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Costly War Threatens Russian Economic Reforms With AM-Russia-Chechnya, Bjt

December 30, 1994

MOSCOW (AP) _ The devastation of the war in Chechnya could spread far beyond the boundaries of the rebellious little republic. It could threaten economic reform in all of Russia.

Supplying the Russian army, sheltering refugees and rebuilding the battered, bombed-out region could cost billions of dollars Russia can ill afford.

Such war costs threaten the fragile financial stability upon which the entire post-Soviet reform effort depends, said respected Russian economist Otto Latsis.

Deficit spending to fund the war could ignite a new round of inflation and jeopardize a $6.4 billion loan from the International Monetary Fund.

Russia already has been losing revenue from oil and gas that is normally transported on Russian pipelines through Chechnya, 1,000 miles south of Moscow. Russia also spent money to build a new rail line to bypass Chechnya even before the war began Dec. 11.

Latsis said total costs of waging war on the breakaway region in southern Russia, then rebuilding it afterward, could run as high as $3 billion, or 5 percent of next year’s budget.

″Russia’s financial stability is in danger,″ Latsis wrote in Thursday’s Izvestia newspaper.

Russian leaders echoed the concerns.

″The longer this campaign lasts, the costlier it will be,″ Economics Minister Yevgeny Yasin said. ″The time will come when it will be impossible to sustain the stabilization program″ simultaneously with the Chechen operation.

Yegor Gaidar, a former prime minister and architect of Russia’s post-Soviet economic reforms, said that time was only weeks away.

″Another three or four weeks and you can forget about next year’s budget,″ said Gaidar, a critic of the Chechen invasion.

The grim warnings come as Russia was showing signs of economic stability. Double-digit inflation has been curbed, the decline in industrial production has slowed and real personal income was up.

An austere 1995 budget of $60.8 billion is the cornerstone of plans to squeeze inflation, stabilize the ruble and spur growth.

In just three weeks, the Chechnya operation already has eaten up 1 percent of Russia’s gross national product, Izvestia reported.

Funneling food and fuel to the advancing Russian army has cost over $60 million, the Russian finance ministry said.

The cost of just feeding and sheltering thousands of people fleeing their war-ravaged capital, Grozny, could run as high as $11 million a month, according to the Federal Migration Service.

Such expenditures could set the reform process back a year or more, said Mikhail Berger, Izvestia’s leading economic writer.

″We’re in a delicate transition to a market economy,″ Berger said. ″Maybe the American economy can afford a big military operation. We can’t.″

Some, however, dismiss the dour economic forecasts.

″This is no big deal for Russia and it won’t crush the Russian economy,″ said economist Pave Bunich. ″Any such claims are absurd.″

Even if Bunish is right, some observers expect President Boris Yeltsin will use the Chechen conflict as a scapegoat for any economic ills, from shortages of butter to increased fuel prices.

The Russian military, which has complained bitterly about steep cuts in defense spending, could also use the war to buttress long-standing demands for more money.

Behind the scenes, top military brass may even insist on money as a payoff for standing by the government in the unpopular bid to crush the independence- minded Chechens.

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