As Moscow moves to assert the Kremlin's authority in response to the Beslan crisis, it is simultaneously pushing for stronger economic and political ties with the former Soviet republics. The Russian ruble is the instrument of choice in this campaign, but some skeptics argue that the price tag for economic unity might come too steep for government coffers.
The Kremlin has long promoted the ruble as the tie that should bind the five members of the Commonwealth of Independent States (CIS) that make up the so-called Eurasian Economic Commonwealth (EEC) -- Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan. Earlier predictions that the ruble would assume this role by 2004 have fallen flat, but on September 21, Russian Prime Minister Mikhail Fradkov repeated the call for the ruble to become the engine for the group's economic integration.
"We must accelerate the creation of a general payment system within the EEC, using the Russian ruble as the central means of payment," Fradkov told a meeting of the EEC prime ministers in Moscow, RIA-Novosti reported.
In a written statement to a September 22 EEC business forum in Moscow, President Vladimir Putin emphasized that line, telling attendees that EEC "integration processes . . . create opportunities for multilateral projects and initiatives." According to Fradkov, trade between Russia and its EEC partners stood at $13.7 billion for the first half of 2004 -- a 37 percent increase from the same period last year.
With 40 percent of any EEC vote held by Russia which also covers 40 percent of the organization's budget the Kremlin's proposal could be seen as a fait accompli. However, previous efforts to link Moscow to other former Soviet republics have produced mixed results. In June 2004, Aleksandr Lukashenko, president of Belarus, Russia's closest ally, took the three-year-old block to task for inefficiency in realizing its stated goals.
But if the EEC fails to meet its free trade goals, Russia can fall back on another block of leading post-Soviet economies, the Common Economic Space (CES). Last year, Russia, Kazakhstan, Ukraine and Belarus pledged to revive the economic union that collapsed with the breakup of the Soviet Union in 1991. The Kremlin, however, has dismissed criticism that the group is intended as an attempt to revive the Soviet Union. The CES would unite a combined population of about 217 million people, while the EES has a total population of roughly 230 million people.
On September 15, the presidents of Russia, Ukraine, Belarus and Kazakhstan met in Astana, Kazakhstan, to discuss prospects for greater coordination of economic policies and trade among the four CES member states with a view to the creation of a free trade zone by July 1, 2005.
The signature of 60 related documents is required before the pact can go into effect, and already one of the proposed priority agreements for that zone has set off a storm of controversy in Moscow.
Under the agreement, member-states' Value-Added-Tax (VAT) would be collected at the point where a final product is sold a measure that could cost Russia, a major energy supplier, hundreds of millions of dollars in lost revenue each year. The agreement is slotted to take effect as of January 1, 2005.
With Russia already responsible for 40 percent of the EEC's budget, critics charge that the VAT policy would simply benefit the three remaining members, at Moscow's expense.
At the CIS summit in Astana, Kazakhstan, President Putin conceded that Russia, a major supplier of oil and gas to Ukraine and Belarus, would suffer short-term financial shortfalls under the new system, but argued that the advantages to be gained justified the cost. "We are ready for losses as the initiative is beneficial for all four states in the longer term," he told journalists on September 15.
Among the benefits of a closer economic union outlined by Putin: per capita living standards that surpass "an average statistical level for a European citizen." Putin revealed no concrete timeframe or comparative economic data for this forecast, however.
For some Russian media outlets and economic analysts, though, that is not a sufficient sweetener. On September 22, Kommersant Daily newspaper commented that Russia would be left to pay the price for the envisioned post-Soviet common market. Yevgeny Yasin, former economy minister and head of research at the Higher School of Economics, argued that Russia favors the CES for political reasons, while other member states want to join the CES for economic reasons. Moscow's campaign to dominate the CES is founded on the expectation that Russian taxpayers are prepared to foot the bill, he said.
Already, signs are growing that the treasury may have less to fall back on. The campaign for economic unity coincides with a record capital flight from Russia, set off by investor nervousness about the Yukos scandal and the country's overall business climate. The Ministry of Economic Development and Trade recently released figures that estimated Russia would lose $12 billion in capital in 2004, the English-language daily Moscow Times reported on August 25. Outside rating services give estimates nearly triple that amount.
But Russia's loss appears to be the CIS's gain. One analyst told the Times that many Russians, frustrated by oligarchs' control of key economic sectors at home, are using their cash instead to invest in former Soviet republics. "They are buying up everything in Ukraine and Georgia," David Mapley, chairman of Shimoda Group, a financial consulting firm with extensive investments throughout the former Soviet Union, was quoted as saying.
Meanwhile, overlapping initiatives for handling trade, taxes, customs and currency rates are dogging both the CES and the EEC. Moscow intends for the ruble to dominate trade in both communities. A CES free trade zone is planned for 2010, while the EEC expects to form a customs union by 2006. To lessen the confusion, EEC General Secretary Grigori Rapota has called for a "harmonization of activities" between the EEC and CES, the Russian news agency Novosti reported on September 15.
Editor's note:
Sergei Blagov is a Moscow-based specialist in CIS political affairs.
