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Moscow's decision to continue allocating enough funding to Chechnya to cover its expenditures appears to be indicative of the unique relationship between Chechen Republic head Ramzan Kadyrov (right) and Russian President Vladimir Putin. (file photo)

The economic sanctions imposed by Western governments on Russia in retaliation for its annexation of Crimea in 2014, in conjunction with plummeting world oil prices, have necessitated stringent cuts in funding to Russia's constituent subjects, many of which are dependent on federal subsidies to balance their budgets.

Health care has been hit, with some large towns reportedly left without a single hospital; public transport in many rural areas has been discontinued.

But there is one glaring exception to that trend: The Chechen Republic is seemingly exempt from such belt-tightening.

Russian Finance Minister Anton Siluanov told the TASS news agency last month that, exceptionally, Moscow will automatically allocate enough funding to Chechnya to cover the republic's "justifiable" planned expenditures.

That commitment reflects both the perceived need to address the aftermath of the wars of 1994-96 and 1999-2000, and the unique relationship between Chechen Republic head Ramzan Kadyrov and Russian President Vladimir Putin.

It also ignores the possibility -- raised, for instance, by oppositionist Ilya Yashin in his study of Kadyrov published last year -- that considerable financial resources channeled to Chechnya over the past 15 years have been diverted for the personal use of Kadyrov and a small circle of his associates.

Critics have suggested that Putin essentially gave Ramzan Kadyrov carte blanche to stamp out armed Chechen opposition to Moscow's authority and cow the republic's population into submission after the death in 2004 of Kadyrov's father, Akhmed-hadji Kadyrov, whom Putin had installed as Chechen leader.

Vast Sums

In return, under that scenario, the Russian government made available vast sums of money for postconflict reconstruction (464 billion rubles, or $7.8 billion at the current exchange rate, between 2002 and 2012) and turned a blind eye when some of it was diverted for other purposes.

Those funds enabled Chechen authorities to rebuild much of Grozny but not necessarily revive production; as of 2011, Chechnya's Industry and Energy Minister estimated that "a mere 6-7 percent of the prewar economy has been restored," according to a study published two years ago by the International Crisis Group (ICG).

Ramzan Kadyrov makes a speech during lavish party to mark his 35th birthday in Grozny in 2011. Suspicions have been voiced that government funds were diverted to help pay for the event.
Ramzan Kadyrov makes a speech during lavish party to mark his 35th birthday in Grozny in 2011. Suspicions have been voiced that government funds were diverted to help pay for the event.

In 2012, the Russian government switched tack. Rather than adopting a third economic program specifically for Chechnya, as Grozny had requested, it drafted a far broader program for the economic development of the entire North Caucasus until 2025, the estimated cost of which has already been revised numerous times.

In 2015, however, the Russian government decided that the funds in question should be used primarily to finance economic development and thus contribute to the creation of new jobs rather than cover the cost of social subsidies (pensions, family allowances, unemployment benefits), according to Kommersant, which quoted federal Minister for the North Caucasus Lev Kuznetsov.

Subsidy Dependent

Consequently, given its meager tax base and paucity of other revenues, Chechnya has remained dependent on subsidies from the federal center to finance even basic social provisions. For the past several years, such subsidies have accounted for 80-82 percent of Chechnya's annual budget (down from 87 percent in 2010-11).

Meanwhile, the republic's reputation as a financial black hole is blamed for deterring all but the most intrepid investors. It may also account for the fact that the special economic zone created in southern Chechnya four years ago to promote investment tourism has proved less effective than any other comparable initiative anywhere in Russia, according to a recent evaluation by Russia's Audit Chamber.

In October 2016, the federal Finance Ministry published a draft budget for 2017 in which Chechnya's budget, and consequently also the amount the republic would receive in subsidies to bridge the gap between its own revenues and projected expenditures, were slightly lower than the level for 2016. Kadyrov, who in June 2015 declared that Chechnya's model of economic development had proved so successful that in the near future the republic would become self-financing and would no longer need subsidizing, immediately pronounced that reduction "unacceptable," given that "we are only just getting back on our feet."

In response to his complaints, the Finance Ministry duly allocated 40.4 billion rubles toward Chechnya's budget expenditure for 2017, plus a further 16.4 billion to balance its budget, in addition to the other subsidies that Chechnya is entitled to. Moreover, Putin said more cash would be made available in 2018-19 to fund the federal development program for the North Caucasus. The amount earmarked for that program for 2017 had been slashed in March 2016 from 31.8 billion rubles to just 13.7 billion rubles.

'Parallel Budget'

Chechnya's total budget for 2017 is thus some 60 billion rubles. However, that figure is arguably misleading in light of what economist Denis Sokolov terms the existence of a parallel budget over which federal agencies have little control.

One of its components is the direct transfer of subsidies received by the Chechen government from the federal budget into the so-called Akhmed-Hadji Kadyrov Regional Public Fund. The stated objective of the fund, to which public-sector employees say they are required to "donate" at least 10 percent of their salaries, is "to provide charitable assistance to citizens in need and to create jobs for the republic's population." But suspicions have been voiced that on occasion the cash in question is diverted for other purposes, such as to pay millions of dollars to Western celebrities to attend Kadyrov's lavish birthday party in 2011.

Whether the cost of the first match that Grozny's former Terek soccer club played after being renamed in honor of Kadyrov's late father was covered by the eponymous fund or by Kadyrov's official reserve fund is not clear. The Russian TV station Dozhd estimated that cost, including soccer jerseys for all the budget sector employees who were dragooned into attending the match earlier this month, at tens of millions of dollars, the news portal Caucasian Knot reported.

Economist Denis Sokolov (file photo)
Economist Denis Sokolov (file photo)

Chechnya's business community, too, is under constant pressure to pay kickbacks to local bureaucrats who in turn pay a cut to their immediate superiors, the International Crisis Group (ICG) and others have argued. Sokolov suggested that pressure creates "insurmountable barriers" to the development of a private business sector, insofar as any potential entrepreneur is subject to extortion and blackmail that negate any prospect of profit. That, in turn, precludes both the creation of new jobs and a substantive rise in tax revenues, according to Sokolov.

Sokolov explained in detail in November to RFE/RL's North Caucasus Service how the parallel budget functions and its impact on Chechen domestic politics. Apart from the Akhmad-hadji Kadyrov Fund, Sokolov alleged, Chechnya receives funds allocated under various federal programs, part of which "is reallocated among the republic's elite, and quite a large proportion of which ends up at the disposal of the republic head."

In such a situation, Sokolov argued, any reduction in federal funding means not only less financing for Chechnya but less for Kadyrov's personal projects and those of his cronies. This in turn narrows Kadyrov's scope for maneuver on both the financial and management fronts, and thus risks undermining his position, insofar as his personal security is directly contingent on his subordinates' collective confidence in his ability to protect their economic interests, he said.

On the other hand, Sokolov said, insofar as many Moscow decision-makers still perceive Kadyrov, if not as the guarantor of stability in Chechnya then as the lesser of two evils, few are willing to incur his wrath by publicly advocating a further cut in funding for Chechnya -- even at the risk of public protests elsewhere in Russia against the special economic status that Kadyrov is seen to enjoy.

The views expressed in this blog post do not necessarily reflect those of RFE/RL.
Chechen leader Ramzan Kadyrov (left) reportedly dispatched Chechnya's parliamentary chairman Magomed Daudov (right) to defuse a tense standoff between Chechen and Avars in neighboring Daghestan.

Chechen Republic head Ramzan Kadyrov appears to have capitalized on Daghestani authorities' perceived failure to address grievances that led to a brawl between Chechens and Avars last month in order to cast Chechnya's controversial parliamentary chairman in the role of peacemaker.

The chairman, Magomed Daudov, is currently the subject of a probe by Russia's largest bank, Sberbank, after the head of its office in Chechnya accused Daudov, a former Chechen resistance commander, of trying last month to extort 30 million rubles ($507,140) from him.

The village standoff that Daudov is reported to have successfully averted has its roots in the uneasy coexistence of Chechens and Avars in the former Aukh district of western Daghestan that was part of the Chechen-Ingush Autonomous Soviet Socialist Republic prior to the deportation to Central Asia in 1944 on orders from then-Soviet leader Josef Stalin of the entire Chechen and Ingush nations.

In 1956, the deported peoples were exonerated from the charge of collaborating with advancing Nazi forces and formally permitted to return to their homes. But by then, the border between Chechnya and Daghestan had been redrawn, thousands of Laks (Daghestan's fifth-largest ethnic group) had been forcibly resettled in the Chechens' abandoned homes, and the Aukh district had been formally renamed Novolak.

For the past 30 years, since then-Soviet Communist Party General Secretary Mikhail Gorbachev launched his policy of glasnost to promote the discussion of hitherto taboo topics, Daghestan's Chechens have been lobbying to get their property back and for Novolak to revert to its previous name.

In 1991, the third Congress of Peoples of Daghestan formally approved the Chechens' right to their lawful property, and the following year, the Russian government duly adopted a program to resettle some 13,000 Laks from nine villages in Novolak district where they had lived for almost half a century.

That resettlement process is still in process, however, due to a combination of factors, including the Laks' reluctance to leave Novolak and the lack of federal funding to provide them with adequate housing elsewhere in Daghestan.

Mass Brawl

Meanwhile, the Chechens have come up with a further demand: the revision of the border between Novolak and the neighboring Kazbekov district to incorporate into the reconstituted Aukh district the Kazbekov villages of Leninaul and Kalininaul. Technically, that is not feasible, however, given that under Russian law any change to the borders of a municipality must be put to a referendum and the Kazbekov Avars would be likely to vote "unanimously" against.

The population of the two villages is approximately two-thirds Avar and one-third Chechen, and the tensions between the two nationalities have spilled over into violence on a number of occasions. The most recent was on June 25, the Islamic holiday marking the end of Ramadan, when an altercation between two adolescents escalated into a mass brawl that was eventually suppressed by police.

According to senior members of the Council of Elders of Chechens of Daghestan, nine young Chechens were savagely beaten by police officers; three policemen were also reported injured. Ten people were arrested, of whom six face criminal charges.

A few days later, Republic of Daghestan head Ramazan Abdulatipov, himself an Avar, convened a meeting of local officials in the nearby town of Khasavyurt, at which he affirmed that the Chechens and Avars have always lived peacefully together and warned that "provocateurs" who seek to destabilize the situation will have to answer for their actions in court.

Some Chechens construed those remarks as a threat. Calls by the Council of Elders of Chechens of Daghestan for a formal probe into the allegedly brutal police reaction were ignored.

Meanwhile, the Chechen Republic leadership, which on previous occasions has retaliated swiftly and forcefully to any perceived unjust treatment of Chechens in Daghestan, refrained from any public comment. In footage posted to YouTube on July 3, one young Chechen activist deplored that silence, asking whether Grozny needed to obtain permission from Moscow before making a public statement.

Chechen Convoy

Whether in response to that rhetorical question or to similar posts on social media, on July 7 up to 1,000 Chechens and Ingush gathered at a Grozny mosque and set forth in a convoy of up to 500 vehicles for Leninaul to "support" the village's embattled Chechen population, the news portal Caucasian Knot reported on July 10, quoting a participant.

In light of the security measures Kadyrov has put in place to contain the perceived threat from Islamic militants, it is unlikely that any such convoy could have assembled in Grozny and then driven across Chechnya without Kadyrov's personal permission, if not his orders.

The convoy reportedly crossed the border between Chechnya and Daghestan without incident but was intercepted by Daghestani traffic police on the outskirts of Leninaul, giving rise to a massive traffic jam.

At that juncture, Kadyrov reportedly dispatched parliament speaker Daudov, together with Chechen Interior Minister Ruslan Alkhanov and presidential-administration head Vakhit Usmayev, to Leninaul to defuse the rising tensions between the Chechen visitors and the local Avars. According to Daudov, his intervention was agreed on during a phone conversation between Kadyrov and his Daghestan counterpart, Abdulatipov.

Caucasian Knot quoted eyewitnesses as saying that stones were thrown at Daudov's motorcade and that his bodyguards then fired into the air as a warning. Daudov subsequently contacted Caucasian Knot and provided his version of what happened. He said the stone-throwing took place before his arrival on the scene and that he met with village elders and appealed for calm, and went with them to the mosque to pray.

Daudov also said he spoke with Daghestan Security Council secretary Abdulmuslim Muslimov, whom Abdulatipov had apparently dispatched from Makhachkala together with Deputy Interior Minister Sergei Karpov. According to Daudov, Karpov agreed to raise with his superiors the Leninaul Chechens' demand that the local Avar police officers be replaced by a contingent from elsewhere within the Russian Federation.

Destructive Forces

Having seemingly wrested the initiative from the Republic of Daghestan leadership, Kadyrov then received a delegation of Chechens from Leninaul in Grozny late on July 8. Like Daudov, he reportedly warned that resorting to violence in an attempt to resolve grievances is inadmissible. Then on July 13, Kadyrov cited the standoff in a bid to discredit his longtime enemy, Republic of Daghestan Transport, Energy, and Communications Minister Saygidpasha Umakhanov, whom he once publicly branded "a bandit."

Umakhanov is an Avar and served for many years as Khasavyurt mayor. He is said to enjoy the respect of the Avar population of western Daghestan, and reportedly traveled to Leninaul on July 7 but arrived only after Daudov had left.

In a July 10 post on his Instagram account, Umakhanov acknowledged that there is a history of tensions and violence in Leninaul for which, he said, both Avar and Chechen activists bear the blame. He stressed the need to resolve disputes peacefully, but in an apparent reference to Daudov's intervention, concluded with the observation that "there are enough wise politicians in Daghestan capable of resolving the thorniest problems without interference from outside."

Kadyrov responded by claiming Umakhanov had publicly commented apropos to Daudov's arrival in Leninaul that "our enemies have arrived." He further implied that Umakhanov is positioning himself as a possible successor to Abdulatipov, in which case "he needs to tone down his language and leave us in peace."

In Makhachkala, Daghestan's Nationalities Ministry issued a brief statement blaming the July 7 standoff in Leninaul on "destructive forces" that circulated on social media an appeal to Chechens to converge on the village to engage in "illegal actions." Republican Prosecutor-General Ramazan Shakhnavazov has since traveled to Leninaul, where he undertook to launch a probe to establish the identity of those responsible. Meanwhile, Abdulatipov continues to refrain from any public comment on the altercation, a failure that has elicited widespread criticism.

The views expressed in this blog post do not necessarily reflect those of RFE/RL.

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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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