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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:

GREAT EXPECTATIONS

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.

"NO BETTER THAN PALESTINE"

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.

DEPENDENCE ON UKRAINE

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."

SMALL CHANGE FOR RUSSIA

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.

CORRUPTION

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."
(Churchill)

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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raydelv March 19 2014 at 1:34 PM

Putin does not care about counting his jelly beans. He wants to send the message about his influence and power.

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1 reply
stevenjonessales raydelv March 19 2014 at 1:53 PM

Or maybe he is just a major a_hole.

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vanclaybor March 19 2014 at 1:35 PM

Some good things never change! back in the 30's, hitler annexed the sudetenland because the residents there were primarily german. we all know where that went!

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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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pksent March 19 2014 at 1:42 PM

This change is definitely a positive one and more than likely better for Ukraine than for Russia
since Ukraine has been financially unable to handle their own situation for years, the government has been selling everythinbg that it owns including large amounts of military goods which they received from good old Russia and are being turned into cash from countries with whom America is not aligned.

The U.S. has turned a blind eye to such acts even though much of the weapons are being sold and funneled without Russia's knowledge to places such as the Syrian rebels, Palestine , Al Quada and who knows where else.

Now finally, Ukraine will get no more weapons from Russia that they can sell ,

It is true there is corruption but more in Ukraine than in Crimea and for most honest Russians
and members of Mr. Putin's government who have been singled out by the United States in recent days is unfair and deplorable, this adminmistration is unable to manage anything and has zero credibility .

What happened to the good old Amereican politician ? Nowadays , nobody can even get proper laws passed in the United States .

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lsuhysr March 19 2014 at 1:48 PM

Is this like the USA ,INVASION of Iraq.. ????

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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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