ECONOMY: Problems of Post-Soviet Integration

By IPS Correspondents Reprint | | Print |

Analysis - Sergei Blagov

MOSCOW, Mar 4 1999 (IPS) - Former Soviet republics are heralding a new era of integration but they face a rocky road ahead before there can be any real economic union.

In an effort to boost integration, Tajikistan last week became the fifth member of the Commonwealth of Independent States (CIS) to join a customs union aimed at freeing trade. The other countries are Russia, Belarus, Kazakhstan and Kyrgyzstan.

Russian president Boris Yeltsin told the gathering that “there was no other alternative than cooperation.” It would be wrong to abandon integration efforts because of the current economic crisis, he added.

The creation of the CIS in 1991 sealed the fate of the collapsing Soviet Union. It loosely groups 12 ex-Soviet republics, while the customs union represents a core of countries that have proclaimed they want closer integration.

The council of all CIS heads of state was scheduled to meet in Moscow on Feb. 26 but the summit was postponed due to growing disagreements between member-states.

Some ex-Soviet republics have gained confidence in their ability to survive without Moscow – they are increasingly looking outside the “near abroad,” as Russia calls the ex-Soviet states.

Uzbekistan already has announced its intention to leave the collective security treaty, and Azerbaijan and Georgia have indicated they may follow – which would further unravel the alliance.

Only six of the 12 members of the CIS had so far agreed to renew their membership.

Most economists agree that the industrial output of the CIS states has halved in the 8 years of the bumpy transition from Soviet-era centralised planning to a market economy.

The CIS’s gross domestic product (GDP) currently stands at four percent but original projections of an increase to six percent by the year 2005 are unlikely to materialise, economists say.

Russian officials have complained about the low level of CIS cooperation. Trade turnover within the customs union – and among CIS states as well – is “miserably low” and continues to fall, says Vladimir Levchenko, a CIS expert with the Russian trade ministry.

Likewise, Russia’s foreign trade turnover plummeted in 1998 due to the economic crisis and falling commodities prices.

According to official statistics, foreign trade turnover last year dropped by 17 per cent compared with 1997, while the trade with CIS states fell by 15 per cent.

Russia’s overall trade turnover with countries outside the former Soviet Union totaled 105 billion dollars in 1998, while the CIS and Baltics trade stood at some 20 billion dollars – of which about one-quarter was trade with customs union members.

Despite the decline, Russia managed to end the year with a positive trade balance of about 5 billion dollars – compared to a balance of 11.2 billion in 1997.

The decision to invite war-thorn Tajikistan into the customs union is widely viewed as a political gesture – rather than an economic move. According to government estimates, the recent civil war in Tajikistan claimed tens of thousands of lives and cost 7 billion dollars – a devastating amount for a country whose national budget in 1998 amounted to just 230 million dollars.

“We need to support Tajikistan politically,” observed Kazakh president Nursultan Nazarbayev who went on to say that deeper integration within the customs union is not going to affect ties between CIS states. Nazarbayev has been re-elected chairman of the Inter-State Council of the customs union.

Trade between Russia and Tajikistan dropped to 159 million dollars last year from 185 million dollars in 1997 – a huge plunge as compared with the estimated 2.9 billion dollars figure of the Soviet-era.

Olga Koroleva, a Tajikistan expert with the Russian trade ministry, told IPS that these days Russo-Tajik trade amounts to just 0.1 per cent of the overall turnover of Russia’s foreign trade.

Analysts say there are few economic dividends for Russia in its customs union – notably with Belarus, where economic reform has lagged and which owes Russia 200 million dollars for gas.

Russia and the former Soviet republic of Belarus also have signed separate treaties pledging even closer ties by establishing a union state including the two former Soviet republics. On December 25, 1998 Russia and Belarus signed agreements to introduce a single currency and a uniform system of taxation by 1999.

On April 2, 1997 Yeltsin and Belarussian President Alexander Lukashenko signed a treaty pledging Russia to union with its ex- Soviet neighbour, boosting political, economic and military ties between the two nations – but stopping short of creating one state.

The authoritarian Lukashenko – who swept to victory in 1994 on his promises of reuniting with Russia – has pushed for uniting his nation of 10 million people with Russia’s 147 million people.

As far as Central Asia is concerned, Russia remains the main trading partner with its southern neighbours, and the crisis has had a big impact on Kazakhstan, Kyrgyzstan and Tajikistan.

Russia’s falling rouble has adversely affected trade, and some countries have opted to erect new trade barriers.

In January 1999 Kazakhstan – five times the size of France with a population of around 16 million – announced restrictions on the import of Russian food stuffs, a total of 21 items. Paradoxically the move did not contradict the respective provision of the customs union which reads that if the national producers’ interests are endangered, import restrictions can be applied.

Kazakhstan also introduced 200 percent tariffs on imports from Kyrgyzstan – a landlocked nation about the size of Britain and with a population of 4.5 million.

Calls for closer economic integration in the CIS are falling on deaf ears, because the body is failing to implement its own decisions, according to analysts.

Furthermore, the customs union – designed for fostering free trade – also lacks economic substance and even could be counterproductive in terms of post-Soviet integration, some analysts argue. Thus the CIS could end up splitting into blocs, which would lead to the eventual collapse of the Commonwealth.