August 25, 2000    
This Date's Issues: 4474 4475

Johnson's Russia List
#4475
25 August 2000
davidjohnson@erols.com


*******


Swedish Defense Research Institute Assesses Russian Socioeconomic Conditions


Stockholm Swedish Defense 
Research Institute in Swedish 1 May 00 


[Report from Swedish Defense Research Institute: "How Great are the Risks
for a Socioeconomic Collapse in Russia? An Inventory of Russian Problem
Areas " -- first paragraph is report editor Jan Leijonhielm's introduction] 


The present study was prepared in consultation with FOA's Reference Group II
for analysis of Russia. The group consists of Professor Erik Berglof of the
Eastern Economic Institute, Docent Lars-Erik Blomquist of Sodertorn
University, editor Malcolm Dixelius of Dixit, Professor Anders Fogelklou of
Uppsala University, Russia expert Torgny Hinnemo of the Foreign Ministry,
Docent Lena Jonsson of the Foreign Policy Institute, Gosta Laven who is in
charge of Russian affairs at the National Police Board, Rutger Palmstierna
who is chief analyst at Skandinaviska Enskilda Banken, and the undersigned,
who is responsible for the content and wording of the study.


Stockholm, April 2000
Jan Leijonhielm



Contents


Introduction
1. The term "collapse"


2. Critical areas
2.1 The danger of widespread hunger
2.2 The energy supply
2.3 The risk of mass unemployment
2.4 The danger of a breakdown in the financial system
2.5 The risk of extensive migration
2.6 Disruptions in the transportation and distribution network
2.7 The threat from the criminal element
2.8 The risk of armed conflicts
2.9 The role of the armed forces
2.10 The role of the central state apparatus


3. Effects on the rest of the world
3.1 Influence on the former Soviet republics
3.2 Influence on the rest of the world
3.3 Risk of "spillover" from armed conflicts


4. Scenarios
4.1 A state in increasingly rapid dissolution
4.2 Sudden collapse
4.3 The economic crisis causes gradual collapse


References



HOW GREAT IS THE RISK OF SOCIOECONOMIC 
COLLAPSE IN RUSSIA? 


An Inventory of Russian Problem Areas 


Introduction


The collapse of the Soviet Union was the beginning of a serious
socioeconomic crisis within the former union. The crisis not only affects
the people directly, but in many respects it also represents a threat to
various social institutions. The Russian leadership also indicated this in
its security doctrine, published in 1997, which clearly stressed that
socioeconomic developments were the greatest threat to the survival of the
state. This notion was confirmed in the new doctrine published in 1999,
although other threats were seen as having greater proportions. To be sure,
the new Russian nation and its people have demonstrated a remarkable
capacity to absorb crises and difficult conditions, but a widespread social
crisis cannot be ruled out, for example if the government is no longer able
to pay wages for an extended period of time or is unable to distribute food,
electricity, etc. A combination of a number of negative factors (catalysts)
could lead to a politically unmanageable situation and a rapidly developing
crisis. It is not improbable that a crisis could develop, but it is far from
certain that it would develop into a widespread collapse. The present study,
which was prepared in consultation with FOA's Reference Group II for
developments in Russia, attempts to define the areas that may be considered
particularly vulnerable. It also attempts to provide a preliminary
assessment of the risk of a serious crisis in the shorter term and to
examine some of the effects a widespread collapse could have on Russia and
the rest of the world. The problems involved in each area are treated in
outline form, but may provide the impetus for further studies. Finally, we
present three scenarios that could lead in various ways to a collapse. Some
of the research that has been done on this subject is listed in the
references.


1. The term "collapse" 


It is stated in the Russian debate and at times even by official sources
that the country is in a state of collapse or is in danger of entering such
a state. As recently as December 1999 an opinion poll found that a majority
of Russians believed the country was moving toward anarchy. There may be
many reasons for these often exaggerated assertions: a highly charged
political debate in which the exaggerations are legion, partisan interests,
efforts to lay the groundwork for Western aid, etc. It is clear, however,
that for a number of years Russian society has been in a serious crisis that
has resulted in extensive poverty, deteriorating health care, increased
dependency on the outside world, and a short supply of electricity, food,
services, and raw materials for hard-pressed parts of the country. This, in
turn, has made the society and its institutions more unstable and weaker and
it has become increasingly difficult to deal with serious crises. Research
has shown that weak institutions in a country result in a weak political
society, but that, despite its vulnerability, as in the case of Russia, it
can have a certain amount of stability. Another conclusion that has been
drawn is that Russia will probably move in the direction of strong political
institutions in a weak civil society, i.e. the Soviet model, rather than
toward Western-style democracy.


We have taken the term "collapse" to mean a possible state in significant
sections of the federation characterized by extremely great or
insurmountable difficulties within sectors such as the distribution of goods
and services, the power supply, transportation, collapse of the financial
system, the health care sector, etc., that cannot be dealt with effectively
by the political leadership. Conceivable effects on the populace are hunger,
a significant worsening of the health situation, and ultimately, in an
extremely negative scenario, mass migration and emigration. Crucial factors
in this context include maintaining social order, the survival of democracy
and the federation, the loyalty of the armed forces and security forces, and
their behavior. It could be maintained that a situation similar to a
collapse has already occurred in parts of the country, as seen in the fall
of 1998, in the form of food shortages and subsequent calls for help from
some Russian regions near Sweden. Thus far, however, situations of this kind
have been of limited depth and breadth. A more widespread, serious Russian
crisis with the potential for leading to collapse cannot be ruled out,
however, even though a sudden collapse throughout the entire federation is
less likely, due to Russia's size. A common thread in all the various
studies on states of crisis described below is that such states have been
around for a long time, but that the inherent resistance and toughness of
Russian society has prevented a deeper crisis. It is virtually impossible to
tell how a collapse-like situation can develop. The most probable
consequence could well be that the federation would disintegrate into
smaller, antagonistic regions and that people would remain in their home
villages rather than try to go to some unknown country in the West.
Regardless of its cause and rapidity, however, a collapse would affect
stability and, thus, the security situation in regions near Sweden for a
long time to come. Consequently, we have every reason to study possible
courses and consequences to increase our mental and actual preparedness.


2. Critical areas 


2.1 The danger of widespread hunger 


In 1998 Russia had its worst harvest since the 1950's -- almost 50 percent
lower than in 1997. The 1999 harvest was somewhat better, but still far
below average. As usual, the situation is worst in the area of fodder grain,
where the need for imports is great. In 1999 these exports totaled 9 percent
of needs, while in 2000 it is expected to increase to almost 20 percent. On
the other hand, the country had a food grain production large enough to meet
demand and had a grain buffer from 1997 of about 25 million tons, although
it has now shrunk to around 18 million and is expected to drop additionally
to around 10 million early in the summer of 2000. In 1999 the situation was
worse: In June, before the harvest, the reserve was only about 6 million
tons. Some observers believe a shortfall of about 10 million tons of grain
is probable in 2000. However, there are some unreported reserves in the form
of production that is consumed locally via barter. Very little of this is
seen in the official statistics, but it is clear that those sectors of the
Russian populace that have access to their own sources also utilize them
maximally and that so-called city farming plays a major role in supplying
regions where this is possible. Other regions are much more dependent on
importing foodstuffs.


The main problems in the agro-industrial complex are in areas such as
storage, regional distribution of arable land, and food distribution.
Agriculture is being slowed primarily by a shortage of seed for sowing, a
low degree of mechanization, and a lack of money for repairs. Russia imports
around 55 percent of its food needs, as indicated in its official
statistics. For understandable reasons, the big cities are particularly
dependent on imported food. A nontransparent market with high prices as a
result is another consistent problem. The heavy dependence on imports
creates the risk that if the Russian financial market collapses foreign
producers will not dare export to Russia. This is why large quantities of
food piled up at the borders during the crisis in August 1998. Certain
regions in the northern section of the country, the Caucasus (particularly
Dagestan), the inner republics of Siberia, and the Far East are especially
vulnerable and stockpiles also dwindled seriously in the winter of 1998/1999
when they neglected to build up reserves for the winter. Institutes such as
retirement homes, orphanages, prisons, etc. are particularly hard hit by
this. Another problem is that extremely severe winter conditions make it
more difficult to transport necessities to communities along the Arctic
Ocean route.


According to the Russian Government, however, there was no danger of hunger
in 1999. The Russian Government did welcome credits from the United States
and the EU totaling around $800 million and there is an aid program for the
winter of 1999/2000. In September 1999 Russia asked the United States for 5
million tons of grain, but has been granted only around 500,000 tons. An
extensive program for food aid and assistance in food production has also
been developed by the EU, but for now the EU has frozen around $30 million
in food aid and does not wish to sign any long-term aid agreements, in part
because of the war in Chechnya. The aid that has been implemented seems to
have functioned relatively well. Its effectiveness may be reduced, however,
by an inability to implement fair distribution or, as in 1992, by major
portions of the aid ending up in the wrong hands. It is also possible that
the objective conditions in the area of transportation, such as insufficient
ice-breaking capacity along the Arctic Ocean route or a lack of freight
cars, could cause delays in deliveries to needy areas. Regional supply
problems will probably persist and new calls for assistance cannot be ruled
out. The mediocre harvest of 1999 and dwindling reserves caused 17 regions
to end grain exports to other parts of the federation. This trend, which
hinders free trade in agricultural products within the federation, has
become increasingly discernible in recent years and it is helping increase
the risks involved in bringing supplies to hard-pressed regions.


Even though Russia managed to survive this winter, the problems of low
agricultural yield, continued dependence on food imports, and the risk of
more crises in distribution remain. One troubling factor is the low degree
of mechanization and rapidly aging machinery. While the need to replace old
equipment with new is around 10 percent annually, funds are available to
replace only a few percent. During the 1990's the use of chemical
fertilizers dropped to around 10 percent of the 1990 level. It should also
be pointed out that Russia's continued low credit rating is limiting the
availability of supplemental food imports on a commercial basis.


Continued foreign credits should be combined with binding agreements by the
Russian Government and local authorities that stockpiles for the winter will
be continually replenished to acceptable levels. It appears that local
authorities often count on the central agencies to provide them with aid
after they intentionally prioritize needs other than the food supply.


2.2 The energy supply 


Russia's energy production has dropped drastically since 1991: oil
production by around 50 percent, gas production by around 13 percent, and
electricity generation by around 20 percent. Oil production showed signs of
rebounding in 1999, but there appears to be no guarantee of stable growth
over the next few years. Among these sectors, the drop in oil production has
the most serious economic consequences, while the fall in electric power
generation represents the most direct threat to the populace. The drop in
electric power production may appear relatively limited, to be sure, but the
problem lies in the lack of distribution capacity to hard-pressed regions
and population centers. A number of such areas have already experienced
brownouts in recent years and some parts of towns have even been evacuated
(e.g. in Norilsk in 1997) due to power shortages. Leading up to the winter
season, it frequently happens that a number of oil-fired power plants have
no more than 10 to 15 percent of their stipulated oil reserves for the
winter. In 1999 electricity consumption rose sharply, while stockpiles
dwindled at approximately the same pace. Needed investments in the energy
sector have been estimated at between $3 and $5 billion annually to keep
power production from declining. Since only a small fraction of this sum
will be feasible in the coming years, there is a risk of even greater power
shortages several years from now.


The food and electricity supply is naturally linked to social and political
stability and, thus, presents a national security problem. These problems
also include possible new catastrophes at nuclear power plants, which
Russian experts have warned about repeatedly. Moreover, there is a purely
military security aspect to the uneven electric power supply: The Russian
nuclear retaliation strategy is still based on "launch on warning," i.e. a
nuclear response to a perceived nuclear attack before such an attack has
reached its target on Russian territory. The reaction time as previously
practiced is around 20 minutes. With the inferior communications network
that presently exists, the gaps in the Russian radar shield, and the risk
that even vital leadership centers could be without electricity, there is a
clear danger of incorrect assessments and mistakes in panic situations. To
avert such situations, the United States and Russia signed an agreement on
observing each other's strategic command centers at the turn of the
millennium. It was canceled by Moscow during the war in Kosovo, to be sure,
but resumed in September 1999.


Causes of the deficient electric power supply include a shortage of fuel for
power plants, explosions in gas pipelines, an insufficient power
distribution network, and shutdowns caused by a lack of spare parts or by an
inability to pay for repairs and maintenance. Electricity consumers at all
levels have had difficulty paying and there are no financial reserves to
fall back on. In all probability, there will be serious power blackouts in
the future, as well. If they occur simultaneously, it is possible that both
small and large towns in northern and inner Siberia, along the Arctic Ocean
coast, on the Kola Peninsula, and in the Far East could have to be evacuated
temporarily. That would require a rapid and large-scale transport effort and
relocation camps in other parts of Russia. Aid from abroad would probably be
necessary.


2.3 The risk of mass unemployment 


Officially, unemployment in Russia in 2000 is around 12 percent, or around 9
million, of the workforce, according to the ILO [International Labor
Organization] definition. If hidden unemployment is included, however, the
total is probably much higher. Estimates vary from 15 to 25 percent.
Moreover, according to recent findings, around 11 million Russians of
working age are "missing" from the statistics, which tends to confirm the
credibility of the latter estimate, which would mean around 20 million
unemployed. An excess mortality rate of around 3 million resulting from the
transition process (alcoholism, suicide, falling life expectancy for medical
reasons) seems to be an aggravating factor. The official unemployment
figures have shown a fourfold increase since 1991 and the rate does not
appear to be slowing. The percentage of long-term unemployed is rising
steadily, as is youth unemployment.


With the paltry financial resources that are available--Russia uses only
about 9 percent of its GNP as a social safety net and for social services,
compared to around 33 percent in the West -- Russia has very little capacity
to counter continually rising unemployment. It is also the most hard-pressed
regions -- northwestern Russia, the Volga region, the northern Caucasus,
northern Siberia, and the Far East -- that are most heavily burdened by
unemployment (15 to 40 percent), while unemployment is much lower in urban
areas in the western sections of the country. As an example, unemployment is
only 3 percent in Moscow. This is causing migration westward and to the big
cities.


A serious economic crisis hitting the industrial and service sectors would
cause a rapid rise in unemployment. One of Russia's main problems is that
the raw materials sector, which is so important economically and whose
exports account for around 25 percent of the country's GNP, is not
labor-intensive. In other words, there is no significant room for creating
jobs in this sector and it will be a long time before the service sector and
other branches requiring more labor will have grown to the desired level.
Russian researchers have calculated that overemployment in the Russian
economy around 1990 was at least 25 percent and basic conditions have
remained unchanged since then. To be sure, there has been a relatively
large-scale transition from industry to services, but job security has
remained high: Formal layoffs are postponed as long as possible. Likewise,
few unemployed bother to register, since registering brings no improvement.
Moreover, as the economy is demonetarized and barter increases, not only the
tax base, but jobs also disappear. The estimated 25 percent may well
increase to 30 or 40 percent in a scenario in which regions pressed by a
collapsing economy turn inward and begin exacting protective duties from
surrounding areas. Such tendencies were apparent during the financial
collapse of August 1998 and, as mentioned above, they may be seen in
agriculture and other sectors even today. Under these circumstances, the
absence of both central control and a social safety net could help create a
far more serious situation in many parts of the federation.


2.4 The danger of a breakdown in the financial system 


A major part of Russia's instability can be explained by its inability to
construct stable structures and institutions within the financial sphere.
Its tax legislation is incomplete, unclear, and ineffective, while banks
have been involved mainly in short-term speculation and have failed to
function as credit institutions in the economic sense. Since the crisis in
August 1998, many have also been insolvent, which increases instability.
Kleptocracy and oligarchy have created a society in which the economic
infrastructure rests in fewer and fewer hands, which tends to increase the
risk of unexpected and destabilizing events. The instrument of bankruptcy is
seldom used and protection of real estate is tenuous. Companies,
particularly banks, that are ripe for bankruptcy are allowed to live on and
contribute to the instability. The fact that a major bank, Inkombank, went
into bankruptcy in early 2000, is an exception rather than the rule.


The budget deficit and the inability to service the foreign debt have led to
increased dependence on the West. The sharp drop in raw material prices
(particularly oil, but metals, as well) in 1998 reduced export values,
greatly damaged the trade balance, and thereby demonstrated the danger of
being dependent on price-sensitive raw materials for a trade surplus. The
trade balance is improving again, however, with rising raw material prices
in 1999. The Russian economy has also become increasingly dependent on the
IMF [International Monetary Fund] and delayed credits from that organization
are having an increasing negative influence, perhaps most of all at the
psychological level. However, bonds that fail to materialize and that are
needed for servicing the country's debt could cause Russia to withhold
payment, i.e. the country could declare itself bankrupt and renegotiate all
its debts. The August 1998 crisis showed that, because of its weakness, the
Russian economy is highly vulnerable: in a crisis of this kind, foreign
investors withdraw their money, the currency loses much of its value, and
imports fall drastically as a result. In all likelihood, these conditions
will persist for a long time to come. Russia's ability to build stable
financial structures will increase at a very slow pace, according to the
virtually unanimous analysts.


Of course, much depends on how the Russian economy develops in the coming
years. There has been a partial recovery since the August 1998 crisis, due
to increased industrial production, lower inflation, and a large trade
surplus, but 1997 levels have not yet been restored in all sectors of the
economy. Real wages dropped by over 20 percent in 1999 and the number of
people living under the poverty line is around 35 percent.


A new financial crisis having the same effects as the one in August 1998 but
with the additional impact of causing all Western banks to close their doors
to Russia and stopping practically all imports cannot yet be ruled out. In
all probability such a crisis, which would also lead to extremely high
inflation, would serve as a catalyst in a preexisting crisis, causing it to
move rapidly toward collapse, but it could also trigger a collapse on its
own. Global financial institutions would probably be less severely affected
than in 1998, however, because they are now hedging their bets more
effectively.


The conceivable effects on Russian society of a severe financial breakdown
in the form of a partial or total collapse in trade, distribution, and
transport and the resulting mass migration, would place great pressure on
the world to quickly supply Russia with credits and food. Should such a
situation arise, however, it is doubtful that additional cash credits are
realistic, considering past experience, although food and humanitarian aid
should be possible, if the prerequisites for aid missions are even present.
However, there should be considerable incentive for nearby countries to
shield themselves from the effects of a collapse in the form of streams of
refugees, epidemics, total lawlessness, and the export of crime. Factors
that tend to work against a complete financial breakdown are Russians'
previous experience and ability to endure withheld wages and bank crashes
and the considerable importance of barter even today. Such a system reduces
vulnerability with regard to supplies, but has other harmful effects, such
as reduced sales and lost tax revenues. Once again, people in the big cities
are more vulnerable, since barter is less common there than in rural areas.


2.5 The risk of extensive migration 


The risk of difficulties in distribution described above also presents the
most likely cause of major spontaneous population movements within Russia.
There are already significant numbers of people (estimates range from 0.5 to
1.5 million) who have been repatriated from nearby countries or are
fleeing/passing through to Europe and are considered to be in various types
of refugee situations. Refugees from Chechnya alone total around 200,000.
However, the probability that large numbers of the Russian people would
spontaneously leave their homes, except in the event of a civil war, has
been judged low by both foreign and domestic observers. They prefer to
remain at home because that is where their life-sustaining networks are,
because they would not be guaranteed housing elsewhere, and because the
situation would probably be just as bad there. The big cities, such as
Moscow, still require registration to obtain permanent permission to live
there.


If large-scale, spontaneous migration may be ruled out or kept to a
manageable size, there remains the problem of necessary relocation due to
the above-mentioned supply difficulties in the areas of electricity and
food. It is difficult to estimate the magnitude of such relocations, but it
is not likely that several cities/regions will have to be abandoned at the
same time, perhaps not even entire population centers. The Russian
authorities are presently trying to help people willing to leave
hard-pressed regions and settle elsewhere and carry out investment programs
for supplying a smaller population in vulnerable areas, but this is a very
slow process.


It should also be pointed out in this context that the general health
situation and the medical infrastructure in the federation are so poor that
several regions would have significant problems if they were to receive
large streams of refugees. Shortages of hospital beds, medicines, surgical
instruments, etc. mean there are virtually no reserves to utilize in a
crisis situation.


2.6 Disruptions in the transportation and distribution network [subhead]


The situation in the Russian transport sector has been problematic since
1991, reflected mainly in a reduced transport volume on rail and highways.
Both the rail network and rolling stock suffer from significant shortcomings
caused by substandard maintenance and a lack of spare parts and modern
locomotives and railcars. According to the Ministry of Railways, about 30
percent of the freight cars, 40 percent of the passenger cars, and nearly
half the locomotives are of such poor quality that they must be replaced at
once. Practically all the funds needed for such modernization are absent.
This is particularly serious considering that the Russian economy is
predominantly rail-based. Around 40 percent of all freight shipments,
calculated in ton-kilometers, are by rail and disregarding transport by
pipeline, the figure is around 90 percent. Overall, the volume of freight
transported by rail has dropped by half since 1991. The reduced freight
volume transported by rail is also an indication that barter within regions
is steadily increasing.


The dissolution of the union has strongly contributed to worsening
long-distance shipments, divided and unproductive production units, and
insufficient numbers of trucks, particularly larger trucks of international
class. Russia's merchant marine is also unable to meet the country's needs
-- although weak signs of recovery may now be seen -- and its existing fleet
is twice as old as the global average for merchant marines. Local
distribution with small trucks frequently functions better than
long-distance transport, in part because costs are lower, while railway
costs have risen to frightening levels, since profitability is low. Thus,
the underdimensioned transport apparatus represents a danger in itself,
since situations often arise in which the capacity to supply hard-hit areas
of the country proves to be insufficient. Moreover, it appears improbable
that this apparatus would be adequate in other possible crisis situations,
in which additional transport capacity would be needed. The transport
apparatus is also quite sensitive to strikes, for example. When miners
blocked the trans-Siberian railway in 1997 and 1998, a complete collapse of
distribution to the Far Eastern regions was extremely close at hand,
according to cabinet members at the time. Despite relatively high
investments and cooperation with European countries in the area of
transport, renovation of the transport apparatus is moving extremely slowly.
It appears that no significant improvement will be forthcoming before the
middle of the current decade. Until then, the bottlenecks and weak links
will remain, endangering the effective distribution of necessities
throughout the country.


2.7 The threat from the criminal element 


The negative effect of crime in Russia on Russian social development and on
the rest of the world increased at a rapid pace during the 1990's. There is
a heritage from the Soviet period of a well-developed criminal network and
extensive crime that (for political reasons) was dealt with only
superficially by the Soviet media. Since 1991 crime has been described in
detail in the public debate and the media, but it has also grown in strength
and breadth, such that it will probably be a constant component of Russian
society for the foreseeable future. In principle, the same may be said of
all countries, but organized crime in Russia controls such large sectors of
the economy and wields such power in society that it may be called a state
within the state and in some parts of the country it even is the state, or
at least the controlling and guiding factor. Among other things, this means
the economy is impoverished by theft, tax evasion, the reduced presence of
foreign companies, and fewer foreign investments. At present, it may be said
that organized crime is in its most destructive and harmful phase, in that
it often exports its profits or uses them to import consumer goods.


There are now some signs, however, that the kleptocratic criminal class is
beginning to realize there is a need for fixed rules and for protection of
life and property. For this purpose, criminals are also seeking political
power, through membership in regional dumas (which brings with it immunity
from prosecution) or control over politicians. The number of political
murders and criminals seeking seats in local or federal dumas appears to be
on the rise. At the same time, the inability of politicians to deal with
crime is clear. In a positive future scenario, it is possible that capital
from the criminal sector could be invested in the Russian production and
service sectors, thereby going over to a phase that is less harmful to
society, at least from an economic standpoint.


On the other hand, organized crime could also promote instability in Russia
by attempting to take over more sectors of society and to control a greater
share of politics. Mutual rivalry, clashes with police, and a great number
of murders, which distinguish Russian crime from that of most other
countries, are making Russian society increasingly violent. With the
seemingly widespread corruption within the police, the military, and the
authorities that exists today -- Russia is presently considered one of the
world's most corrupt nations, surpassed only by some African and Latin
American countries -- the chances of countering such tendencies seem small
indeed. Yeltsin's warning that Russia could become the first criminal
superpower appears justified.


In the event of a collapse, it appears most probable that crime would act as
a catalyst. The risk of extensive plundering by heavily armed gangs under
anarchistic conditions appears great. This pattern has been seen repeatedly
in the former Yugoslavia, but was also seen during the Soviet era and in
Russia following the dissolution of the union. Moreover, the risk of ethnic
cleansing could increase in certain parts of the federation, along with
fighting between rival gangs.


2.8 The risk of armed conflicts 


Russian and Western analysts usually point to the northern Caucasus as
potentially the biggest powder keg in the federation. Dagestan and Chechnya,
with considerable dependence on economic support from Moscow, a complex clan
system, widespread crime, and strong ethnic and religious tensions, are
particularly unstable. A local war in this region also erupted in August
1999 and in September Russian troops invaded Chechnya, purportedly to
eliminate guerilla strongholds there. However, the course of the war, with
extensive bombing of the infrastructure, indicates that Russia wants to
control the entire region militarily and to eliminate Grozny as the capital.


Ethnic conflicts, pogroms, extreme social and economic segregation, and
political extremism are frequently pointed to as possible causes of violent
eruptions within the CIS [Commonwealth of Independent States] and there has
been no shortage of examples since the collapse of the Soviet Union. Since
the war in Chechnya in 1994-1996, however, there have been no widespread
violent eruptions in Russia, up to the events in Dagestan. On the other
hand, several CIS members are involved in more or less extensive armed
conflicts, mainly against Islamic groups. Russian troops play an important
role in these efforts.


The relative Russian homogeneity in large portions of the federation has
probably put a damper on serious armed revolt. In general, the minorities
lack the political will and the military might to mount any serious threat
to the central government. In addition, regions and ethnic minorities
currently enjoy relative freedom (which Putin clearly hopes to change, in
part by distributing federal funds via regional organs that are controlled
by the president), gained as Moscow's influence eroded during the 1990's.
This should reduce the risk of violent eruptions within the federation
outside the northern Caucasus region. The risk that unrest will spread to
other CIS nations is difficult to assess, but in any event it cannot be
ruled out. The war in Chechnya also has a number of other negative
consequences for developments in Russia: a worse economy, militarization of
society, xenophobia, worsening relations with the rest of the world,
particularly the West, and the risk that joint programs and credits will be
eliminated, i.e. all factors that can contribute to crisis and collapse.


But the primary future threat to social order at both the regional and
federal levels is probably found in the growing extreme poverty, which is
quite extensive. Between 35 and 40 percent of the Russian people now live
under the poverty level, compared to around 23 percent in 1994 -- and the
percentage is growing. The average pension is no more than about half the
minimum wage (March 2000). Under these conditions and despite the seemingly
unending patience of the people, late wage payments or banking crises could
result in widespread demonstrations and unrest. During 1999 real wages
dropped by a whopping 23 percent and this includes wages paid after long
delays and sometimes not paid to this date. The growing gap between rural
and urban areas and between rich and poor regions is another cause of
tension. Following the financial crisis in August 1998, the hostile feelings
between certain regions became increasingly pronounced. This was made
manifest in export bans on both important goods and currency and border
guards were reinforced in certain areas. The climate worsened between
regions, as well, which caused the Russian Government to react with threats
of countermeasures. This pattern was repeated when there were signs of food
shortages in the fall of 1999. Even though these problems were overcome, it
is likely that difficulties of various kinds can create additional tensions
between hard-pressed and better off regions and areas.


2.9 The role of the armed forces 


The role of the Russian Armed Forces is limited in this discussion to two
related questions: Are they a stabilizing factor under difficult social
conditions and/or are they a threat in themselves? Thus, the reliability of
the armed forces is a key question.


Military officers are among the big losers following the collapse of the
Soviet Union: Their prestige has fallen drastically, their social status has
worsened, and their profession has been made far more difficult by budget
cuts, inferior materiel, and canceled training exercises. This has led to a
greater politicization of military officers, i.e. more officers have become
politicians, while political groupings and parties have promoted at times
fierce and populist pro-officer/military policies. Officers also appear to
have been radicalized since the Soviet period. Direct comparisons are
difficult, since there were no opinion polls in Soviet times. But officers
show clear signs of a conservative/reactionary and frequently undemocratic
attitude in surveys taken in recent years. The majority want to see the
return of the Soviet Union, do not believe in parliamentary democracy, and
believe the politicians are unreliable. The fascist movement New National
Unity is supported by some officers and some military units have allowed the
movement to train using their facilities. This being said, officers are
probably far from wanting to move in a clear fascist direction. In many
respects, the war in Chechnya has given the armed forces revenge. They have
shown that they can be successful and they appear to have received more
funds and esteem from the general public, as well. Even the pro-Putin press
has said that criticizing the military and security apparatus is "off
limits."


Another troubling trend is the rising crime and corruption within the
military. Since 1995 the number of crimes committed within the military has
risen almost threefold and the number of peacetime deaths practically
doubled. Crimes are being committed at all levels and generals are no
exception. Links between organized crime and the military have been
demonstrated more and more often. There are massive illegal arms sales,
including sales to the enemy during the ongoing war. This represents a
threat to a stable and loyal military and, thus, has a negative impact on
the possibility of creating a democratic state.


The question of whether officers are loyal to the state leadership is a
difficult one to answer. On three occasions (1991, 1993, and 1995/1996)
during the post-Soviet era their loyalty has been tested and found dubious.
During the attempted coup in 1991 parts of the military leadership were
disloyal to the president at the time. During the shelling of the White
House in Moscow in 1993 officers participated (with great hesitancy and only
certain high-ranking officers were involved) when the military fired on the
lawfully elected body. The most serious breach of loyalty from the
standpoint of the Russian leadership was the refusal of several military
leaders to participate in combat in Chechnya from 1994 to 1996, for which
they were also punished to varying degrees. As far as we know, there have
been no similar incidents during the current war in Chechnya.


One answer to the loyalty question may be that the elite divisions in the
Moscow Region and the president's guard are considered loyal to the
president and to the government, while the degree of loyalty probably varies
out in the other regions. However, Putin's popularity among officers is much
greater than Yeltsin's. Another question that is difficult to answer is
whether or not a charismatic military leader could gain more loyalty than an
autocratic president or a government that is no longer able to control the
country. This type of figure hardly exists today, but legends and heroes
arise quickly in Russia, as history has shown.


In several regions there are indications today that, through close
cooperation with local political leaders, military commanders are gaining
more and more influence over the control of these regions. A military leader
can provide the city or town with cheap labor (it is quite common for
inductees to be used for harvesting, home construction, repair work, etc.)
and is often involved in other economic activities, as well (such as the
sale of military materiel) that require cooperation by the local
authorities. Thus, it is conceivable that loyalty could gradually move in
the local/regional direction, if the regions become even stronger political
and economic actors in the coming years. It remains to be seen, however,
whether this trend will be broken by the president's efforts to reduce
regional independence. Increasing animosity toward surrounding regions or
guarding regional boundaries during protectionist periods could also
strengthen local military affiliation with the region, at the expense of
loyalty toward the government and the president. Ultimately, this could lead
to a "warlord" scenario.


Observers both in Russia and abroad believe there is little danger of a
military coup. Low morale among the troops, the absence of a charismatic
leader, and a lack of sympathy among the people for a coup at the present
time are probably restraining factors on any would-be perpetrators of a
coup. Of course, if the country's economic and political situation were to
worsen additionally, someone may consider himself called upon. There could
possibly be some support from the State Duma, as well. There is presently a
clear majority there for a larger military, superpower status, and increased
investment in the military sector. The question, however, is whether a
sufficient number of units are available for an outright military takeover
and whether the people will accept such a takeover.


2.10 The role of the central state apparatus 


The Russian leadership's ability to rule the country has clearly diminished
in recent years. Basic state obligations such as the protection of life and
property, the rule of law, a guaranteed income above a minimum subsistence
level, and social services and care, have been sorely neglected. For
example, the average pension is now below the subsistence level. Regional
independence has increased since the direct election of governors was
instituted and the number of agreements with Moscow distributing tax money
to the regions is rising. Russian researchers have pointed to a clear
pattern, whereby feudal states with a strong governor are now on the rise.


The dependence of the military on regional authorities has increased for the
above-mentioned reasons and the same is true, to varying degrees of
paramilitary units and police, although they have always had a strong local
connection. The corruption within these forces, particularly the police, is
extremely widespread and links to organized crime have frequently been
found. For example, weapons are obviously being sold to criminals by the
military and sometimes the police. The various forces' loyalty and ability
to maintain law and order in a situation approaching collapse may be
questioned. On the regional level, responsibility rests more on the military
authorities, which may possess greater capabilities in this context. This is
extremely difficult to assess, however: In case of a collapse, there could
be mass desertions, undermining these capabilities. The material the army
has to work with is also quite poor at present due to a poor assortment of
recruits and the number of convicts and individuals who are wanted by the
law is reported to be on the rise. During a possible collapse, the military
stocks of many heavy weapons will probably play an important role, as well
as its ability to protect them, particularly their stockpiles of tactical
nuclear weapons. Paramilitary units and guards at large companies are also
important potential upholders of law and order. However, there is probably
also a significant risk of fighting among such forces for necessities and
the like.


3. Effects on the rest of the world 


Naturally, a total collapse of Russian society would have significant
effects on the rest of the world. They may be classified in several ways.
Here we have selected two geographic areas and the most serious dimension:
the impact of military conflicts on the rest of the world. Another possible
effect, although less likely for reasons indicated above, is mass migration.


3.1 Influence on the former Soviet republics 


If a collapse in Russia means an end to exports to the former Soviet
republics, which does not appear at all unlikely, it would mainly affect the
countries that are dependent on Russian energy, i.e. Ukraine, Belorussia,
Georgia, Lithuania, and Latvia. The situation would be particularly serious
in countries that could not quickly replace Russian imports with imports
from elsewhere: mainly Ukraine and Belorussia. The Baltic states are now in
a better position to replace Russian oil with imports from the West,
although there is a risk of bottlenecks caused by a low capacity to import
from the West. All the countries in this group conduct a considerable share
of their trade with Russia and in many cases the loss of this export market
and, for example, lost revenues from transit fees, would be a severe blow to
their national economies and also reduce their imports. Other products that
would disappear include input goods in the form of Russian semi-finished
goods and nonferrous metals. Most of these new economies are still fragile
and would probably be destabilized quickly. The effects of the Russian
crisis in August 1998 show that Kazakhstan, Ukraine, Moldavia, and
Belorussia, for example, suffered serious disruptions in their economies.


Another effect of a Russian collapse would probably be disruptions caused by
refugees to neighboring countries from nearby regions in Russia. Due to the
transportation problem, the flood of refugees would probably seek the
quickest way to its perceived source of aid. Considering the scant resources
the CIS members could produce, assistance from the West would probably be
needed for these people, as well. 


3.2 Influence on the rest of the world 


To the world outside the circle of countries that would probably be affected
immediately by a collapse in Russia, the economic effects would also be the
most significant. Russia's debt to Western banks would have to be written
off. Foreign investments would be frozen and trade would be reduced or
cease. The latter could have significant consequences for global market
prices, particularly with respect to metals and, to a certain extent, oil in
the short term. 


Russia's share of the global export of certain metals rose sharply during
the 1990's. In 1999 Russia accounted for around 25 percent of aluminum
exports, around 11 percent of copper exports, around 20 percent of nickel
exports, and over 65 percent of world palladium exports. Russia has also
gained considerable shares of the tungsten market in recent years. Europe,
in particular, is dependent on Russian oil imports (around 18 percent) and
gas imports (around 25 percent). Some countries are highly or totally
dependent on Russian gas (e.g. Finland, Czech Republic, Poland; Hungary and
Germany). Sweden's dependence on Russian raw materials is relatively low,
but we would quickly be hit by indirect price effects.


An expected or actual situation in which Russian raw materials could no
longer reach world markets would probably lead to sharp price hikes,
particularly for the metals mentioned above and perhaps for oil in the short
term. This could also cause price hikes on other raw materials, at least for
a limited period of time. There are possibilities for replacing practically
all the Russian raw materials, however, with the exception of palladium.
During the time it takes to develop this capacity, which should be from
several months to a year, world market prices would probably remain high. An
anticipated serious crisis in Russia would probably result in rapid price
rises, since the industry and traders would then attempt to accumulate
buffer stocks.


Russian organized crime is already having a clear impact on the world. While
some countries such as Sweden and England are used primarily for money
laundering, Poland and Germany are suffering from extensive Russian crime.
If Russian criminals are given free rein in the event of a collapse, they
would probably eventually gain more of a presence in other countries.


3.3 Risk of "spillover" from armed conflicts


The probability of an armed conflict between Russian units/groupings/regions
is difficult to assess. In our part of the world, it will probably be less
likely in the foreseeable future: The population is relatively homogeneous
and there are no strong antagonisms that could erupt in violence in the near
future. As mentioned above, however, antagonisms could arise between regions
when the supply situation is tight, but it is difficult to say whether they
would lead to extensive conflicts. Of course, in scenarios involving total
collapse, when "everyone is at war with everyone," far more serious
situations are possible. The Baltic states and Finland would be affected,
for the most part. Nearby countries such as Poland, Georgia, or Rumania
could also be affected.


It is worth noting in this context that the number of tactical nuclear
weapons in our region is relatively large. In the Leningrad Military
District there were an estimated 1,100 to 1,400 in 1998. Most of these
belong to the naval forces -- the ground forces probably no longer have any
-- and some of them are being moved to intermediate storage facilities for
destruction. Security for tactical nuclear charges is believed to be worse
than for strategic ones and it is possible that they could fall into the
wrong hands if the country falls into a state of chaos. The capability of
delivering or detonating the charges, i.e. the availability of weapon
carriers, would probably be a problem for anyone gaining access to nuclear
weapons, however. To a great extent, the same is true of biological and
chemical weapons.


Under these conditions, an increase in the smuggling of nuclear material is
conceivable, particularly if it falls into the hands of criminal gangs.


4. Scenarios


These scenarios present several possible developments in outline form to
illustrate three different types of possible collapse situations and the
mutual effects of the relevant factors: one scenario in which the role of
the regions is the driving force and in which the regions attempt to gain
control over sections of the country, one scenario in which a collapse is
triggered by an unexpected and rapid course of events, and finally one in
which a more and more poorly functioning economy pushes events toward a
gradual collapse. A common thread in all three is that the weak Russian
state and its institutions are unable to stop the impending course of
events.


4.1 A state in increasingly rapid dissolution 


Certain regions grow stronger in the early 2000's, while the central
government is weakened by political fighting and an inability to make
decisions. The regions become increasingly segregated and several strongmen
begin to lay claim to weak neighboring regions. Another financial collapse
occurs, although it is not as deep as the August 1998 crisis. However, it
does result in worsening food and electricity supplies and transport
problems. The socioeconomic situation in the country deteriorates rapidly as
a result. This is made manifest by increased poverty, crime that becomes
more and more a part of the everyday life of citizens, and virtually total
political corruption. Any previous confidence in the state's ability to
provide for and protect the populace is quickly eroded.


The trend toward regional feudalism, which has been apparent for several
years, is reinforced in that virtually no taxes are sent to the federal
authorities. In this situation, several strong governors decide the solution
is to break up the federation into five large interregional units, with the
help of military and paramilitary leaders. This is done, however, against
the will of the smaller regions and spontaneous resistance in the form of
opposition to the authorities erupts, along with armed conflicts, in several
places. The world believes it is unable to influence events other than
through attempts at mediation between the central authorities and the
regions. Imports cease almost totally, since foreign exporters dare not rely
on the Russians' ability to pay. Hoarding, border guarding, and bans on
exports among several regions aggravate the situation. The federal system
breaks down, resulting in widespread power shortages, particularly in the
northern and northwestern parts of the country. Inductees desert and the
armed forces fall apart on the federal level, while local paramilitary units
gain more power.


4.2 Sudden collapse 


The Russian president dies suddenly or is assassinated and new elections are
set. Islamic groups in the northern Caucasus, Kirghizia, and Tadzhikistan
take the opportunity to initiate military operations against their
respective states and Russian positions. Tatarstan declares its independence
and the Far Eastern region follows its example. Russian military forces are
sent in against the attackers, but mass desertions and insufficient military
capacity to deal with several crises at once greatly undermine their
effectiveness. Military and paramilitary forces out in the regions
eventually begin to fight among themselves for stockpiles of food and
weapons. Tactical nuclear weapons are also plundered. A situation
approaching civil war develops, while Islamic groups force Russian troops
out of several areas in southern Russia and parts of Central Asia. Larger
and larger streams of refugees begin to move toward the center of the
country and to other countries. Already greatly weakened, federal structures
(tax base, transport, subsidies to the regions, protection, health care, the
social safety net, etc.) basically collapse and, because of widely differing
interests and their vulnerable situation, the regions are unable to create a
common strategy. General chaos erupts where everyone is at war with
everyone.


4.3 The economic crisis causes gradual collapse 


In the early 2000's the economic situation grows worse and worse. The budget
deficit increases to unmanageable proportions and inflation grows
accordingly, so that the IMF refuses to grant new credits. Both foreign and
Russian capital flees from Russia, which reduces investments drastically.
Imports drop steadily because raw material prices fall on the world markets
and the country's food supply is threatened, since production by the
agro-industrial sector continues to drop.


In 2003 a new Duma and a conservative and authoritarian president try to
salvage the situation by a partial return to the command economy. This makes
the economy and the ruble fall even more. This causes an explosive increase
in the export of currency and a virtually completely demonetarized economy
arises, in which 90 percent of the stagnating trade is in the form of
barter. Poverty becomes increasingly widespread and 70 percent of the people
are living below the subsistence level. Those who are able emigrate to the
West. The situation in Russia affects other economies in transition and
growing countries in Asia and South America, which are hit by new crises.
International preparedness to deal with Russia's problems is steadily eroded
as a result. Finally, after a catastrophic harvest and emptied reserves,
there are widespread food shortages and the people move in increasing
numbers toward the center of Russia and gradually to surrounding countries,
as well. The world finally reacts by closing its borders and sending a
limited amount of disaster relief -- measures that have only a limited
effect.


Unclassified


******

Web page for CDI Russia Weekly: 
http://www.cdi.org/russia
Archive for JRL (under construction):
http://www.cdi.org/russia/johnson