2017: Eurasia integrated in spite of slow economic growth

_ Russia and Eurasia, Strategic Survey. 19 September  2017. 

The fallout from low commodity prices and the contraction in Russia’s economy continued to affect Eurasia in the year to mid-2017. Russia’s economy performed better than expected, with GDP falling by just 0.2% in 2016 and the country emerging from recession in the first quarter of 2017. But most economists shared the Russian central bank’s view that without systemic reforms, long-term growth was unlikely to exceed 1.5–2% per year. Thus, Russia’s economy was forecast to account for a declining share of global GDP. In time-honoured tradition, the Kremlin commissioned two groups of experts – one of them led by former finance minister Alexei Kudrin – to formulate a plan of action. But with parliamentary elections in September 2016 and the presidential elections scheduled for March 2018, the Russian elite was focused on maintaining stability and creating the conditions to ensure a high turnout and a vote in favour of the incumbent.

With the Russian government assuming that oil prices would remain low to 2019 and beyond, the ministry of finance remained committed to a stringent programme of fiscal consolidation designed to maintain macroeconomic stability. This included a reduction in defence spending in 2017, a measure that called into question the government’s goal of modernising 70% of Russian military hardware by 2020. However, defence spending would have passed its peak at this stage even under the government’s pre-crisis plans; moreover, ‘modernisation’ was an elastic term that did not necessarily imply the introduction of advanced technology. There were few indications that the economic outlook would prompt the Russian elite to seek an accommodation with the West to boost investment.

The weak outlook for Russia’s economy was mirrored across the Eurasian region, owing either to lower revenues for hydrocarbon exports or a fall in remittances from Russia in migration-dependent countries such as Moldova, Belarus, Tajikistan, Uzbekistan and Kyrgyzstan.

Media reports suggested that much of Central Asia was experiencing increasingly severe economic problems – although official figures often failed to reflect this trend. In Turkmenistan, which relies almost exclusively on gas exports for foreign currency, the unemployment rate was around 65–70%, according to a central-bank estimate quoted by Radio Free Europe. In June 2017, Turkmenistan’s government ended the free provision of water, gas and electricity. Having essentially destroyed the foundations of a paternalist state, the regime had few means to maintain control other than repression and enforced isolation.

Tajikistan, the poorest post-Soviet state, began talks on financial assistance with the IMF and the European Bank for Reconstruction and Development. Due to the country’s poor record on cooperation with international financial institutions, the organisations were likely to approach the discussions with caution. There was a possibility that Tajikistan would instead seek concessional funding from Russia, which could demand the country’s accession to the Eurasian Economic Union in return. Indeed, at a conference on inter-regional cooperation held in Dushanbe in December 2016, Alexander Tsybulskiy, a Russian deputy minister of economic development, noted the benefits of joining the union for Tajikistan.

Given the weak economic outlook in Eurasia, China’s Belt and Road Initiative continued to gain significance as the most likely external driver of growth in the region. However, China’s expanding role

in Central Asia continued to generate controversy. Kazakhstan’s government revised planned land reforms in February 2017, following a public backlash caused by the widespread belief that they would allow Chinese investors to gain control of agricultural areas. Chinese firms announced few new investment projects in Central Asia or Russia in the year to mid-2017. In March, there were reports that the construction of a fourth Turkmenistan–China gas pipeline – planned to run through Tajikistan and Kyrgyzstan – had been indefinitely postponed.

The economic slowdown had not yet led to increased political instability in Central Asia. The political transition in Uzbekistan in 2016 also challenged assumptions about the sustainability of personalised authoritarian regimes in the post-Soviet region. There were no outward signs of conflict among Uzbekistan’s elite following the death of President Karimov, who had ruled the country for 27 years. While public confirmation of Karimov’s death appeared to have been delayed by several days, political leaders quickly united around Mirziyoyev, allowing him to be appointed as acting president in contravention of the constitution. A highly managed election in November secured Mirziyoyev’s position.

There were signs that the transition would lead to a thaw in Uzbekistan’s relations with neighbouring Tajikistan and Kyrgyzstan, which had long been dominated by territorial disputes, ethnic tension and conflicts over resources. After coming to power, Mirziyoyev quickly established warmer relations with his counterparts in Tajikistan and Kyrgyzstan. In November, Uzbekistan and Kyrgyzstan announced an agreement on 49 non-demarcated sections of their border. The following April, direct flights between Uzbekistan and Tajikistan resumed for the first time in two decades. In June, the countries held bilateral talks on improving their economic ties and ending the visa regime. But it was unclear whether Uzbekistan’s government would take further steps to end the country’s relative economic and political isolation, given that the security services appeared to resist plans to lift shortterm visa requirements for tourists from a range of countries in the Organisation for Economic Co-operation and Development.

Kazakhstan’s president, 77-year-old Nursultan Nazarbayev, was the last Central Asian leader to have remained in power since before the fall of the Soviet Union. Although he had not appointed a successor, there were strong indications that the state had begun planning for an eventual transfer of power. Constitutional reforms adopted in March 2017 were intended to devolve powers from the presidency to parliament, thereby improving parliamentary oversight of government and legislation. These measures were unlikely to have a practical impact during Nazarbayev’s presidency. However, they seemed to pave the way for a more collective system of rule, in recognition of the fact that Kazakhstan’s second president would struggle to achieve the authority and legitimacy of his predecessor.

There was little certainty about when and how a presidential transition in Kazakhstan would be coordinated. Given Kazakhstan’s large ethnic-Russian community and key role in the Eurasian Economic Union, it seemed likely that Russia would play a role in the transition process, if only as external guarantor of the chosen candidate. Limited Western economic and security engagement with Kazakhstan reduced the risk that the political transition would trigger an international crisis.

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