Aid for Russia’s neighbours agreed

Date: 21/01/1999

By Simon Taylor

THE European Commission has finalised plans to share out emergency aid worth €20 million among the former Soviet Union countries to alleviate growing poverty caused by Russia's economic crisis.

The money will be split between five of the countries worst hit by the loss of trade with Russia, with the largest sums going to Ukraine, Georgia and Moldova.

The distribution of funds recommended in a study examining the effects of last year's Russian crisis on neighbouring countries was approved by the full Commission this week.

The report points out that the former Soviet Union countries are highly dependent on trade with Russia and on money sent back to families by relatives working there. Demand for exports has dried up since the rouble collapsed because of Moscow's failure to repay foreign loans, and expatriates working in Russia have been hit by rising unemployment and delays in paying wages and pensions.

The Commission predicts that “the poor will be hardest hit by the economic slowdown” as neighbouring governments cut social spending in response to dwindling state finances. Low-income groups face a combination of “wage and pension arrears, reduced access to social services, employment losses and lower remittances”, says the report.

In Armenia, which lost 10&percent; of its exports to Russia in 1998, the Commission warns of an “explosion of poverty” which could result in a 50&percent; increase in extreme impoverishment. In some parts of Georgia, electricity supplies are down to two hours a day, because the country has to use scarce foreign currency reserves to buy imported power.

In Kyrgyzstan, at least half the population was defined as poor before the Russian crisis hit, while in Ukraine, which was already facing serious financial problems of its own, salaries have fallen to one-third of 1990 levels.

The Commission warns that the deteriorating social situation is increasing the risk of political instability, quoting the example of Moldova, where strikes and public demonstrations are growing in protest at the state's failure to pay wages and pensions on time.

It predicts that this will increase the pressure on governments to reverse economic reforms, pointing out that plans to restructure and privatise the banking and energy sectors are already being postponed or even abandoned in some cases.

The aid package, due to be released by March, will be used to help states in the region meet their populations' most pressing social needs, including energy, food and medicine.

Ukraine is set to receive the biggest chunk of aid totalling €5-6 million, followed by Georgia with €4-5 million, Moldova €3-4 million, Kyrgyzstan €3 million and Armenia €2-3 million.

Neither Belarus nor Tajikistan will benefit from the aid package, even though both have been hit hard by the Russian situation, because the Commission does not have confidence in the national authorities' ability to allocate the funds reliably.