#17 - RW 11-19-04 - RW Home
Central Asia: Russia Comes On Strong (Part 1)
By Bruce Pannier
Copyright (c) 2004. RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org

These days, Russia is receiving a lot more money from oil sales.

October was a significant month for Russia in terms of its interests in Central Asia. In the years following the breakup of the Soviet Union, Russia was relegated to helping the region primarily on issues of security. Few considered Moscow to have the financial means to become a major investor in the region. But that has changed. Russian President Vladimir Putin's government now appears to be using the lure of money to bring its former Soviet republics back into its fold. In a two-part series, RFE/RL looks at Russia's recent moves in Central Asia.

Prague, 17 November 2004 (RFE/RL) -- Visiting the Tajik capital Dushanbe last month, Russian President Vladimir Putin surprised his audience by pledging substantial financial investment in the Central Asian republic.

"The Russian side -- both its state structures and private companies -- intends to invest some $2 billion in the Tajik economy within the next five years. I do not think any other country has, in the past 12 or 13 years, ever invested such an amount of money, or even announced plans to invest such an amount of money in Tajikistan," Putin said.

Putin was correct. No single country or organization has ever promised that sort of investment in Tajikistan, a country still shattered from a 1992-1997 civil war and regarded as the poorest of the CIS countries. Another deal also appeared to clear most of Tajikistan's $300 million debt to Russia.

And Tajikistan was not the only Central Asian country to receive promises from Moscow in October. Uzbekistan and, to a lesser extent, Kyrgyzstan, have been promised investment by Russia.

Russia has yet to back up its promises with cash, but still -- where is this largesse coming from? Even before the 1998 financial crisis, Russia was poorly positioned to pursue ambitious investment projects.

Alex Vatanka is a senior editor at the London-based publication "Russia-CIS Security Assessment Binder." He explains the driving force behind what he called Russia's October "shopping spree" in Central Asia.

"It probably has to do with the fact that Russia is now receiving more money from the sale of oil. Suddenly you've seen the oil price going from $20 a barrel, which is what the fiscal stance of Russia in based on -- they're going with a $15-20 a barrel price -- and they're (now) getting twice that," Vatanka said.

Oil and natural gas sales are helping fill Russia's state coffers and presenting the government with new possibilities that could not have been anticipated even one year ago.

Many however, might not consider Central Asia the place to invest part of this newfound wealth.

But John Schoeberlein, the director of Harvard University's program on the Caucasus and Central Asia, said for Russian investors and the Russian government the region is actually well-positioned for investment.

"Where Russia might try to expand its economic relations overseas there aren't that many markets, for example, where really Russia can be competitive. It happens that in Central Asia there is something of a natural market, a natural basis for economic relations between these countries," Schoeberlein said.

Central Asia, like other areas of the former Soviet Union, is still bound to Russia in many ways. Schoeberlein pointed out that spare parts for a number of machines being used across the territory of the former Soviet Union still come from Russia. Other connections remain as well.

Vatanka said past connections do not mean that investing in Central Asia is a safe venture, though he said it is one for which Russia is perhaps better suited than others.

"When you look at places like Tajikistan and Kyrgyzstan, it's important to bear in mind that -- if you're willing to risk it -- it's relatively cheap to buy up assets in a place like Tajikistan or Kyrgyzstan. If you are Russian, you know the region and you speak the language of the people you're dealing with. You're taking a risk, but it's cheap and the returns can be very high. That's the big distinction between Russian and Western companies operating in the region -- the Russians are willing to take that risk," Vatanka said.

Oil and gas revenues may be fueling Russia's new economic interest in Central Asia. But just a few years ago, Central Asia had largely fallen off Moscow's field of interest, as Schoeberlein points out.

"There was a period under Yeltsin when it seemed Russia had sort of forgotten its interests in Central Asia. It was pursuing a much less apparent policy in relations to the Central Asian countries and seemed to be allowing them to go their own way to a large extent," Schoeberlein said.

Lena Jonson is a senior research fellow at the Swedish Institute of International Affairs specializing in Russian foreign and security policy. She is also the author of the recently released book "Vladimir Putin and Central Asia."

Jonson said Russian policy toward Central Asia started to change when Putin became president.

"Since Putin came to power, it's meant a more active policy with regard to Central Asia. Then you can see that there is a focus on the energy resources of these countries and also that the Central Asian countries are part of the former Soviet Union infrastructure which makes them important in general," Jonson said.

[Click here for Central Asia: Russia Comes On Strong (Part 2)]