Former Finance Minister Alexey Kudrin, who is currently serving as Chief Deputy of the Presidential Economic Council, last week had some harsh words for Russia’s leaders:
Oil prices have dropped, we don’t have enough income, we have problems with growth. In prosperous times we easily learned to manage money frivolously, and now neither the country’s leadership nor its ministries have an understanding that we have passed into a new reality.
Kudrin emphasized his point by noting that for the past few years the economy’s growth rate has been languishing beneath 1 percent, and by 2020 it might rise to only 1 percent, which would be “a huge challenge for the country”. In the meantime, the Ministry of Economic Development reported a slowdown in September. Russian GDP fell 0.7 percent on an annualized basis, and was down 0.2 percent month-to-month.For its part, the Kremlin keeps tightening the purse strings. In announcing plans for next year’s budget, spending on healthcare, including research, will be cut to 466 billion rubles ($5.6 billion) in 2017, the lowest level as percentage of GDP since 2006. A program for cutting maternal and infant mortality rates, introduced in 2013, will have its budget halved. Military spending will be cut as well—by 8 percent—but the Kremlin’s priorities are clear: 2.84 trillion rubles ($43 billion) have been allocated for the Defense Ministry. (And indeed, defense spending in Russia is difficult to judge using official figures alone. 17 percent of next year’s budget is classified, for example.)But even cutting defense spending—a virtually unprecedented move (it hasn’t happened since 1998)—may prove easier than trying to give less money to Chechnya.Chechen strongman Ramzan Kadyrov has already started baring his teeth at the Kremlin after the Finance Ministry proposed to cut the republic’s budget for next year (Chechnya receives 81 percent of its budget from Moscow). On Instagram, Kadyrov said that “a lot of questions have arisen. We cannot settle for the Ministry’s budget proposal.” He went on to point out that in past years Chechnya has agreed to all budget proposals, and that the republic’s budget was cut in 2013. But if it goes on, Kadyrov added, Chechnya will not be able to develop and make good on its commitments to social welfare.Kadyrov is not being completely candid. Since 2013, Chechnya’s handouts have not remained stagnant. For example, in the first half of 2016, Chechnya received 14 percent more in federal transfers than in the first half of 2015, compared to all other regions, that in aggregate got 12 percent less. Chechnya, population 1.3 million, had a budget this year of 58 billion rubles ($900 million), 48 billion of which came from Moscow.When asked to comment on Kadyrov, Kremlin Spokesman Dmitry Peskov tried to dodge, saying that it’s not an issue of a single region but a question of the whole country’s budget.In response, Kadyrov stated that applying the standards for all the other republics to Chechnya “looks strange”.But while the Russian public enjoyed this virtual debate, Vladimir Putin relented in real life, and asked the Government to increase funding for the North Caucus Federal Development Program—one of the major source of transferring cash into Chechnya.