Moscow’s efforts to undermine the North Caucasian insurgency by investing in the region continue to encounter difficulties. On July 25, the Ministry for Regional Development proposed a new federal program aimed at promoting socio-economic development in Russia’s North Caucasus Federal District. The program is scheduled to run from 2012 through 2025 and would require a significant increase in Moscow’s spending on the region. The total cost of the project amounts to more than US$ 140 billion. Almost US$ 90 billion of the funding would be taken from the federal budget. An additional US$ 7 billion would come from the heavily subsidized budgets of the local republics and around US$ 38 billion would be provided by extra-budgetary funds. Soon after the program was proposed, officials from the Finance Ministry and the Ministry for Economic Development expressed concerns about their ability to afford these new budgetary allocations. Moreover, on August 3, Deputy Finance Minister Tatiana Nesterenko announced that the Finance Ministry would not approve the new development program.
The decision, announced at a socio-economic development session held in Kislovodsk, was motivated by the Finance Ministry’s inability to endorse the program as long as the costs exceed existing budgetary limits. This was an unexpected turn of events. Public display of discord is exceedingly rare in the Kremlin and the program in question has figured prominently in Moscow’s official rhetoric about forthcoming progress in the North Caucasus for a long time. Prime Minister Putin first declared the need for a long term development plan for the North Caucasus over a year ago. In September 2010, the President's envoy to the region, Aleksander Khloponin, outlined a set of ambitious objectives to be attained by 2025. These included farfetched aspirations such as an increase by a factor of 2.5 in the average monthly wage and the creation of 400,000 new jobs in the region.
The next step was taken in December 2010 when Prime Minister Vladimir Putin established a commission for the socio-economic development of the North Caucasus Federal District. In January, at the commission’s initial session, Putin disclosed the Kremlin's intentions of replacing the federal development programs currently underway with a new all-embracing program for the whole region. Subsequently, the Ministry for Regional Development was assigned to prepare the new program. At the next meeting, which was held in May 2011, the Prime Minister was quoted as saying that the new program had to become the most important instrument for solving the socio-economic problems in the North Caucasus.
At the moment, there are three ongoing federal development programs in the region. The Socio-Economic Development in the Republic of Ingushetia began in 2010 and is set to end in 2016. The Socio-Economic Development in the Republic of Chechnya and Southern Russia both started in 2008 and will continue until 2013. The combined total cost of these three projects is around US$ 10 billion. This means that the annual amount presently spent on socio-economic development in the North Caucasus is only about one fifth of what it would be if the new program would be implemented.
Another particularity that might help to explain the Finance Ministry’s inability to provide funding for the project is the fact that the estimated cost has constantly been on the increase. In January, Putin assessed the total cost of the entire program to less than US$ 14 billion. Two and a half months later, the Minister of Regional development, Viktor Basargin, said that the costs may exceed US$ 45 billion and when the final draft was presented the Ministry for Regional Development asked for three times as much.
This seemingly failed attempt to implement a new large-scale development program can be seen as archetypical for Moscow’s efforts to stabilize the North Caucasus by buying loyalty from the population. Over the last couple of years, numerous high-profile projects have been presented in spectacular fashion, but so far they have all failed to live up to their promises. On the one hand, economic development in the region is hampered by deep-rooted problems such as the lack of security and endemic corruption. On the other, Moscow’s ability to provide federal aid is limited by a commodity-based economy sensitive to fluctuations in the world market as well as widespread reluctance towards subsidizing the Caucasian republics among the ethnic Russian population. Furthermore, the heavy dependence on finances for support means that Moscow and its local clients most likely cannot count on the loyalty of those currently on their side if they were to fail in providing federal aid in the future.