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By Luke Rodeheffer Contributor March 31, 2014

Recent figures from Russia’s Ministry of Finance have highlighted the North Caucasus republics’ heavy dependence on Moscow. In Dagestan, the most unstable republic, nearly 80 percent of the budget consisted of federal subsidies in 2013. The budgets of Chechnya and Ingushetia were even more dependent on support from the federal center. Despite containing only one sixteenth of Russia’s population, the seven subjects in the North Caucasus Federal District consume a quarter of Moscow’s subsidies. It remains unclear how much longer the current state of affairs in the North Caucasus will last, but the lack of development in this post-Soviet sphere deserves both attention and a response from the international community.

Attempts to develop the region’s economy, reduce its dependency on Moscow, and modernize the region have been stifled by corruption. Moscow established the North Caucasus Joint Stock Company in 2010, hoping that the 2014 Sochi Winter Olympics would translate into increased interest in tourism in the North Caucasus. Yet like many other political and business dealings in the region, the Joint Stock Company fell prey to corruption and graft: its former managers are under investigation for committing $8.8 million worth of fraud. Further, Russia’s Auditing Chamber announced that only 20 percent of the money allocated to the Joint Stock Company for project development in 2013 had actually been spent. The poor impressions made upon international observers by Sochi’s infrastructure and general lack of preparedness at the recent Olympics has further tarnished the region’s image for investors.

In a similar vein, the newspaper Kommersant recently reported that a large industrial base project directed by Alexander Kloponin, Putin’s official envoy to the North Caucasus, completely failed to win private investor confidence. This report follows frequent criticism of Kloponin and raised speculation that he will soon be replaced.

It is little wonder that investors are so wary of the region. In January, an expose by the independent newspaper Nezavisimaya Gazeta revealed that regional governments owed $700 million in back payments to Russia for energy use since 2011. MRSK North Caucasus, which supplies most of the region’s energy, saw former director Magomet Kaitov arrested for embezzlement in December 2013. Following the arrest, Vladimir Putin stated that the Kaitov family used MRSK extensively for personal benefit.

This type of clan-based corruption holds the region’s governments together, and subsidies are intended to buy the loyalty of local elites. Putin’s system of centralized control prioritizes loyalty, allowing graft and lawlessness to flourish. The extent to which regional elites are tied to rent-seeking clans and criminal structures is illustrated by the leadership of the Karachay-Cherkess Republic. Three years ago, Moscow chose Rashid Temrezov to lead the republic. Temrezov was already well known in the region as being the right-hand man of Ali Kaitov, a ruthless mobster who murdered seven businessmen at his summer house over corrupt business dealings. Since Temrezov’s appointment, crime has continued to suffocate the republic: hundreds of millions of rubles allocated by Moscow have been stolen from the budget while Temrezov practices large-scale nepotism.

In Dagestan, the situation is worse. Deputy Prime Minister Magomedgusein Nasrutdinov was recently arrested as part of an embezzlement investigation. Ilyas Umahanov, who had represented Dagestan in the upper house of Russia’s Duma since 2001, was arrested last year for running a massive shadow banking scheme that engaged in a variety of criminal activities, including defrauding the Russian state of 12 billion rubles. Last summer, prosecutors arrested and charged Said Amirov, the mayor of Dagestan’s capital of Makhachkala, with murdering an investigator. Arresting the mayor, who is also heavily implicated in drug trafficking, was considered so delicate a task that law enforcement used 40 armored cars for the operation. All the while, the republic’s inter-communal conflicts intensify, leading many local organizations to demand the removal of Ramazan Abdulatipov, the current republican head of Dagestan.

Continued economic and security largesse from Moscow to the North Caucasus come at a time when Russia’s regions face massive budgetary crises while an increasingly powerful and vocal Russian nationalist movement demands an end to support for the region. Decreasing support, however, would remove incentives for loyalty among the regional elite and exacerbate the region’s socio-economic problems. The 2014 Winter Olympics turned the world’s attention to the North Caucasus and its continuing conflicts. The international community should not allow its focus to shift away from this complex and unstable ethno-territorial regions, as the status quo will certainly not last. Like all imperial structures, Moscow may soon decide that its current dominion over the North Caucasus is not worth the blood and treasure, especially with the costly addition of Crimea to the Russian Federation.

Policy makers should begin preparing contingency plans, ranging from humanitarian operations to international peacekeeping missions, in preparation for a potential collapse of Russian control over the North Caucasus within the next decade. Engaging U.S. partners, such as Georgia, Azerbaijan, and Turkey, in contingency planning can ensure that they will not be severely affected by the disintegration of Moscow’s control over their northern border, which is essential to preserving security for the wider region. The United States should also prepare to collaborate with international economic institutions to allow the region to develop self-sufficiency and to prevent the region’s dire economic situation from feeding further unrest.

Luke Rodeheffer is a graduate student in International History at Koç University in Istanbul and a contributing analyst at Global Risk Insights. He has previously contributed to a variety of publications, including The Diplomat, The Interpreter, and Middle East Monitor. Follow him on Twitter at twitter.com/lukerodeheffer.

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