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Russian Government Slashes Funding For North Caucasus

Chechen leader Ramzan Kadyrov (right) confers with Russian Prime Minister Dmitry Medvedev during a meeting in the provincial capital, Grozny, on June 19.
Chechen leader Ramzan Kadyrov (right) confers with Russian Prime Minister Dmitry Medvedev during a meeting in the provincial capital, Grozny, on June 19.
Russian Prime Minister Dmitry Medvedev has finally clarified the ongoing confusion surrounding the planned grandiose federal program for the socioeconomic development of the North Caucasus between now and 2025.

Speaking on June 19 in Grozny at a session of the specially created government commission for the development of the North Caucasus Federal District, Medvedev said the program will be finalized this year.

At the same time, Regional Development Minister Oleg Govorun divulged that the total funding for the program will amount to just 1.7 trillion rubles ($52.2 billion). That is less than half the 3.89 trillion rubles envisaged when the first draft of the program was unveiled in July 2011. It is not clear whether that drastic reduction in spending constitutes a victory for the federal Finance Ministry, which has consistently opposed the program in light of the astronomical cost, or whether other factors may have played a role.

The socioeconomic development program is the brainchild of Vladimir Putin, who in January 2011 in his capacity as then prime minister tasked the Ministry for Regional Development with drafting it. It was intended to subsume and continue three existing federal development programs -- for southern Russia, Chechnya, and Ingushetia, respectively -- that were due to end by 2016.

When the new draft program was unveiled in July 2011, the cost was estimated at 3.89 trillion rubles, of which 2.6 trillion would come from the federal budget, while the North Caucasus republics would contribute 195 billion rubles between them. Deputy Finance Minister Tatiana Nesterenko immediately made clear that the ministry would not allocate that sum, which, she pointed out, far exceeded planned budget funding for the region. had pointed out in October that the program envisaged spending $12 billion over the period 2012-14, while the amount allocated in the state budget for the North Caucasus over that period was only $4 billion.

Notwithstanding the Finance Ministry’s categorical refusal, then Regional Development Minister Sergei Vereshchagin announced in late September that the overall cost of the program had been upped to 5.5 trillion rubles thanks to pledges of additional extra-budgetary funding from various large Russian monopolies, including Gazprom and Rosgidro.

Work on finalizing the details of the program ground to a halt, however. And last week the daily “Izvestia” reported that drafting of both the North Caucasus program and an analogous one for the Russian Far East had been suspended due to disagreements between the Finance Ministry and the Ministry for Economic Development. The Ministry for Economic Development argued that the two federal programs should be adopted first, and then the federal budget. The Finance Ministry for its part insisted the budget for 2013-15 should be adopted first, and then a wide-ranging strategy document of which the two regional programs would be a part.

“Izvestia” further quoted an unnamed government source as saying the North Caucasus program was seen as “having no future” because of the huge sums of money involved.

Within days, the Finance Ministry denied work on the two programs had been suspended. It said the program for the North Caucasus “may” be adopted next year. Medvedev, however, said the program must be submitted to the government by December 1, and “there will be no further postponements.”

To judge by the published summaries of Medvedev’s address to the commission session in Grozny, the program will focus on basic infrastructure projects – construction of schools, hospitals, and housing – and on creating new jobs in order to reduce unemployment regionwide from 16 percent to 5 percent of the able-bodied population. The unemployment rate varies across the North Caucasus and is highest in Ingushetia (48 percent) and Chechnya (34 percent).

How the reduction in funding for the program as a whole will impact individual republics is not immediately clear. Daghestan, the largest republic in terms of geographical area and with the largest population (almost 3 million), was to have received 1.2 trillion rubles, almost one-third of the initial estimated cost of 3.89 trillion rubles. Daghestan’s share of the reduced funds available may be reduced in light of its success in attracting foreign investment, which increased last year by more than 6 percent to reach 35 billion rubles ($4.2 billion).

Chechnya was hoping to receive 498 billion rubles over the next 14 years (38 billion annually, compared with 18.4 billion in 2011). Of that total, 156 billion rubles was earmarked as compensation for persons whose homes and property were destroyed during the 1994-96 and 1999-2000 wars.

Likewise unclear is whether the decision to reduce funding for the North Caucasus was motivated by purely financial considerations or whether it constitutes the Kremlin’s response to increasingly vociferous demands by Russian nationalists to “stop feeding the Caucasus.”

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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