YALTA,
Crimea — Many A.T.M.s in this sun-dappled seaside resort city in Crimea, and
across the region, have been empty in recent days, with little white
“transaction denied” slips piling up around them. Banks that do have cash have
been imposing severe restrictions on withdrawals.
All flights, other
than those to or from Moscow, remain canceled in what could become the norm if
the dispute over Crimea’s political status drags on, a chilling prospect just a
month before tourist season begins in a place beloved as a vacation playground
since czarist times.
Even with the West imposing sanctions to punish
Russia’s invasion of Crimea, President Vladimir V. Putin faces a far steeper
financial liability as he pushes to annex the peninsula, which lacks a
self-sustaining economy and depends heavily on mainland Ukraine for vital
services, including electricity and fresh water.
“Ukraine can quite easily cut off Crimea,” said Oleksandr
Zholud, an economist with the International
Center for Policy Studies in
Kiev, the Ukrainian capital. “From an economic point of view it looks like a
sinkhole.”
“Ukraine can quite easily cut off Crimea,” said Oleksandr
Zholud, an economist with the International
Center for Policy Studies in
Kiev, the Ukrainian capital. “From an economic point of view it looks like a
sinkhole.”
In
January, the Crimean Parliament adopted a 2014 budget of about $540 million, of
which about $300 million was expected to come from the central government in
Kiev. Crimean officials in recent days have said they now expect Moscow to fill
the gap.
The potentially large
price tag has arisen at a time when Russia itself is bracing for a severe
economic slowdown, making annexation a far more complicated calculation for Mr.
Putin and his advisers despite huge public support for reclaiming primacy over
Crimea.
Crimea
and Russia have deep linguistic, historic and cultural ties, and the peninsula
holds a nostalgic place in the minds of many Russians as a summer destination and
popular retirement spot, where czars and Politburo chairmen kept vacation homes
— including the last Soviet president, Mikhail S. Gorbachev, who was briefly
exiled to his dacha in the Crimean town of Foros, overlooking the Black Sea,
during a coup attempt in 1991.
Russia’s
regional development minister, Igor N. Slyunayev, has offered a sobering
assessment of the peninsula’s infrastructure needs.
“The
peninsula is not self-sufficient when it comes to the entire group of vitally
important resources — first of all, electricity and water,” Mr. Slyunayev said
in a question-and-answer interview with the Russian newspaper Kommersant.
“About 80 percent of water comes to its territory through the northern Crimean
canal from the Dnieper River. Also, 80 percent of Crimea depends on imports of
electricity.”
In a bleak
bottom-line assessment that many residents here would dispute, Mr. Slyunayev
said, “Today, our Crimea looks no better than Palestine.”
The
authorities here have waved aside concerns about public salaries, pensions and
other costs, saying Moscow will cover them. But while Mr. Putin and Russian
lawmakers have made reassuring statements, including some promises of more than
$1 billion in immediate aid, there are no guarantees.
Russia is facing its
own fiscal challenges in the months and years ahead, as revenue growth from oil
and natural gas is projected to slow precipitously and the Kremlin confronts
big bills from salary increases for the police, the military and other public workers
that preceded Mr. Putin’s return to the presidency in 2012.
The financial costs
are just one reason that annexation is easier said than done.
Fully
absorbing Crimea is a potentially herculean undertaking, which would require
issuing new passports, changing the currency to rubles from Ukrainian hryvnias,
and integrating completely distinct systems for property records, taxes, legal
disputes and more.
The process is also
fraught with risks, including the possibility that the Ukrainian government
could move to further isolate the geographically remote peninsula by shutting
vital transportation lines.
There is no overland
transportation link between Russia and Crimea, and building a bridge across the
shortest waterway, near the Crimean city of Kerch, would take years and cost an
estimated $3 billion to $5 billion.
The costs for Russia
— and for Crimeans — could also rise sharply, experts said, if political
instability disrupts the peninsula’s major industries, particularly tourism and
banking, which are already suffering.
A.T.M.'s have been
empty as banks, most based in mainland Ukraine, face obstacles delivering
currency, and grapple with mounting concerns about long-term business risks. If
world leaders refuse to recognize Russia’s annexation of Crimea, flights could
be restricted for years, as they are in northern Cyprus, which has direct air
links only with Turkey.
At a minimum, Kiev’s
strong leverage over utilities and other vital services stands to force the
Kremlin into negotiations with the new Ukrainian leaders whom Mr. Putin has
denounced as illegitimate and has so far refused to meet.
Last week, in a
meeting with the country’s top economic officials, including the ministers of
finance and economics and the head of the central bank, Mr. Putin expressed his
own concerns about Russia’s financial prospects.
“Let me say that the
current and forecast growth rates the government has given cannot satisfy us in
any way,” he said, according to a Kremlin transcript. “We must step up the pace
of development.
“Above all, we need
to maintain the existing general macroeconomic stability,” Mr. Putin said. “We
need to be ready to respond rapidly to both internal and external risks — and
they are not getting any fewer — ensure that the budgets at all levels are executed
and keep inflation at an acceptably low level.”
Mr. Slyunayev, the
regional development minister, said he believed that the government in Kiev
would be reasonable and not cut off essential services but might begin charging
for water and electric service. “Ukrainian authorities will not provoke a
humanitarian crisis,” he told Kommersant.
While financial
markets reacted with tentative calm to the Crimean secession vote, the economic
sanctions announced by the United States and Europe, and the prospect of a
renewed cold war with the West, present just the type of external risk that
could destabilize the Russian economy at a moment of vulnerability, experts
said.
One immediate risk is
a continued decline in foreign investment, though the fear of sanctions may
result in a positive effect for Russia by driving home assets that Russian
citizens and businesses had stockpiled overseas.
“Private sector
capital flight may have been partially neutralized by the return of official
assets,” Timothy Ash, an analyst with Standard Bank, wrote in a note to clients
on Monday offering analysis in the aftermath of the referendum here.
Some Crimeans said
they were already feeling the financial sting from political instability.
As crowds in the
cities of Simferopol and Sevastopol held raucous celebrations well into Monday
morning after the vote, here in Yalta, Ihor B., the owner of a small travel
business, went to bed with a growing sense of dread: The roughly two dozen
bookings that he had received since the start of the year had all disappeared.
“I got 10 requests
from Germany, and 10 assignments from Ukrainian agencies for Western tourists;
a couple of requests from Dutch tourists and cruise ships,” said Mr. B, who
asked that his last name not be used for fear of reprisal by the new Russian
government. “At the moment, all of them, absolutely all of them, are canceled.”
Mr. B., whose two
grown children live and work in Kiev, said the majority of tourists who visited
Crimea came from mainland Ukraine. They are likely to go to Odessa or other
destinations this year, because of fear over the political unrest, he said.
Boris Perederko, the
deputy director of the Bristol Hotel here, said he supported the outcome of the
referendum, even though guest bookings were down.
“This year will be a
very complicated, very unclear year,” Mr. Perederko said. “A revolution has
happened, figuratively speaking.”
As for Crimea’s
future as a resort destination, he said: “People come here to spend their money
and we try to earn this money. That’s normal. Now, it is just a moment of high
suspicion.”
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