Monday, April 27, 2009

Window on Eurasia: Will Moscow Use Financial Crisis to Tighten Control over the Regions?

Paul Goble

Vienna, April 27 – Moscow may use the financial difficulties the governments of some Russian regions have fallen into because of the economic crisis to impose greater control over their spending and perhaps over their entire political operations, a move that one Russian newspaper today says could be a step toward “the ruble vertical.”
But while Russian law makes provision for the center on the basis of a court decision to take control of financial flows in the regions, the legal basis for an even more extensive assertion of Moscow’s power in the regions is disputed, especially given the Kremlin’s ability to appoint and remove governors.
And consequently, these discussions in the Russian capital may either be an attempt to intimidate regional leaders by holding up a threat Moscow may not or even cannot carry through or be a reflection of power struggles between the Kremlin and the Russian White House and between Moscow and the regions.
On the one hand, the intervention by Moscow in the regions by imposing direct supervision over them without replacing the government could change the balance between the Russian president who enjoys the power of removal and appointment of regional leaders and the Russian prime minister who controls the ministries that would exercise external control.
And on the other, such moves and even more the threat of them may be intended to crack the whip over regional leaders without engendering the political controversies at a time of economic hardship that the dismissal of regional leaders and the appointment/election of their replacements could easily involve.
Discussions about this do center on a finance ministry document on changes in the budgetary process ( and a declaration on Friday by Regional Affairs Minister Viktor Basargin on the possibility of even broader moves (
The “Vedomosti” article, entitled “The Ruble Vertical,” says that the finance ministry has developed a proposal to expand the conditions under which Moscow could improve external administration of financial operations in the subjects of the federation and sent its ideas to the ministry of regional affairs for coordination.
Under the finance ministry proposal,” “If the government considers it necessary to introduce external administration in any region, it must file suite with the Supreme Arbitrage Court and secure its agreement.” Having done that, Moscow could impose such external rule for a period “up to one year.”
Such external supervision, the paper said, would mean for the regions involved “the actual loss of control over finances” in the cases of regions whose governments were threatened with bankruptcy but would not necessarily lead to the replacement of the governor or the imposition of central control over everything.
This proposal does not go far beyond existing legislation, and most experts with whom that paper and other Russian media outlets saw it as an entirely appropriate response under the conditions of the current economic crisis. But Basargin’s comments are another matter entirely because they appear to open the way for a far broader assertion of central government power.
In a speech on Friday, Basargin said that in the event of shortfalls and other serious violations of budgetary arrangements in the regions, the finance ministry regions involved itself. should “administer the money” and his own ministry of regional affairs should run the regions more generally.
As “Vedomosti” noted, that proposal goes “far beyond existing legislation.” Moreover, it raises serious questions, although as Moscow commentator Aleksey Makarkin pointed out, by leaving the regional heads in place, the residents of any regions where Moscow might take this step “would take it more quietly than the change of the entire [local] leadership.”
In its report today on this discussion, “Kommersant” said that sources in the regional affairs ministry say that “the order for introducing external administration” of the regions “have already been prepared” and that “in the near future, the document will be presented to the government.”
Once that happens, it is likely to generate even more controversy. The finance ministry has not yet signed off, and some Federation Council members told “Kommersant” that Moscow should use its powers to “change people” rather than “wait for years in the hopes that this will solve the problem.”
But it may be that, especially under the conditions of the crisis, neither Moscow nor the regions wants to take any step. Indeed, Vyacheslav Glazychev, who heads the Social Chamber’s commission on regional affairs, said that Basargin’s statement probably was intended to frighten the regions rather than as an indication of where Moscow is heading.
“If the institution of external administration were to be introduced, Glazychev observed, at the present time, “half the country might fall under it,” something that could ensure that the economic crisis would be transformed into a political one even more rapidly than anyone know projects.

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