Parviz Mullojanov on the impact of the Russian crisis on the countries of Central Asia
“One way or another, each of the CIS countries will have to develop its anti-crisis strategy in the near future, and it is better if this strategy is quite effective”, said Parviz Mullojanov, a political scientist (Dushanbe, Tajikistan), in an article written exclusively for CABAR.
One of the hottest topics in the post-Soviet space is the Russian crisis and its impact on other CIS countries, primarily on the Central Asian countries. A recent statement by Russian President Vladimir Putin at the final press-conference allows talking more reasonably about the further development of the socio-economic (and hence political) situation in Russia and in the whole post-Soviet space. Indeed, taking into account the key role of Vladimir Putin in the strategic decision-making, his opinion and his words can really clarify most issues of paramount importance. Today, too much depends on how the first person in Russian politics sees the situation, not only in Russia but also abroad.
From this point of view, two of the most basic points should be highlighted from the speech of the Russian President:
First, Vladimir Putin has made it clear that he considers the current crisis in the Russian economy a temporary and passing phenomenon. The currently observed falling oil prices and the devaluation of the ruble are caused, in his opinion, by external forces, unhappy with the way Russia defends its sovereignty. Approximately, in two years, the price of oil will rise again, and the economy will go up again.
Second, as this crisis is a temporary phenomenon, accordingly, no major adjustments and changes in Russia’s domestic and foreign policy are expected. Of course, the need to diversify the economy during this period was also spoken about, but anything radically new about it was not said. The population, in fact, was asked not to worry. But, at the same time, people were asked to tighten their belts and to be strong.
In the speech, the President did not say many things, or, probably, he did not say the whole truth. For example, he did not say that the fall of the ruble was due not only and not so much to the collapse of oil prices but to a sharp reduction in the supply of dollars in the domestic market. Simply put, as a result of sanctions, Russian companies largely lost the ability to obtain new loans from Western banks. These loans are of key importance for them, because with their help, they could pay their debt again to Western creditors, that, by the middle of this year, were more than 600 billion dollars.
It was sort of a quite unnatural vicious cycle in economic terms, in which Russian banks paid their loans with the help of new loans. As a result of the sanctions, that vicious cycle was broken – Russian companies find it increasingly difficult today to find the currency, and they started buying it in droves in the domestic market. Hence it appears that the difficulties of the Russian ruble are explained not only by external factors, but are systemic in nature and, at least, will continue as long as the sanctions continue. Since the future revision of Russian foreign policy is not expected, according to the speech by Putin, the lifting of sanctions in the foreseeable future is unlikely to occur.
In addition, it is difficult to say how justified the optimism of the Russian President about the future rise in energy prices is. Most of the world’s expert agencies specializing in the field of economic planning in the energy sector believe that the decline in oil prices is long-lasting and even in the event of a subsequent increase, its value is unlikely to return to previous levels. In other words, the “oil bubble,” which extended from the beginning of the 2000s, has begun to deflate. This means that the Russian budget revenues, which until recently, were calculated based on the cost of oil – $ 94 per barrel, will decrease significantly and will continue to follow a downward trend.
However, what conclusions should the governments of the CIS draw, from the above two theses, as their future depends on the state of affairs in the Russian economy?
In my opinion, some of the most obvious conclusions can already be drawn now:
The first and most important conclusion is that the Russian crisis is long-term and systemic in nature; it is associated not only with the fall in oil prices. Accordingly, its impact on the economies of other post-Soviet states will also be long-term. The recession of the Russian economy had begun almost two years before the Ukrainian events; the sanctions only accelerated the onset of the crisis and strengthened its course. In this case, instead of real reform, the Russian leadership clearly relied only on the possible return to the old energy prices, hoping to survive the next two years thanks to the available reserves. However, the majority of CIS countries do not have such reserves, apart from the fact that such an approach to problem solving looks quite questionable and unreliable.
The second and equally important obvious conclusion is that the crisis has not yet reached its peak in Russia. Accordingly, we can expect that its effect on the rest of the post-Soviet countries has not yet reached its peak either and will only increase.
Largely, this is due not only to the fact that our economies are so closely related to each other, but to the fact that they are actually built on the same principle. Indeed, in essence, we are talking about different versions of the same post-Soviet social and economic model that has a set of the same characteristics and features. The most important feature is the raw material nature of our economies, which means that the post-Soviet economic model is based mainly on the export of various raw materials, ranging from oil and gas to aluminum, cotton and labor.
Meanwhile, in the new environment, this kind of economy is becoming less profitable primarily due to a gradual but steady decline in the prices of basic resources. Some experts on geopolitics explain this phenomenon as follows: the world economy is now entering the period of the so-called permafrost growth, when the “lower world GDP growth leads to overproduction of raw materials and their lower prices. The global commodity market is currently in this phase.” In general, global commodity pricesnow have fallen to a minimum in 2009. That’s bad news not only for Russia, but also for the majority of its CIS neighbors, because it means a reduction in price quotations not only for energy resources, but also for aluminum, cotton, copper, gold and so on.
This means that during the next two years (at least), the post-Soviet governments will have to deal with a significant reduction in the inflow of hard currency as a whole in their country and in the state budget. Accordingly, they will have to deal with the whole range of consequences of this phenomenon – the devaluation of the local currency against the US dollar; reduction of budget revenues, social spending; higher prices for most commodities even of local production, and so on. Even today, the scale of this effect can be seen on the example of the devaluation of national currency in the CIS. So, from the beginning of the year, then Kazakh tenge has depreciated by 19%, the Belarusian ruble – by 13%, the Moldovan leu – by 17%, the Tajik somoni – by 5.5%, the Kyrgyz som – by 15% and Uzbek sum – by 9%. Formally, the budget may even remain in surplus, as in the case of Russia, but the real value of the local currency may differ much from its value a month ago.
The current crisis will show the safety margin of each of the post-Soviet economies. Of course, this figure varies from case to case. In theory, countries such as Kazakhstan and Turkmenistan should be the most resistant to the crisis, as they have significant reserves of energy and managed to accumulate some financial reserves over the past “cloudy” years. However, in this case, it’s not all that simple, as in a single-industry economy, the fall in oil prices leads to the situation when the accumulated reserves are “eaten” away and melt with unpredictable speed, and they will hardly recover. Thus, according to Kazakh sources, the average cost of Kazakh oil is now $ 50 per barrel, respectively even today’s oil price (about 64-65 dollars per barrel) has a significant impact on budget revenues.
The countries where a majority or a significant portion of currency inflows is made due to the remittances of migrants, mostly engaged in the Russian labor market, are in the most difficult situation. These, above all, are Tajikistan, Kyrgyzstan, Uzbekistan and the Republic of Moldova. In a crisis, the Russian market is closing its doors for migrant workers with increasing speed.
This process is clearly visible on the example of Tajikistan, where the number of “migrants-refuseniks” (who are denied entry to the territory of the Russian Federation during the next few years) has reached a figure of 200 thousand people. According to estimates of Tajik specialists, even this amount of “refuseniks” is enough to reduce the amount of remittances to the country by 10-15%.
Today, many workers-migrants complain that when they are leaving Russia, border guards of the Russian Federation put a stamp in their passport to restrict re-entry into the territory of Russia. Apparently, the Russian government, anyway, will try to increase the “black list” for quite objective reasons. In particular, given the shortage of currency in the domestic market, migrants have become undesirable competition to local Russian companies and business structures. On the other hand, the falling ruble drives migrants back home with an even greater force than the Russian Federal Migration Service. According to Russian media, the income of migrants today have fallen by almost half. Not long ago their average salary in Moscow was 600-800 dollars, now it is only 300.
The most striking against this unmirthful background remains the Olympian calm of the post-Soviet political elites. Apparently, the main hopes are for the expected rise in oil prices, which the Russian President so optimistically declared. According to this logic, nothing bad is happening – sooner or later, the prices of Russian goods will rise, and the Russian economy will revive, and the situation with Russian geopolitical partners will also improve. Accordingly, they hope to maintain the current socio-economic system that still works and proved fairly stable.
At the same time, the increasing Russian crisis, sooner or later, will make the post-Soviet political elites face a difficult and unavoidable dilemma. On the one hand, the events of the past year most visibly show the vulnerability and instability of the “resource-based economy.”
So many years, at the highest levels, they talked about reforms and the need to diversify the economy, actually hoping that all of this will not be needed and will remain a part of the official demagogy. This hope has not yet fully gone, but soon, we will see more clearly that the change is inevitable, and it is better to lead this change than to follow them.
However, if large-scale reforms take place, any serious attempts to move away from a resource-based economy will make the government share power with the civil society, with the Parliament and with other political factions. This is because the real, undeclared, development of small and medium-sized businesses and modernization of the economy will require curbing corruption in the judiciary, law enforcement and public administration system. This is impossible without the development of free media, ensuring equal access to resources, transparent decision-making, enhancing the role of Parliament and so on. In these circumstances, maintaining the current monopolistic power will no longer be possible, and the post-Soviet elites are clearly not ready for that.
However, one way or another, each of the CIS countries will have to develop its anti-crisis strategy in the near future, and it is better if this strategy is quite effective, because, as economists say, the scale of the economic crisis is not so important, the way the government responds to is much more important.
Parviz Mullojanov, political scientist
Opinion of the author may not necessarily represent the opinion of CABAR