Putin, Crimea, and the cost of Russian expansionism


Sunday, March 23, 2014    

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WHATEVER may be the view held by the United States and its European allies of Russian President Vladimir Putin, it is undeniable that the leader of the biggest country in the world is a man with an expansionist political ego unmatched by any other world leader so far in the 21st Century.

Though short in stature, he is tall in his ambition to reconfigure and re-establish Mother Russia's geo-political standing in the world and in the eyes of his supporters at home and abroad, especially after the battering his country's image suffered during the cold war era.

This, quite understandably, makes him confident that his Administration can withstand the recently imposed sanctions against it — visa controls and individual assets freeze — by the Obama Administration and the European Union.

His manoeuvres, also, since last Sunday — for example, the signing of the treaty to annex Crimea — make him appear even more confident than would be expected that there will be neither a diplomatic nor an economic fall-out with the Kremlin over the Crimea plebiscite.

Of course, Russian history prepares us to appreciate intelligently that Putin's territorial appetite has its roots in his KGB (Russian security police) background.

As an agent of the former Committee for State Security, he has had the experience of police state repression, the craft for arousing ethnic nationalism, and the tolerance of homophobic, if not racist violence.

This makes him capable of viewing the sanctions announced by President Obama against his country for its repossession of the Crimean peninsula a small price to pay for adding to his collection of puppet states.

In light of this, how then does the world's only superpower go about successfully punishing, with enfeebled punitive sanctions, a world leader of Putin's stature who has just spent US$51 billion on the Sochi Olympics to improve his image, and who plans to spend a further US$440 billion in 2014?

The focus, it seems to me, of those wanting to see Russia with its nuclear arsenal punished for its adventurism ought to be on whether it will be able to bear the financial cost of carrying Crimea's russophone community in the 21st Century without collapsing, given its already heavily overburdened financial obligations to breakaway regions as a means of keeping them from forming closer relations with the West.

As such, Britain, France, Germany and the United States — in the exercise of both tactic and strategy — would be well advised to stop wasting time arguing in the councils of the United Nations over Russia's violation of the sovereignty of a neighbouring country and international law. It's not even worth fussing about the flaws in the plebiscite in the Crimea either — the lack of neutral international observers, no option of remaining a part of the Ukraine, and the hurried nature of the process — since there are precedents aplenty of such dubious referenda.

Writing in a recent issue of The Atlantic magazine, William Schreiber noted the following:

"Before the Crimean crisis, Russia was already footing the bill for three breakaway states... unrecognised by the international community (sic) they exist to a large extent outside the international economic system (and) the economic benefits associated with globalisation and foreign investment are negligible in these territories. This leaves them highly dependent on Moscow's largesse, which often comes in the form of subsidised pensions, infrastructure projects, and cheap gas."

On top of this financial burden, Russia's grab of Crimea is proving to be a very expensive proposition for Putin.

For example, leading up to the recent referendum, and as the Crimean crisis deepened, news surfaced that the country's MICEX stock index shed US$60 billion while the Russian ruble fell to historically low levels, leading to an unprecedented rise in interest rates by the Russian Central Bank.

But, in addition to this drama of sudden monetary instability, Crimea under Russian control will undoubtedly force Moscow to shoulder the additional financial philanthropic burden of its two million inhabitants, which makes it 40 times the size of South Ossetia — another dependent state — eight times the size of Abkhazia and four times the size of Transnistria.

Not surprisingly, the cumulative effect of all this on the Russian purse is a pension payment burden involving the 20 per cent of Crimea's residents who are now over the age of 60.

And as if this was not enough of a burden for a country whose male life expectancy is barely more than 60 years, Georgia's breakaway regions, like Abkhazia and South Ossetia, exist as "black holes" for the Russian taxpayers.

"In April (of last year)," notes Schreiber, "the International Crisis Group (ICG) reported that Moscow had earmarked $350 million for infrastructure projects in Abkhazia between 2010 and 2012, with that number expected to triple to $1 billion between 2013 and 2015, but that only half of the $350 million had been spent because of mismanagement and corruption.

The group noted that Abkhazia — which is located just miles from Sochi, the site of this year's Winter Olympics — effectively depended on Moscow for a staggering 70 per cent of its budget and also received roughly $70 million in pension payments for Abkhaz residents, many of whom have Russian Passports."

Additionally, a 2010 ICG study also found that South Ossetia with a population of anywhere between 20,000 and 70,000 — depending on who is counting — and with 70 active criminal investigations into the disappearance of funds, is totally dependent on Russian subsidies to the tune of $1 billion. Interestingly, since 2008, close to 27 billion rubles in development funds have disappeared into thin air in the region without a trace.

Not to be left out of this picture of geopolitical philanthropy is the economy of Transnistria which the Centre for Eastern Studies found to be heavily dependent on Russian energy and financial subsidy. It is noteworthy as a territory because with a GDP of $1 billion it managed to run up a debt to Russia's state-owned natural gas company, Gazprom, to the tune of $3.7 billion.

Clearly, Russia is paying a very heavy price for a motley collection of ill-governed statelets with the distinction of obscurity to most active observers of global affairs. These territories, including the recent addition of Crimea with its vastly better economic potential, are all woefully short on foreign investment, economic development, good governance best practices including autonomous leadership, trade and export-based industries, and productivity.

In circumstances like these, the growing pressure to generate revenue streams by the state on the part of the breakaway regions of Russia could well see the rise in greater levels of illegal activities such as illicit weapons shipments, smuggling and black market activities.

Should this malaise materialise, then Putin may soon come to realise that engineering and funding separatism and expansionism in Russia's backyard could lead to real and excruciatingly punishing financial pain for Europe's largest failing state of 143 million people.

This, in the long run, may prove far more effective in punishing Russia's strongman than the recent punitive sanctions announced by the United States and the European Union.





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