Russia Preparing to Buy Allies Through Anti-Crisis Assistance

While facing a financial and economic crisis of its own, Russia has launched an ambitious program of anti-crisis subsidies to several loyalist governments. The program seeks to consolidate a sphere of Russian economic and political influence in selected countries. Moscow plans to disburse those subsidies both through bilateral channels and through the Eurasian Economic Community (EurAsEc). The summit held in Moscow on February 4 advertised this intention and reactivated the EurAsEc from its long lethargy.

EurAsEc was established in 2000 at then-president Vladimir Putin’s initiative, as one of many abortive attempts to create a CIS Customs Union -conceived as an economic bloc- around Russia. An Interstate Committee, comprised of the participant countries’ Presidents, is EurAsEc’s top decision-making body. Decisions at all levels in EurAsEc are made through weighted voting, based on each country’s contributions to the common budget. Thus, Russia is entitled to cast 40 percent of all votes, Kazakhstan 20 percent, and the other countries are sharing the rest of the votes. This voting system remained merely notional, however, as the EurAsEc failed to become operational in any real sense.

In October 2007 Russia, Belarus, and Kazakhstan signed agreements on creating a tripartite Customs Union, which would be open to accession by other interested countries. Those agreements envisaged forming a Commission, a customs territory, and rules of membership for countries of the would-be customs union.

The EDB was founded by Russia and Kazakhstan in January 2006 with an authorized capital of $1.5 billion, including $1 billion contributed by Russia and $0.5 billion by Kazakhstan. Ostensibly aiming to support "market economies" of EurAsEc countries, the EDB is specifically geared to financing the growth of mutual trade within this would-be economic bloc. EurAsEc and EDB are open to accession by other interested countries. Moscow has devolved to Kazakhstan the role of a frontrunner in EurAsEc’s institutionalization during the last few years.

All of those agreements and intentions have remained on paper even for the founding countries, let alone other CIS countries. Russia, Kazakhstan, and Belarus themselves deemed Kyrgyzstan and Tajikistan too backward and poor to join a customs union. Moscow failed in its attempts to pull Ukraine into EurAsEc and a customs union. No other CIS countries showed any interest thus far. Only Armenia, its economy heavily mortgaged to Russia, is now joining EurAsEc’s anti-crisis program in the expectation of Russian subsidies.

The Kremlin had prepared the February 4 Moscow summit in advance, at an informal meeting of presidents of EurAsEc countries plus Armenia, hosted by Kazakhstan last December. That gathering initiated the decision to create a $10 billion anti-crisis fund. Kazakhstan currently holds the group’s rotating chairmanship. During the Moscow summit Kazakh President Nursultan Nazarbayev assured his Russian counterpart, Dmitry Medvedev, that Kazakhstan would redouble efforts to create a Customs Union of Russia, Kazakhstan, and Belarus, as a higher stage of EurAsEc, already in 2009 (Interfax, RIA Novosti, February 4; Kazinform, February 6).

Moscow’s anti-crisis subsidies are targeted selectively and geared for sphere-of-influence building. Russia is rewarding allied Armenia; it has precipitated Kyrgyzstan’s threat to remove the U.S.-led military presence from that country; and it induced a reluctant Belarus to accept Russia’s demand to turn the joint air defense system into a unified system.

Russian Deputy Prime Minister Igor Sechin has acted as a key figure in allocating external financial assistance since the crisis struck. Sechin personally handled the financial packages for Kyrgyzstan and Cuba.

Whether Russia will actually be able to disburse those sums seems, however, far from certain, as its financial crisis evolves into an economic crisis. Russia’s budget faces diminishing revenues with growing anti-crisis expenditures internally; and falling currency reserves in parallel with a declining rouble relative to the dollar. All of this should greatly complicate the promised disbursement of dollar-denominated loans to buy loyalties in EurAsEc and beyond.

Unless they are pure bluff, Moscow’s pledges may reflect an expectation that the downward cycle of oil and gas prices would soon rebound in Russia’s favor. Its ambitions seem undaunted at the moment and it hopes to induce crisis-hit EurAsEc countries to start using the Russian rouble as a "regional currency." Kremlin political consultant Vyacheslav Nikonov openly describes the current crisis as an opportunity to switch to using rouble payments in intra-EurAsEc trade, and Russia’s anti-crisis assistance to these countries as a means to that end. He describes this offer in terms of economic bloc-building as a "Russian [version of a] Marshall Plan, a Medvedev plan if you will" (Center TV, February 5).