view widely held among Russian policy analysts.