Kremlin will Use Indebtedness of Russia’s Federal Subjects to Impose Even Tighter Central Control, Economist Says

Paul Goble

            Staunton, June 20 – The increasingly hard-pressed federal subjects of the Russian Federation are now forced to cut costs, but because of the absence of any law allowing them to go bankrupt, Moscow will ultimately have to bail them out, although such aid will come at the price of what is left of their autonomy, economist Dmitry Nekrasov says.

            Nekrasov, who now lives abroad and is part of the CASE network, says “the painful reduction in various expenditures at the regional level will continue, but on the other hand, it is clear that Moscow will intervene to solve these issues” (svoboda.org/a/bednye-stanut-bednee/33785267.html).

            Russia “doesn’t have a procedure for regional bankruptcies” and so when regional governments get in debt over their ability to cope, Moscow will have to take action – but that action will come at a high price in the ability of the regions involved to take any decisions on their own.

            Nekrasov suggests that this situation is “rather similar to what happened to Greece in the EU during the debt crisis” 15 years ago. The EU refused to allow Greece to default and provided  funds to ensure that that wouldn’t happen, but this money was given only on condition of “severe reductions” in Greek spending, something that infuriated Greeks and created other problems.

            The economist does not address the most extreme step Moscow might take: the amalgamation of the hardest hit regions with those doing somewhat better. Putin has long wanted to reduce the number of federal subjects; and the debt crisis in the federal subjects could very easily become the trigger to restore that process.