Crimea Money

From USA Today:

"Putin's Crimea bill may be steep"

President Vladimir Putin made Russia's taking of Crimea official on Friday, but now the bill for the acquisition may be steep. Boosting pensions and rebuilding the infrastructure on this dilapidated Black Sea peninsula were among the promises dangled by Moscow before the local population voted to join Russia and leave Ukraine. Crimeans expect big changes economically now that Putin says they are part of Russia, a claim that Putin put in writing on Friday but one that both Ukraine and the West refuse to accept as legal. "Putin is going to build Sochi here," said a member of a self-defense force in Sevastopol who did not want his name used for fear of repercussions over his support for the Russian takeover. But with crumbling roads, broken sidewalks, and apartment blocks that have no running water at night, Crimea's capital of Simferopol is in need of major investment. Once a favored resort by top officials for the former Soviet Union, Crimea in recent years relies heavily on subsidies from the Ukraine capital of Kiev to pay for basics like energy and water. That spigot from Ukraine is now turned off and Russia may have to step in to replace the flow of cash. Propaganda sheets were handed out to voters in Sunday's succession referendum by pro-Russian politicians who claimed Moscow would shower Crimea with benefits and rubles, as Russian troops were positioned throughout Crimea to ensure an orderly transition. Improving transportation and infrastructure problems alone will take up to $4-5 billion in investments, deputy head of Russia's Ministry for Economic Development, Alexei Likhachyov, was quoted by RIA Novosti as saying. "We estimate that $5 billion is the cost of restoring transportation and recreational infrastructure to its original level," Likhachyov said, to say nothing of building new roads. At least $2.8 billion would go into transportation alone. The money would come both from Russia's budget and from investments from Russian businesses, Likhachyov said. But that wasn't all, since Russia would first have to cover Crimea's budget deficit. "In the Russian equivalent, the volume of the deficit of Crimea and Sevastopol is 55 billion rubles ($1.5 billion). Of course, this entire sum will be covered from the federal budget," Russia's Finance Minister, Anton Siluanov, told the state-run Vesti television channel. Russia has also pledged to set aside 36 billion rubles (about $1 billion a year) to get pensions in line with Russian levels for the peninsula's 500,000 pensioners, Russia's deputy prime minister Olga Golodets told ITAR-TASS news agency. A more realistic figure would be about 50 billion rubles a year, according to Standard & Poor's analyst Karen Vartapetov in the Vedomosti newspaper.

Average pensions in Crimea are about $158 a month; in Russia the average is about $277 a month. A doubling of pensions for Crimeans was a key promise in the propaganda pamphlets posted around Simferopol ahead of the referendum. On infrastructure promises, Putin has ordered his government to make plans for two bridges connecting Russia and Crimea over the Kerch Strait in the Black Sea. The project, which earlier involved only one automobile bridge, would cost up to $2.7 billion, Transportation Minister Maxim Sokolov told Russian news agencies. In total, the cost of financing Crimea could run $2.4 billion a year, Vedomosti, a business daily newspaper, estimated earlier this week based on predictions from several financial analysts. "We have reserves of 243 billion rubles (about $6.75 billion) in the pension fund as a result of pension reforms," Siluanov told Russian state television on Wednesday. "I think we will suggest that a part of these reserves will be used for aid to Crimea and Sevastopol." But there are savings to be realized for Russia in Crimea. Moscow says it will no longer pay the lease to Kiev for its Black Sea Fleet naval bases in Sevastopol. That expense was up to $100 million a year. "The $100 million will go right back into financing Crimea," said Dmitry Abzalov, vice-president of the Moscow-based Center for Strategic Communications. "Apart from that, revenue from tourism will increase, especially as infrastructure improves." While the money pledged by Russia's government will be an additional burden on the federal budget, Russia can count on another bonus, it claimed, over the dropping value of the ruble due to investor worries over the Crimean affair. The value of the ruble hit a historic low of 36 rubles to the dollar earlier this month, though it strengthened slightly this week. "Because of the weakening of the ruble, Russia may no longer have a deficit budget this year," said Maria Pomelnikova, macroeconomic analyst at the Moscow branch of Raiffeisen Bank. "A weaker ruble means that total budget revenues will most likely increase by several hundred billion rubles."

^ It seems Russia may have bit off more than they could chew. I don't see Russia giving the Crimea back (as it would be a sign of weakness) but the lack of money brought down the Soviet Union in 1991 and history could repeat itself. ^

http://www.usatoday.com/story/news/world/2014/03/21/crimea-moscow/6686757/