Window on Eurasia: In Putin’s Russia, No Money for Nursery Schools or Hospitals But Plenty for Illegal Alcohol Producers and their Elite Owners

Paul Goble

            Staunton, March 15 – Given the unfunded mandates Moscow has imposed on the regions and the shortage of money available, Russian regional governments are having to cut back in many sectors, but the choices they are making say a lot about what matters most to the Russian elite – and equally about what matters little or not at all.

            A close analysis of the situation in the Republic of Mari El in the Middle Volga shows that those in charge have eliminated all funds for the construction of new nursery schools and hospitals but at the same time are continuing to boost spending on a highly profitable alcohol producer in which the elite itself has a direct interest (no-korrupcia.livejournal.com/43349.html).

            While some may be inclined to dismiss this as an isolated phenomenon, in fact, it has become so widespread that the Russian Finance Ministry has been forced to declare that Moscow will reduce financial subsidies to the regions in an amount equal to the amount of money that regions are spending on highly profitable alcohol production.

            But the ways in which the corrupt elites in Mari El have managed this process and sought to defend themselves against the intervention of the courts and the authorities in Moscow are instructive about the nature of a problem that almost certainly is going to spark more anger among the population.

            Over the past three years, the Mari El government has spent some 28.2 million rubles – nearly a million US dollars – in subsidies to the Novo-Fokin Liquor Factory, a factory that is owned in part by the wife of Leonid Markelov, the head of the republic, and some of his closest political supporters among the oligarchs. Earlier, he had planned to give the factory even more.

            What makes this situation especially noxious, local investigators say, is that much of the alcohol being produce is illegal, presumably meaning that it is untaxed and thus provides the republic elites and their allies with even bigger profits at the expense of the population of Mari El.

            One of Markelov’s partners in this operation is Andrey Korobeynikov, a local businessmen and deputy in the republic’s State Assembly. He was appointed director of the liquor factory and facing challenges in the courts came up with a remarkable strategy to defend the corrupt arrangements between the factory and the republic government.

            What Korobeynikov did was to link the liquor factory to one producing electronic gear for the Russian military and then threaten, if the liquor factory went bankrupt as he said it would without government subsidies, to stop production of this equipment.  It turns out that his allied factory is the only one producing such goods in the entire country.

According to the local Public Committee for the Struggle Against Corruption, what Markelov’s allies have done is to “present an ultimatum” to Moscow. If the center won’t buy the plant or allow the republic government to continue to subsidize it, then Mari El will take steps that will inflict serious harm to Russia’s “nuclear security.”

So far, that threat seems to have caused Moscow to back off, but local anti-corruption groups in Mari El believe that the Russian procuracy needs to “conduct a detailed analysis” of the situation in that republic and thus end this vicious circle of corruption. Then, the money now going to the liquor plant and its elite owners can go for much-needed schools and hospitals.