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Moscow Amends North Caucasus Development Program Yet Again

  • Liz Fuller

Russia's Minister for North Caucasus Affairs Lev Kuznetzov (right), seen here meeting with President Vladimir Putin, has said that the region's development plan will shift from alleviating social problems to focusing on attracting investment.

Russia's Minister for North Caucasus Affairs Lev Kuznetzov (right), seen here meeting with President Vladimir Putin, has said that the region's development plan will shift from alleviating social problems to focusing on attracting investment.

Moscow's policy toward imposing some semblance of order on the unruly North Caucasus has long been blighted by a major misconception: that the perceived threat posed to the region by Islamic fundamentalism can be effectively countered by a broad program of socioeconomic development while turning a blind eye to the corruption, cronyism, arbitrary police violence, and widespread human rights abuses that have alienated a large proportion of the region's estimated 10 million population, most of whom are Muslims.

That misconception gave rise to the grandiose Federal Program for the Socioeconomic Development of the North Caucasus Federal District 2013-25. Since that program was first mooted in 2011, however, the realization has dawned that simply throwing money at the region is not a panacea.

Over the past year, the Russian leadership has increasingly sought new approaches both to selecting economic priorities and trying to ensure that the funds provided are used for the purpose intended, rather than embezzled or diverted for other uses.

The Russian government finally endorsed the initial version of the North Caucasus program in February 2013, after two years of arguments between the finance and regional development ministries over the optimum overall cost and how it should be divided between the federal budget, the budgets of the federation subjects in question, and outside investors.

Substantive Revisions

Since then, the program has undergone several substantive revisions. Not only has the share of funding from the federal budget been revised first downward (in April 2014) and then upward (in March 2016). The structure of the program has been altered to encompass sub-programs for each of the North Caucasus Federal District's seven constituent subjects.

And the focus of the program has been shifted away from improving infrastructure and socioeconomic conditions to attracting investment, especially in the agro-industrial sector, and reducing unemployment (currently officially estimated at 10 percent, but in all probability far higher) and the percentage of each republic's budget that comprises subsidies from Moscow. That percentage currently ranges from 46.7 percent in Kabardino-Balkaria to 82 percent in Ingushetia.

In mid-2012, then-Regional Development Minister Oleg Govorun said total funding for the program would amount to just 1.7 trillion rubles (equivalent to $52.2 billion then, and $25.8 billion today). That sum was less than half the 3.89 trillion rubles envisaged when the first draft of the program was unveiled a year earlier.

In September 2011, Govorun's predecessor, Sergei Vereshchagin, had said the overall cost had been upped to 5.5 trillion rubles thanks to pledges of additional extrabudgetary funding from various large Russian monopolies, including Gazprom and Rosgidro.

What was touted as the final version of the program, approved in December 2012 and formally adopted by the federal government in February 2013, envisaged total spending of 2.5 trillion rubles, of which approximately 90 percent was to come from nonbudget sources. At that juncture, the share of funding to be extended from the federal budget for the period 2013-20 was estimated at some 235 billion rubles.

Crimea Fallout

In April 2014, however, Prime Minister Dmitry Medvedev announced that figure had been cut by 13 percent to 204.6 billion rubles, taking into account the parameters of the federal budget for 2014-16, which had presumably been revised to take into account the financial impact of the international sanctions imposed on Russia in the wake of its annexation of Crimea, and the cost of subsidizing that new federation subject.

Further cuts, together with fundamental changes in the structure and focus of the program that appear to have originated with the Ministry for the North Caucasus established in May 2014, were announced in July 2015.

Medvedev said funding for the program for the period 2016-20 was to be cut by 10 percent, from 164 billion rubles to 150 billion. At the same time, Minister for North Caucasus Affairs Lev Kuznetzov explained that the focus of the program would shift from alleviating social problems, in the first instance education and medical care, to attracting investment with the aim of expanding the republics' tax base.

In addition, according to Kuznetzov, and despite resistance from the federal Economy Ministry, a separate sub-program would be drafted for each of the federal district's seven regions.

Fears Of Jihad?

The first such program, for Daghestan, was unveiled in early September 2015; it encompassed 70.9 billion rubles for the period 2016-25. According to Republic head Ramzan Kadyrov, Chechnya (with a population less than half that of Daghestan) stands to receive 29.8 billion rubles over the same time frame.

Finally, in yet another reversal, federal funding for program for the period 2016-25 was increased in March by 120 billion rubles to a total of 320 billion. That was to be augmented by 1.4 trillion rubles in private investment.

The precise reason for that increase in funding was not spelled out, but it is conceivable that the Kremlin is genuinely concerned at the prospect of those Islamic militants from the North Caucasus who are currently fighting in Syria returning home to continue their jihad on Russian soil.

It is likewise by no means clear which private investors could be induced to invest in the region. A further potential deterrent is Russian President Vladimir Putin's June 9 directive ordering the government not to create any new special economic zones, and to abolish 10 such zones that have proven "ineffective."

Acting Republic of North Ossetia head Vyacheslav Bitarov recently proposed creating a special industrial zone as one way of galvanizing the region's moribund economy. (North Ossetia's state debt currently exceeds its combined revenues, as do those of Ingushetia and Kabardino-Balkaria.)

At same time, Moscow clearly intends to monitor more closely the use by individual republics of the subsidies provided annually by the federal center.

Addressing a meeting of regional leaders in Yesentuki in early June, Russian Deputy Prime Minister Aleksandr Khloponin, a former presidential envoy to the North Caucasus, warned that funds allocated from the federal budget but not used by the end of the calendar year will be confiscated.

About This Blog

This blog presents analyst Liz Fuller's personal take on events in the region, following on from her work in the "RFE/RL Caucasus Report." It also aims, to borrow a metaphor from Tom de Waal, to act as a smoke detector, focusing attention on potential conflict situations and crises throughout the region. The views are the author's own and do not represent those of RFE/RL.

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