Russian Style Continues To Drag Neighbours Down

The next Uzbek leader might be more pro-Russian, but he’s unlikely to persuade credit analysts to buy into Putin’s vision of a thriving regional economic bloc, even with more stable commodity prices. The EU-member Baltic states are only investment grade ex-USSR countries

The death of Islam Karimov may be bad news for Uzbekistan. The transition after the departure of the country’s first and so far only president could well be rough. But economic trouble in this poor land – GDP per person a quarter of the Russian level – would not be a big credit event. Uzbekistan has so little financial context with the outside world that the government’s debt is not rated by any of the major agencies.

Still, the change of generations in the third most populous former member of the USSR, after Russia and Ukraine, is a good moment to take stock. It is a quarter century since the Soviet Union fell apart. Vladimir Putin, the president of Russia, has long envisaged a renewed regional economic and political bloc to rival the European Union. The credit world isn’t buying that story, because the EU itself offers the best post-Soviet economic model.

In the post-Soviet period, six of the 13 successor states have shown an annual growth in GDP per capita of above 4%, according to International Monetary Fund figures. Natural resources and a very low starting point account for the good numbers in the three leaders – Georgia (6.9%), Armenia (5.9%) and Turkmenistan (5.5%).

The next three – Lithuania (5.3%) Latvia (4.3%),and Estonia (4.3%) – all came up through the EU, first as candidates and then as members. These small Baltic states also now have the highest GDPs per capita of the former Soviet lands. Europeanization has not always been easy, but their geographic turn, away from Russia and towards Western Europe, was certainly in the right direction.

At the bottom of the growth list are Russia (1.4%) the Kyrgyz Republic (0.7%) and Ukraine, where GDP per person has actually declined at a -0.7% annual rate. The Russian economic performance may be typical of former imperial states after their empires slip away, but it is not a tempting model for neighbours.

The CBC credit verdict is similar to the growth pattern.

Putin would like to promote a Eurasian Economic Union. He has had trouble signing up members. Uzbekistan, for example, has resisted joining up. The regional reluctance is not surprising. While some national leaders might want to emulate Putin’s successful autocratic approach to government and Russia’s ability to punch above its economic weight in international relations, they will be less keen about the nation’s economic style. Besides, Russia seems more interested in dominating the group than in building shared prosperity.

Autocratic governments preside over all sorts of economies, from abject failures like Zimbabwe to the great success of China. Russia is no better than the middle of the pack. It’s not an accident that the People’s Republic has replaced Russia as Uzbekistan’s largest trading partner.

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