1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites

Ruble collapse

Christian Trippe / dcJanuary 13, 2015

Tumbling oil prices and Western economic sanctions have caused the Russian ruble to crash – with dramatic consequences for Russia’s neighbors and trade partners.

Russian flag
Image: picture-alliance/dpa/Ohlenschläger

For many Russian retailers, Christmas season sales were particularly good in 2014. "In December, we had a flood of Belarusians in the area around Smolensk," said Julia Sotova from the "M.Video" electronics chain. Customers from Belarus bought whatever they could carry. Due to the crash of the Russian ruble, they suddenly found themselves with enormous purchasing power.

Auto retailers in border regions reported equally high sales. A Volkswagen showroom in Smolensk that previously sold three cars a month to customers from Belarus began selling 10 per week, reported the news portal delfi.lt. But the government in Minsk has now clamped down on the shopping spree by strongly devaluing the Belarusian ruble.

Dependence on Russia

In Eastern Europe, the Caucasus, and Central Asia, practically all the former Soviet republics have close economic ties to Russia. Armenia, Belarus, Kazakhstan, and Kyrgyzstan might be independent politically, but not economically. Only the three Baltic states have followed their own paths into the Europan Union. The Caucasus republic of Georgia has been trying since the Russo-Georgian conflict of 2008 to distance itself as far as possible from Moscow.

Russia pushes for economic integration wherever it can. The customs union with Kazakhstan and Belarus gave way at the turn of the year to the Eurasian Economic Union, of which Armenia is also a member. But it got off to an inauspicious start. Due to the weak ruble, Armenian exports of manufactured goods to Russia fell by 6.3 percent, according to the "Aikakan Schamanak" newspaper from Yerevan.

Belarusian products
Belarusian products are widely advertised in Smolensk, RussiaImage: DW/A. Burakow

Millions of migrant workers left in the lurch

Moscow's Academy of Sciences maintains a more optimistic view of the situation. "The ruble crash is not affecting exports to Russia," said Asa Migranjan, economic expert with a focus on CIS states. Armenian manufacturing, "especially in the areas of jewelry and mechanical engineering has Russian roots, namely, Russian capital," she told DW. She said that the current turbulence within an integrated economic area would quickly neutralize itself.

Undeniably dramatic, however, are the effects of the ruble crisis on the labor market. Casual laborers and construction workers in Russia's major cities tend to come from Central Asian nations. Around 5 million people from Tajikistan, Kazakhstan, Kyrgyzstan, and Uzbekistan work at Russian building sites, markets and restaurants. With the start of the new year, however, up to 70 percent of these guest workers were told to stay home, said Konstantin Romodanowskij, head of the Russian immigration authority. The weak ruble and the recession in Russia have decimated the market for unskilled workers.

Will Russia's neighbors have to pay for its mistakes?

The income from these migrant workers is now missing in Central Asia. Money transfers from Russsia make up around a third of the gross domestic product (GDP) of Kyrgyzstan; in Tajikistan, wages from migrant workers account for half of GDP, according to the World Bank. Many families in Central Asia have suddenly been left with no income. "There are not many alternative job markets for migrant workers from Central Asia, mainly because of the language problem," said Peer Teschendorf, head of the Friedrich Ebert Foundation's office in Almaty, Kazakhstan.

Here, too, it's clear just how dependent on Russia many former Soviet countries still are. Only the oil producing countries of Kazakhstan and Azerbaijan have been able to fend off the worst of the crisis – but just barely. Falling oil prices have hit them hard, straining the state monetary reserves. Despite this, crude oil remains a worldwide export commodity – one which other countries bordering on Russia don't have. People in many neighboring countries are beginning to feel that they are paying the price for Russia's political escapades and mistakes. The economic dependence on the former hegemonic power is (once again) becoming an issue.

Eurasian Economic Union summit
Eurasian Economic Union summit in Moscow in DecemberImage: picture-alliance/epa/Maxim Shipenkov

New dangers in the wake of the crisis

It's not just politicians in Central Asia and the Caucasus who are asking themselves how long the recession in Russia will go on. "Even when the sanctions are lifted and oil prices rise, it's the lack of investment that will continue to hurt the Russian economy," said Sergeij Aleksashenko. He once served as Russia's deputy finance minister and deputy head of its central bank.

Today, he is much in demand as an expert on macroeconomic issues. In an interview with DW, he said that the crisis is neither cyclical, nor the result of external factors. In his view, the downturn is homemade – caused by a lack of political reform. "In my opinion, this crisis will go on for quite some time," he said.

If Aleksaschenko is right, the Russian economic crisis could stir up social tensions which, particularly in Central Asia, could lead to political unrest. The region borders on Afghanistan and, in countries like Kyrgyzstan and Tajikistan, the state is weak, while repression against the opposition is widespread. Experts are concerned that in such a situation, the economic crisis could have grave consequences for the security of the entire region.