With Eye on Ukraine, Kremlin Reduces Aid to the North Caucasus and Eases Travel Abroad

Publication: Eurasia Daily Monitor Volume: 11 Issue: 80

North Caucasus ski resorts (Source: ALAMY)

The Russian government announced this month that it would cut developmental programs in the North Caucasus by another 13 percent, down to the equivalent of about $6 billion over the next decade. The Russian government’s program for developing the North Caucasus until 2025, which was adopted in 2012, envisaged spending over $70 billion in the North Caucasus, and 90 percent of the funds were to have come from non-budgetary sources. Those promises, however, were criticized as unrealistic, and with the ongoing economic crisis in the country, even those vague promises have now been scrapped (http://ria.ru/economy/20140424/1005195682.html).

Despite the highly optimistic figures that some North Caucasian leaders continue to cite, the region remains in a dire state of economic underdevelopment. At a recent meeting with President Vladimir Putin, Ingushetia’s governor Yunus-Bek Yevkurov reported that the regional economy was doing well and that unemployment decreased about 5 percent every quarter (http://www.kremlin.ru/news/20856).

Meanwhile, the unemployment rate in the North Caucasus remains over 11 percent, the highest in the country, and the official number is believed to be vastly underestimated.  Unemployment in the region reportedly dropped from 13.6 percent in March 2013 to 11.4 percent in March 2014, but the reliability of these estimates is highly dubious since there was no major expansion of manufacturing or other industries in the region. The positive changes were more likely the result of simply tweaking the official statistics (http://kommersant.ru/doc/2458578).

The Russian government’s obligations to invest in the ailing infrastructure of newly-annexed Crimea have put the North Caucasus in an even less favorable position. Much of the North Caucasus’s development has been the result of massive infusions of money from the government and from Russian oligarchs, who were urged by the government to invest there.  Moscow will now divert its resources to Crimea, even though Russian experts say that the North Caucasus and Crimea will not compete for government funds and tourists (http://www.ncrc.ru/ru/smi-o-kompanii/skforu-krym-i-kavkaz-vmesto-ili-vmeste).

Against the backdrop of the ongoing tensions between the United States and Russia over Ukraine, the Russian government recently “recommended” that Russian police and security services officers refrain from visiting foreign countries that have extradition agreements with the United States (http://www.gazeta.ru/social/2014/04/22/6002161.shtml).

Since the Russian security apparatus is large and well-paid, the expectation is that many of the Russian servicemen and their families will end up vacationing at Russian resorts. However, facing the choice between Crimea and the North Caucasus, almost all of them would likely choose to travel to Crimea, the Sochi area or Abkhazia rather than the North Caucasian republics.

The Russian government prioritized the financing of the North Caucasus over other regions of the Russian Federation in order to dampen separatist sentiments in the region. Russia’s aggressive moves abroad, its economic stagnation and the rise of Russian nationalism may have convinced Moscow that it is time to stop providing generous financial support to the North Caucasus. Apparently pushed to defend Moscow’s redistributive policies, Prime Minister Dmitry Medvedev told a government meeting on April 24: “Ethnic and religious factors should not determine the distribution of financial assistance. The primary criterion is the actual need for assistance. There are poor territories in the central part of the country, in the Caucasus, in the Far East, so we should pay attention to those regions” (http://kommersant.ru/doc/2458306).

As the central government’s ability to provide the regions with funding declines, it is forced to provide the regions with opportunities that were previously blocked. The Turkish budget travel company Pegasus (http://www.flypgs.com) has now been permitted to operate at the international airport in Stavropol region’s Mineralnye Vody, while bus routes have been established between Turkish and North Caucasian cities. The possibility of flying from the North Caucasus to Istanbul is five to six times cheaper than flying to Moscow, which will make Turkey an even more desirable destination for North Caucasians (http://www.aheku.org/news/diaspora/5706).  Moreover, the move will further boost economic ties between the North Caucasian republics and foreign countries, something that Moscow has been trying to avoid for a long time.

While Moscow’s policy of isolating the North Caucasus from the outside world is unlikely to change under Russia’s present political regime, the direction of possible future changes can now be seen. The natural advantages of the North Caucasus’ geographic position have not been used and its proximity to dynamically developing Turkey has been neglected or feared. Even ties to the neighboring Georgia and Azerbaijan were relatively underdeveloped. Moscow tried to keep foreign influences out of the North Caucasus, fearing separatism.

However, these policies have gradually become increasingly untenable, and with the projected decline of the government’s ability to pursue financial paternalism, the Russian government is allowing the North Caucasian republics to expand their ties to the outside world. The government hopes to substitute the financial losses the regions are facing with modest economic freedoms, such as engaging in trade with neighboring foreign countries.

The limited character of such reforms and the absence of institutional change in the North Caucasus itself may bring about only modest economic benefits to the republics. Still, the attempt to ease foreign travel from the North Caucasus is an important strategic development that could have a significant impact on future developments in the region and result in closer ties between Turkey and the North Caucasus, at least in the economic realm of bilateral relations. It also underscores the likely realization in Moscow that in the aftermath of Crimea and the ongoing crisis with Ukraine, Russia needs to soften its stance on the North Caucasus due to a scarcity of strategic economic resources.