The current global economic crisis has forced difficult choices on governments across the world. Against a backdrop of falling oil prices on the international market, the Russian government has already overseen the gradual devaluation of the rouble and is making preparations to recapitalize several large, private and state-owned banks. But what does this difficult economic situation herald for Chechnya, one of the poorest republic’s in Russia, and how will Moscow’s policies toward this locale (and neighbouring Ingushetia) be affected by the global economic crisis?

BACKGROUND: Over the past eight years the ruling regime established in Chechnya by the Kremlin has been the recipient of truly fantastic sums of money from the federal budget. Vladimir Putin and other leading decision makers on Chechnya were resigned to this asymmetrical budgetary practice because they believed that this was the price to be paid for ensuring the political loyalty of their client regime in Grozny, thus ensuring the continued viability of their Chechenization strategy. In all probability we will never know precisely what proportion of these federal subsidies was spent on public projects in Chechnya and how much was misappropriated by corrupt officials in Grozny and Moscow. To an extent, Putin’s subsidization of the proxy regime in Grozny has paid dividends. It certainly aided in cultivating the Kremlin’s preferred public image of Chechnya as a locale endeavouring to put the devastation of war behind it and take its place as a regular subject of the Russian Federation. Federal subsidies have facilitated the process of amnestying former guerrillas – a key pillar in the strategy of Chechenization alluded to earlier. Thousands of rebel fighters have publicly renounced the separatist mantra and enrolled in the republic’s pro-Moscow security apparatus, one of the few sources of secure, well-paid employment in present-day Chechnya. Naturally, both Moscow and its client regime in Grozny have heralded the amnesty process as a great success.

But the success of this haphazard process is illusory: the essence of counter-insurgency warfare is the battle for hearts and minds; but the Kremlin’s amnesty process, with its costly inbuilt financial incentives, is designed to appeal not to the political sensibilities of would-be candidates for amnesty, but rather to their mercantilist instincts, their desire to accrue capital and live in relative comfort. While many in this target constituency will have gladly forsaken the frugal, nomadic existence of the guerrilla fighter, we cannot be sure whether in their own hearts and minds they have given up entirely on the ideals that made outlaws of them in the first place.

In a recent article in Europe-Asia Studies, Emil Souleimanov and Ondrej Ditrych emphasised the eclectic nature of the resistance movement in the North Caucasus and pointed out how individual rebel fighters in some cases are instrumentalizing the professed ideology of the resistance movement as a licence to satiate other, more vainglorious, motives they might harbour – the desire to avenge oneself on a personal enemy, for example. This analysis could equally apply to the pro-Moscow regime in Chechnya, for it would be foolish to assume that everyone associated with this regime is a steadfast supporter of President Ramzan Kadyrov.

IMPLICATIONS: It would seem that the propensity for throwing money at bothersome local problems in the North Caucasus has survived the presidency of Vladimir Putin. In late January President Dmitri Medvedev visited Ingushetia, currently the most unstable republic in the North Caucasus, promising federal aid to the tune of US$1 billion (over six years) in order to stimulate the republic’s torpid economy. Like Putin before him, Medvedev reasons that if economic conditions in Ingushetia improve, then the radical agenda espoused by local militants will seem less appealing to the local populace. Leaving aside the fact that this is by no means a sure line of reasoning – the link between subsidization and economic growth is tenuous – one might plausibly ask whether such a bold aid package is feasible given prevailing economic circumstances.

The global economic crisis has taken a considerable toll on the Russian economy. Russia’s principal source of revenue over the past several years – sales of oil on the international market – has been seriously compromised by the global economic climate; as a result, extrapolating from projected oil prices on the international market, Russia is expected to suffer a budgetary deficit of between three and four trillion roubles this year. Civil disturbances in Vladivostok in January were precipitated by the government’s response to conditions engendered by the global financial malaise and may well foreshadow more serious disturbances in the future. Against this ominous socio-economic backdrop, President Medvedev has proposed to invest $1 billion in a region on Russia’s geographical periphery, which plays host to a mere two percent of Russia’s total population. This is to say nothing of the equally massive sums of money that have been promised for stimulating the economy in Chechnya and other parts of the North Caucasus.

But these monies may well be needed elsewhere in the federal budget if current economic trends continue; and should the economic situation begin to seriously affect ordinary people in the Russian heartland, Medvedev and Putin might be hard pressed to rationalize such a huge budgetary outlay on this rebellious region, whose inhabitants are racially maligned by a significant portion of Russian society. Russia’s ultra-nationalist constituency will need no encouragement to put forth its own incendiary analyses of this asymmetrical budgetary arrangement. Irrespective of the potentially inauspicious public relations dimension associated with such a trade-off, it is possible that the Russian leadership, out of sheer economic necessity, will have no option but to renege on promises made to its client governments in locales like Chechnya and Ingushetia. The implications of such a scenario are particularly dire for the situation in Chechnya. If federal subsidies dry up over the next few years, how will Kadyrov compensate those he has persuaded to join his security services?

CONCLUSIONS: On February 4, in a talk he gave to Troika Dialog's Russia investment forum, Igor Shuvalov, one of President Medvedev’s chief economic advisors, advised his audience of the need to revise Russia’s budget for 2009. He specifically mentioned the need to pare down financial aid to Russia’s regions. Regional leaders like Yunas-Bek Yevkurov in Ingushetia and Ramzan Kadyrov in Chechnya will have noted these remarks with apprehension. Yevkurov, if he has any sense of the wider economic picture in Russia and the world, should take Medvedev’s promise of US$1 billion in financial aid with a pinch of salt. The likely consequences of this still-unfolding economic crisis also bode ill for Kadyrov, and put Moscow’s overall policy toward Chechnya in serious jeopardy. Kadyrov will have serious difficulty enforcing discipline within his own ranks if he is unable to pay his soldiers’ wages. As discussed earlier, those who have crossed the barricades to take Kadyrov’s (or rather Russia’s) schilling have done so for family and financial reasons and seldom out of a personal or political affinity for the young president. This constituency will hardly stand by Kadyrov if there is nothing to be gained by doing so, and will certainly not be appeased by abstract explanations about the perils of sub-prime lending and the necessity of currency devaluation. Assuming that a reduction in federal subsidies for Chechnya occasions a round (or several rounds) of lay-offs in Chechnya’s security forces, the options for those made redundant are stark: join the insurgency, enter Chechnya’s highly-criminalized shadow economy, or emigrate in search of work. It is not difficult to imagine how this disgruntled constituency might further destabilize the already precarious social situation in Chechnya.

AUTHOR’S BIO: Kevin Daniel Leahy holds a postgraduate degree from University College Cork, Ireland.