Window on Eurasia: Putin’s Unfunded Mandates Pushing Regions into Debt, Disaster and Dissent

Paul Goble

            Staunton, December 12 – A combination of President Vladimir Putin’s promises and declining federal assistance to the regions is pushing many of the federal districts deeper into debt, preventing them from spending on social and transportation infrastructure, and in prospect driving them toward default, according to analysts at Standard & Poor’s.

            In today’s “Nezavisimaya gazeta,” Anastasya Bashkatova points out that the regions are incapable of fulfilling Putin’s promises and directives -- such as raising pay in the health education and culture sectors -- while meeting their other obligations and thus are heading toward disaster (ng.ru/economics/2013-12-12/1_regions.html).

                Yesterday, S&P warned that the regions cannot reduce their spending on other responsibilities enough in order to cover what Putin has called for.  As a result, their combined deficits will be “several times” larger than Moscow now projects. And the underfinancing of other sectors will begin to bite, possibly forcing the revision of Putin’s promises.

                (“Nezavisimaya gazeta” has tracked this problem for the last six months (ng.ru/economics/2013-05-15/4_teachers.html and ng.ru/economics/2013-08-26/1_minfin.html. And today, “Vedomosti” provides additional data in an article entitled “The Center’s Policies are Leading the Regions to Default” (vedomosti.ru/politics/news/20055951/regionalno-budjetny-krisis#ixzz2nGAVSMkc).)

            Making the situation even worse, the analysts say, is that because of a deficit in the federal budget, Moscow plans to cut assistance to the regions by “more than five percent” next year, cuts that will squeeze regional elites and hurt development in the regions even more than now.

            And also adding to the problems is the lack of transparency in the process of regional transfers. Moscow sometimes gives more to well-off regions than to poorer ones, apparently to maintain the loyalty of regional elites rather than to ensure that programs be carried out. And these elites thus feel free to ignore Moscow’s dictates and pocket the money instead.

            Consequently, Bashkatova says the experts have concluded, the debt burden on the regions will only grow even as Putin-mandated programs are not carried out in full and many other needs are not met. 

            Analysts at Standard & Poor’s suggest that there are three  possible scenarios. In the first, Moscow will continue to demand that the regions fulfill its orders, providing highly selective assistance in that regard. In the second, Moscow would continue to provide assistance across the board while giving most to those most in need.  And in the third, Moscow would revise Putin’s mandates so that the regions could cope.

            At present, Bashkatova says, the center appears likely to follow the first or some combination of all three. But each of these strategies and even a combination of them have political consequences, ranging from a regional fronde expressed in protests and simple refusal to go along to a direct and broad-based challenge to Putin’s authority.

                And just as at the end of the Soviet period, these financial issues are likely to interact with and be exacerbated by ethnic and regional identities and by an increasing sense among Russians that Putin and his regime are spending outrageous sums of money on “circuses” like the Sochi Olympics but not providing them with “the bread” that is supposed to be the other part of the equation.