Friday, January 22, 2010

Window on Eurasia: Russian Aid to the North Caucasus Has Made the Situation There Worse, Analyst Says

Paul Goble

Vienna, January 22 – Moscow today is making the same mistake in the North Caucasus that its tsarist predecessors did 150 years ago. Like the tsars, the Russian powers that be now have sent enormous sums to corrupt and inefficient officials there, hoping to buy their loyalty but in fact creating a new feudal class that is driving the population into the hands of the militants.
In the 19th century, Sergey Israpilov writes on the portal today, “the tsarist government directly bought the loyalty of feudal in the Caucasus,” who “feeling the financial and military might of the empire behind them, intensified their oppression” of the local population, “sparking dissatisfaction and creating the basis for a long Caucasus war.”
Since the collapse of the Soviet Union, he continues, “the Russian leadership gave money to obviously corrupt and ineffective leaders in the Caucasus without interfering in the use of these funds.” And as a result, this money, intended to buy loyalty, gave birth to “new feudal and intensified social inequality” and anger (
In the 1990s, he writes, “when there was not a very large amount of money, this problem was not especially significant.” But after 2000, when there was a great deal more, money flowed into the North Caucasus and especially Daghestan “like a swollen river,” “a partisan movement directed against the local rulers and the Federal Center standing behind them arose.”
President Dmitry Medvedev, Israpilov suggests, appears to understand that the problems of the North Caucasus are connected “not only with a lack of money, poverty, and unemployment but with ineffective administration and corruption,” although so far the Kremlin leader has not managed to turn things around.
One place where this shortcoming is especially obvious is Daghestan, “one of the most subsidized regions of Russia” into which Moscow has poured billions of rubles in ways that have promoted rather than reduced social inequality. And that inequality in turn “serves as the social base for terrorism.”
The influx of “’easy’ money’” has also had the effect of making “honest work and honest entrepreneurship unpopular and private investment in business minimal,” thus exacerbating the situation still further. Indeed, “the most profitable business is access to government resources, which gives rise to super wealth.”
And such wealth, “under the specific conditions of the republic,” has created a class of people who think they can do anything and a larger group of others who are infuriated and alienated from the system by such behavior and ever more prepared to join the “growing protest” movement.
Faced with this popular anger, the powers that be in Makhachkala ask Moscow for more money, which Moscow sees no way not to give. But that simply makes the situation worse, Israpilov says, creating “a vicious circle” which it is extremely difficult for any of the those along its line to escape.
The recent downturn, which has left Moscow with less to give, might lead things to improve, Israpilov says, but that has not yet happened. And he describes the ways in which money from Moscow, the rise of the super rich in Daghestan, and the explosive growth of bandit formations remain tightly linked.
In the “fat” years of the first decade of this century, he observes, Daghestan’s annual budget increased from 8.8 billion rubles (300 million US dollars) to 54 billion rubles (1.8 billion US dollars), largely on account of money from the Russian state budget, not counting the even more rapid growth of extra budget funds from Moscow.
Given this inflow of money and given Daghestan’s poverty, much of this money should have been invested in the economy. But that did not happen at least to the necessary extent. And what is worse, the investments became ever less efficient or profitable, the result of theft or government backing for inefficient branches of the economy.
Indeed, he points out, in 1999, Daghestan invested 2.06 billion rubles in the economy for a profit of 567 million – more than 25 percent! But in 2008, on an investment of 67.3 billion rubles, it suffered a loss of 800 million rubles, yet another indication that money from Moscow was not being used in an efficient and useful way.
Israpilov says that the reason for this is that Daghestan has installed a kind of “capitalism in reverse,” where the big money goes to and is taken out of government firms rather than those created by private entrepreneurs, a pattern that has the effect of reducing the number of the latter still further.
Despite this and as Moscow and Makhachkala proudly claim, the Daghestani economy did grow over this period, but as neither acknowledges, this growth was accompanied by growing income inequality with a tiny group becoming fantastically wealthy and a much larger group extremely poor.
And those poor groups will not see their situation improved if Moscow simply increases the amount of money it pours into Makhachkala’s coffers. Indeed, if it does that without addressing the ways in which it is creating its own nemesis, “the still-latent war with underground bands will pass into a completely new and open phase.”

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