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What annexing Crimea will cost Russia's government

MOSCOW (AP) - Despite the pebble beaches and cliff-hanging castles that made Crimea famous as a Soviet resort hub, the Black Sea peninsula has long been a corruption-riddled backwater in economic terms. The Kremlin, which decided to take the region from Ukraine after its residents voted in a referendum to join Russia, has begun calculating exactly what it will cost to support Crimea's shambolic economy - which one Russian minister described as "no better than Palestine."

Here's a look at what Crimea needs most and the economic challenges Russia faces in absorbing it:


In the rapid run-up to the referendum in Crimea, voters were bombarded with the message that the grass was a lot greener on the Russian side.

President Vladimir Putin may have fanned such sentiment during Ukraine's anti-government demonstrations that preceded the Russian invasion of Crimea. He sympathized with protesters, casting them as fed up with an economy mismanaged by "one group of crooks" after another. And he extolled the comparative success of the Russian economy - firing off figures about pensions and wages in both countries to argue that people were better off in Russia.

On Monday, one day after the referendum, Crimean Prime Minister Sergei Aksyonov wrote on his official Twitter account that Moscow had provided 15 billion rubles ($400 million) in aid to the region, which he said had doubled the Crimean budget overnight.

"This is a platform ideal for taking risks ... and for realizing economic miracles," said Russia's business ombudsman Boris Titov.


But as the Russian dream of acquiring Crimea becomes a reality, Moscow is trying to calculate the price tag of bringing in a region that - in the words of Russian Regional Development Minister Igor Slyunyayev - has an economy that "looks no better than Palestine."

As part of Ukraine, about 40 percent of Crimea's annual budget of roughly $500 million was propped up by subsidies from Kiev. Russia would be expected to at least match - and probably far exceed - the Ukrainian annual contribution to raise living standards in its new territory.

Living standards in Crimea are drastically different from Russia. The GDP per capita in Russia, home to more than a hundred of billionaires, is about $14,000. In Crimea, it's about $5,000.

Demographics are one major hurdle. More than 500,000 people - about a quarter of the population - are pensioners. Pensions in Russia are about double what they are in Ukraine, and former Russian tax minister Alexander Pochinok estimated that paying pensions in Crimea alone would cost 70 billion rubles ($1.9 billion) per year.

Many Crimean residents make their living through tourism, although much of that money is kept off official ledgers and therefore difficult to tax. About 70 percent of tourists in recent years have been Ukrainians, in large part because the peninsula's only road and railroad links are to mainland Ukraine. The industry is likely to be hard hit as many Ukrainian travelers stay away this summer, although Russian authorities have pledged to reduce the cost of air travel to the peninsula to bolster travel to the region.


Crimea is highly dependent on Ukraine for energy and water, most of which is supplied across the thin strip of land that connects the peninsula to the mainland. About 80 percent of the region's electricity is supplied across the isthmus. The governor of Russia's southern Krasnodar region, which is separated from Crimea by a stretch of water called the Kerch Strait, pledged to provide electricity to the peninsula by building an underwater supply system. Other officials have said Crimea may need to build its own electricity plant - a project that could come with a price tag of nearly $1.7 billion, analysts say.

Russia has promised to bolster infrastructure in the region. Moscow and Kiev have been talking about building a bridge over the Kerch Strait for more than a decade, but the project has repeatedly stalled. In recent weeks, Russian officials have eagerly revived the project, which is estimated to take years and cost at least 50 billion rubles ($1.4 billion). They also are now discussing building a railroad and underwater tunnel across the strait.

Even as the Crimean government has threatened to nationalize Ukrainian government property, Kiev has promised not to turn off the taps to energy and water.

"(The Kiev government) is eager to be seen as reasonable and moderate through all this; they don't want to give the Russians an excuse for further intervention," said Timothy Ash, an analyst at Standard Bank. "The danger of being obstinate might be that Russians would decide to intervene around Crimea to secure water and utility supplies."


Even if all of these projects add up to billions of dollars, it may still be small change to the Russian government.

"For Russia's budget this is not a big deal," said Nataliya Orlova, chief economist at Alfa Bank. "Even if you spend $5 billion or $10 billion, this is not money that dramatically changes things."

Russia had a total of over $170 billion stashed in two rainy day funds as of late February. It tapped into this money to try to shore up the regime of ousted Ukrainian President Viktor Yanukovych, who fled to Russia last month.


Orlova argued that Crimea's annexation could in fact turn out to be positive for Russia's economy in the short term, because investment could spur a consumption boom in Crimea.

But Crimea has long been known as an organized crime hub, and the Kiev government's longstanding reluctance to meddle in the autonomous region has meant that a culture of corruption has been tacitly allowed to flourish in the region since the Soviet collapse.

Join the discussion

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thevisitor967 March 19 2014 at 1:08 PM

Why should the U.S. do anything? Let Europe take care of it--they're the ones who live next door to Russia. And only recently, they finally agreed to sanctions. So if they don't care--why should we?! The time has come for Americans to realize that Europe has been taking advantage of America for too long. They depend on us for our Defense Dept. so they don't have to spend any $ on it. Instead, they spend their money on healthcare, etc. That's why they have a better healthcare program than we do! Enough already. The U.S. should stay out of it!

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1 reply
dsjspartan thevisitor967 March 19 2014 at 1:15 PM

Thank you, Neville Chamberlain.

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1 reply
retpo96 dsjspartan March 19 2014 at 1:38 PM

Occupation is not on US territory; does that call for war ?
Do we go to war when Isreal occupies territory against Palistines? and continues to snub America?
We did nothing for years and before Obama Admin so what is the big deal?

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htfcd March 19 2014 at 12:47 PM

1st October 1939
"I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma; but perhaps there is a key. That key is Russian national interest. It cannot be in accordance with the interest of the safety of Russia that Germany should plant itself upon the shores of the Black Sea, or that it should overrun the Balkan States and subjugate the Slavonic peoples of south eastern Europe, That would be contrary to the historic life-interests of Russia."

So Obama thinks he's smart, financed coup in Ukraine, installed new government in attempt to create war between Ukraine and Russia.
Obama will learn same lesson Napoleon and Hitler did:
never stick your nose into national interests of Russia.

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EzinWy March 19 2014 at 1:25 PM

Due to its history, thankfully, there was no bloodshed (so far) but a simple vote by the Crimean people. Quick action.

What did Obama want - a 'war' for the past Russian territory ?

Obama's sanctions are that of a thug and should be dealt with by the American people.

The recent U.S. government decision-making capabilities are a disgrace not only to Americans but to the world. What does Obama have to show - Obamacare. Government-mandated healthcare insurance - you will buy or else ? The dawning of the new Amerika !

Go figure ... LOL

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1 reply
Ann EzinWy March 19 2014 at 1:56 PM

Disgraceful yes but not surprising....people here have been referring to Putin as being a Marxist. he’s more of a Libertarian actually....if we're concerned about communist, we need to look in the White House.

Obama has been "influenced, surrounded, and backed by communists, socialists, and those sympathetic to the Arab/Palestinian cause in the Middle East," as well as being involved in the "middle of two international communist networks -- one in Hawaii and on creating a massive welfare state

During his term and a half, he is openly trying to compromise America to turn it in to a powerless mass of indigent people. So far he has managed the following supported by a segment of the population who promoting own agenda have bowed down to him like he's some kind of a demi god sacrificing America to an enemy from within.:
• pushing the national debt to $20 trillion by the end of his term
• shoving socialized health care down the throat of America
• pushing for a national gun registry -- something the communist Russian government did in October of 1918, six months before they confiscated all guns
• ordering a fleet of drones with the ability to vaporize Americans
• building a one-million-square-foot mega-database facility to spy on Americans
in Chicago."
We need to worry less at this time in history on whats happening in other countries and start being very concerned on whats happening in our own.

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ectullis March 21 2014 at 5:24 AM

We can't afford Obsama

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drb107 March 19 2014 at 12:45 PM

One question, what is America gaining by taking sides in this situation. A lot of you are not old enough to remember the Cuban missle crisis and the ones that are should realize that Russia is not going to let the US or Europe put nukes in the Ukraine and to be honest you can't blame them, so this area is going to be left only to the US and Europe to defend and support, we can't support ourselves right now, so who pays, the taxpayers, if there any taxpayers left after obama is done with his welfare state. The US is in a sad situation by creating all this debt and now there will be more debt with the Ukraine holding their hand out. just saying.

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forestbar March 19 2014 at 12:45 PM

Is this a joke? USA and EU will pay for most of it in increased oil and gas prices for Ukraine that we will fund!

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loverbuggy March 19 2014 at 1:29 PM

It's not our business and we need to stay the heck out of it.!

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krs March 19 2014 at 1:29 PM

It will be as if the US annexed Mexico. We'd have to pour a trillion dollars plus
to bring it in line with the rest of the US standards.

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J Grace March 19 2014 at 12:43 PM

I bet they've learned how to print money just like the Obama administration. Maybe all they will need is some more paper and ink. Should be a piece of cake for them even if they have to run those printers 24/7 for a couple of months.

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cpenrod March 19 2014 at 12:43 PM

Cost Russia? Look what First Leech Mooochelle Obama is costing the U.S.A. This time so she, mommy and the girls can see China. Biggie Wow. Another ripoff of the American taxpayer, by the welfare entitled mind set.

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