Russian crisis adds to Central Asia's suffering

Russian crisis adds to Central Asia's suffering

By Mike Collett-White

ALMATY, Kazakhstan (Reuters): For resource-rich but impoverished Central Asia, the timing of Russia's latest descent into political and economic crisis could hardly be worse.

The five states in the region -- Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan -- are keen to underline their independence from Moscow and have forged ties with partners in the West and Asia to help loosen old Soviet bonds.

But the stark truth remains that while Russia's influence in the region has faded, the countries still rely heavily on their troubled northern neighbor for economic well-being, political clout, and, in the case of Tajikistan, military support.

It is on the economic front that the latest crisis, provoked by President Boris Yeltsin's abrupt dismissal of Prime Minister Yevgeny Primakov and efforts in the Russian parliament to impeach the Kremlin leader, will hurt most in Central Asia.

"As regards the outlook for Kazakhstan after the new crisis in Russia, it could not have come at a worse time," said an editorial in the Kazakh weekly business newspaper Panorama.

"On the financial-economic level there will certainly be a fall in the ruble, with its well-known effects on our market."

Currencies in all five states have come under huge pressure since the ruble plunged last August, and conversion restrictions in Uzbekistan and Turkmenistan have done little to stop black market rates there spiraling lower. The ruble lost value again in Russia last Wednesday and Thursday.

Kazakhstan and Kyrgyzstan, whose economies are the most market based and who rely on Russia for a large proportion of their trade, are especially vulnerable. Currency traders in both countries have noted a flight to dollars in the last week.

"Any instability (in Russia) will impact on the sale and purchase of the U.S. currency," Kyrgyzstan's acting central bank chairman, Ulan Sarbanov, told Interfax news agency.

"If the situation demands it, then the National Bank will intervene to support the domestic currency."

Kazakhstan was forced effectively to devalue the tenge currency last month to stem a flood of imports from Russia, Kyrgyzstan and Uzbekistan. Severe trade restrictions with those three countries remain in place.

The fallout is also psychological. Like it or not, overseas investors still think of all 12 countries in the Commonwealth of Independent States (CIS) as being in the same basket.

Any further turmoil in Russia is likely to reduce the appetite for risk in Central Asia, as well as pushing up borrowing costs on international capital markets.

Renewed uncertainty comes at a time when Central Asia's economies are at a low ebb.

All five states rely heavily on exports of raw materials such as oil, gold, cotton, aluminum and copper, and the slump in commodity and energy prices last year was perhaps the single biggest blow to the region's coffers in 1998.

The political fallout from the sacking and impeachment proceedings against Yeltsin, however, is seen as limited.

"These countries will strive to maintain existing relations, whoever the prime minister is," said Alexandra Tokuchayeva, senior analyst at the Moscow-based Institute for CIS countries.

Kazakh President Nursultan Nazarbayev has worked hard to maintain links with Moscow, largely for economic reasons, while Tajikistan is Russia's staunchest ally in Central Asia, relying on Russian troops to maintain stability after a civil war.

Uzbek leader Islam Karimov stands further aloof, and Turkmenistan's Saparmurat Niyazov is pushing for broad neutrality for his gas-rich desert nation of five million, despite relying on Russian gas pipelines for vital exports.

If Moscow descends deeper into chaos, the political distance between Central Asia and Russia could widen in the long term.

"Instability in the Russia government will lead to a worsening economic situation," Tokuchayeva said. "In that sense, the potential for greater disintegration resulting from this mess is there."

Russia, for its part, will not want the distance to grow.

Millions of ethnic Russians still live in Central Asia and the remote region, with a combined population of 55 million, is a useful cushion against the perceived threat of Islamic extremism spreading north from Afghanistan and Iran.