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'Where Is This Country Going?' Debt Crisis Tugs At Russian Federation's Seams

Russian Prime Minister Dmitry Medvedev (right) and Tatar President Rustam Minnikhanov have engaged in a war of words over the order to extract more revenue from Russia's regions.
Russian Prime Minister Dmitry Medvedev (right) and Tatar President Rustam Minnikhanov have engaged in a war of words over the order to extract more revenue from Russia's regions.

A surprisingly harsh war of words has broken out between the Russian central government and one of the country's most prosperous regions, in a sign of tension as cash-strapped Moscow struggles to fill its budget deficit.

The government of the Republic of Tatarstan sought to soften the blow by pulling a transcript of its president calling a federal order to extract more revenues from the regions "stupidity" and obliquely comparing it to one of Soviet dictator Josef Stalin's most ruthless policies.

But the grumbling had already caught the attention of Russian Prime Minister Dmitry Medvedev, who quickly confirmed that the policy in question was here to stay.

The Russian economy has been hit hard over the last two years by a combination of low global energy prices and the effects of a sanctions standoff with the West over Moscow's annexation of the Ukrainian region of Crimea and its active support of separatists in eastern Ukraine.

Among the measures the Kremlin has adopted to make ends meet was a decision to increase the portion of the national 20 percent profit tax that goes to the federal government from 2 to 3 percent.

That prompted Tatarstan President Rustam Minnikhanov to launch into a tirade against Moscow at a regional government meeting on December 27.

Minnikhanov called the move "an extremely dangerous measure."

"In a unilateral way, a decision was made at the federal level. No agreements," he said. "This is another attempt to change the rules on co-financing. Those who work well won't get federal subsidies. This, in general, is stupidity. Where is this country going? We are a federative state. How can we take part in federal programs now?"

Minnikhanov even compared the process of "leveling" the so-called donor regions and their subsidized counterparts with Stalin's disastrous "de-kulakization," a policy that saw relatively prosperous farmers dispossessed and their property absorbed into collective farms. "We saw the consequences of that," he said, in an allusion to catastrophic repressions and famines that killed millions.

The comments were so controversial that the Tatarstan government deviated from its usual practice of posting a transcript and reportedly ordered local media to pull down videos of the meeting.

Medvedev countered, "Financial transfers must be primarily directed according to the needs of developing regional economies, the social sphere, and other important elements, and not just to regions, particularly to regions that are donors and can finance development with their own resources," according to TASS.

Historically, tensions have arisen in Russia during economic hard times between the handful of regions that make net contributions to the federal budget -- so-called donor regions -- and the many regions that make ends meet thanks to federal subsidies. Of Russia's 83 regions (plus the two regions of Crimea and Sevastopol that were seized from Ukraine in 2014), only 14 are classified as donor regions. Only one region -- Kaluzhskaya Oblast -- has been added to that list in the last 10 years.

In 2016, the top 10 recipient regions were: Daghestan, Yakutia, Kamchatka, Crimea, Chechnya, Altai, Tyva, Buryatia, Stavropol, and Bashkortostan. They were budgeted to receive 216 billion rubles ($3.5 billion), more than 40 percent of the entire budget for regional subsidies. According to Kommersant, the budget for regional subsidies will increase by 9 percent in 2017.

To make matters worse, many recipient regions are in debt, with 510 billion rubles budgeted in 2016 and 2017 to help regions convert their expensive commercial loans into debt to Moscow. Without such assistance, as many as 20 regions face the prospect of default.

During his annual press conference on December 23, President Vladimir Putin acknowledged that the problem of regional indebtedness is "serious" and said that five regions have violated the government's rule that total indebtedness not exceed 50 percent of a region's revenues.

As for donor regions, Putin said, "We try to create conditions under which they do not lose that status."

Moscow's unwillingness to discuss this topic with regions like Tatarstan is "an alarming signal for the country as a whole," Kazan-based political analyst Ayrat Fayzrakhmanov told RFE/RL.

"In today's Russia, such completely natural statements are taken like a bolt out of the blue," he said. "It turns out that representatives of regions, even the most official ones, cannot say anything regarding the situation in their regions or about federalism in Russia generally?"

"This is a dangerous signal for the whole country," he added. "The stability of the political system is based on the ability to find a balance of interests. Between different social groups, between people with differing views, between the donor regions and the subsidized regions. But how can we find a balance of interests if some participants are forbidden from speaking?"

The sour mood in Tatarstan is further aggravated because the region is in the grip of a severe banking crisis. The region's leading banking group, Tatfondbank, suspended customer operations earlier this month, leaving many individuals and businesses without access to funds. The crisis has reverberated through the region's economy: On December 23, the board of the Spartak shoe factory declared bankruptcy after it was unable to service its debts or pay salaries because of Tatfondbank's decision.

The government restored partial access to Tatfondbank accounts on December 27, and regional Economy Minister Artem Zdunov said on December 28 that the government "will work" to save Spartak.