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Russia: Analysis From Washington--Moscow's Economic Levers

Washington, 11 November 1996 (RFE/RL) - Moscow increasingly appears to be positioning itself to use its economic power for political purposes against regions within Russia, against former Soviet republics, and against former Soviet bloc states.

But the Russian government's own economic problems at home limit its ability to advance on all fronts. And that fact is forcing Moscow to make some difficult choices about where or even if it should use its growing economic clout.

Moscow's first target consists of the increasingly independent regions within the Russian Federation itself. As elected governors replace appointed ones across the country, Moscow can no longer count on political threats alone to impose its will.

Instead, it has launched a three-prong attack against the regions.

First, it is using charges of economic corruption against local officials. While credible, such charges seem to be more political than legal.

Second, it is seeking to win political concessions by threatening to withhold economic ones. Russian officials are using their control of transportation arteries to extract concessions from wealthy regions and are using their ability to withhold social welfare payments to bring poorer regions into line.

And third, Moscow is refusing to pay what it owes local enterprises, thereby putting pressure on workers and through them on local officials. The Russian government has done this by decreeing that the regions must supply federal institutions on their territories but cannot sue them for bills these institutions have not paid.

Moscow's second target of economic leverage includes the former Soviet republics. In addition to the games the Russian authorities have played with pipeline routes and trade flows, Moscow is also taking advantage of its increasing trade surplus with these now-independent states.

In the last year alone, Russian exports to these countries rose nearly 20 percent, far faster than their exports to Russia. As a result, many of these countries are increasingly indebted to Russian firms, and the Russian government has shown itself increasingly willing to exploit such economic indebtedness to achieve its own political ends.

The most obvious case of this is in Kazakhstan, where the Russian authorities have used Kazakhstan's indebtedness to Russian energy suppliers to force Almaty to make political concessions.

Moscow's third target in this campaign includes the former Soviet bloc states of Eastern Europe -- Hungary, Poland, the Czech Republic, Slovakia and Slovenia -- who have banded together to form the Central European Free Trade Area (CEFTA).

During the past month, Russian officials have stepped up their attacks on a grouping they earlier said they could work with. Russian deputy premier Oleg Davydov, for example, has repeatedly and publicly argued that this economic "buffer" zone harms Russia's economic and political interests.

And he has warned that Russia "cannot stand by and watch the emergence of a potential opportunity for infringing upon Russian interests." And he has told the East Europeans that Moscow will soon deploy its economic muscle against this group unless it takes into account Russian concerns.

Among the steps Davydov and other Russian officials have threatened are shifting the flow of oil and gas to and across these states and imposing special tariffs against these countries in order to protect its own domestic market.

Moscow's ability to do all of these things or even one of them, however, is constrained by both its own economic difficulties and crass political calculations.

Because it has been unable to effectively collect taxes or restrain spending, the Russian government faces a rising tide of public debt, something that is soaking up ruble savings and restraining Russian economic growth.

Recent estimates using international accounting rules suggest that Russian state current account debt has risen from 5.4 percent of GDP in 1995 to 7.1 percent this year, and will rise to 9 percent of GDP in 1997.

In addition, Russia faces another bad harvest. Given that its reserves were virtually wiped out by an even worse harvest last year, Moscow will have to spend more on imports or face hungry and angry consumers. And its need to do so will inevitably limit its economic clout.

Given these difficulties at home, Moscow's bark may prove to be worse than its bite. But its increasingly threatening language may also limit the ability of the Russian state to achieve its political ends.

That is because its language may generate a backlash among Russia's regions, Russia's new neighbors, and Russia's former satellites. Moreover, it could even lead some Western countries to change their evaluations of Russian intentions.

In that event, Moscow's use of its economic power could quickly prove counterproductive on the political front.