Kremlin looks to capitalise on the crunch in former USSR

Published: April 9, 2009

The Kremlin has been shaken by the credit crunch, which hit the Russian stock exchange worse than any other exchange in 2008, pushing it down around 65%. The fall in the oil price threatens to push the economy into recession this year, and Russian oligarchs have seen their fortunes halve.

However, the country is still in a relatively strong position compared to its neighbours, and there are signs it is looking to capitalise on this to expand its economic influence in the region.

For the last few weeks, the country’s largest bank, state-owned Sberbank, has been in talks to buy the troubled Bank Turam Alem in Kazakhstan, which had to be nationalised by the Kazakh government earlier this year. It’s the biggest bank in Kazakhstan, and would give the Russian state enormous economic leverage within the country, at a time when Kazakhstan is wondering whether to join the ruble or to set up a new central Asian regional currency.

In Kyrgyzstan, which has also been badly shaken by the economic crisis, Russia agreed to a US$2bn loan package and a US$150mn 'grant' in February.  A few weeks later, the  Kyrgyz government agreed to close down the US air base at Manas. 

In Belarus, talks with the IMF have stalled, while Aleksander Lukashenko is seeking a further US$2.7bn loan from the Kremlin to prop up the central bank’s reserves. There are also talks to sell one of the country's biggest banks, BPS Bank, to Sberbank.

In Ukraine, PM Yulia Timoshenko is trying to get a US$5bn, 15-year loan from the Kremlin to cover the country’s budget deficit, much to the ire of the country’s president, Viktor Yushchenko, who compared the potential deal to the Molotov-Ribbentrop pact.

This was after Timoshenko’s government failed to meet the IMF’s targets for government spending cuts in February, leading to the suspension of the second tranche of the IMF’s $16bn loan package to the country.

No doubt the Kremlin will be telling both Ukraine and Belarus that if they want the emergency cash, they need to give Gazprom more control over the pipelines that take the EU’s gas through these countries.

In Hungary this month, where the economy is also in dissarry and the government desperately needs cash, Gazprom signed two important gas deals with Hungarian energy monopoly MOL, whereby the Hungarian government agreed to finance the South Stream pipeline from Russia (which will be a competitor to the EU-approved Nabucco pipeline).