Central Asia needs life support as Russia suffers

February 25, 2016

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Russia’s central Asian satellite states lack the immunity to fend off the economic ills which have beset their larger neighbor. Tajikistan has appealed to the International Monetary Fund for support. Other countries in Russia’s economic orbit may need similar treatment.

The land-locked nation of 8.5 million people, which has been in talks with the international lender about a bailout package since early February, is most directly exposed to trouble further north. Falling oil prices and economic sanctions have hit remittances from workers in Russia that are the lifeblood of its economy.

Payments from the migrant labourers who sweep streets and work on building sites across Russia accounted for 45 percent of Tajikistan’s economy in 2014, according to the IMF. But those vital contributions are contracting as a result of the pressure on Russia’s economy, which shrank by nearly 4 percent last year. Remittances fell 33 percent in dollar terms in 2015 and slid a further 14 percent year-on-year in January.

Many other former Soviet states face similar pain. Payments from workers in Russia make up 30 percent of GDP for Kyrgyzstan, 24 percent for Moldova, and 20 percent for Armenia.

Oil exporters like Azerbaijan are already feeling the pain of cheaper crude. But oil importers are also vulnerable as they have fewer foreign exchange reserves, and are locked into long-term dollar-denominated contracts with Russia.

If Tajkistan and its neighbours, which border restive Afghanistan, cannot export migrants to Russia as they have done for a decade, they will have to find a new sources of growth. Failure bodes ill for political stability in central Asia. The prospect of millions of young men returning home to depressed economies could be politically explosive in countries that have a history of Islamic insurgency.

Tajikistan’s potential to destabilise the region is out of all proportion to its economic size.

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These countries all have repressive and corrupt governing regimes. The majority of any “bailout” will end up in the pockets and Swiss accounts of the ruling class. The human rights record of these countries should be on the table and out front followed by a strong plan to address endemic corruption or the IMF will be pouring money down the toilet.

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