Interview with Akhra Aristava

This article was originally published on the Нужная Газета website. The text and terminology of the article are reproduced unchanged. All rights belong to the Нужная Газета. Original publication date: September 3, 2024.

Abkhazia’s Foreign Minister Sergey Shamba, speaking at a briefing and explaining a protocol that has caused much controversy in Abkhazia, referred to the cessation of Russian funding for public sector salaries as a “sanction” over unmet obligations. This is puzzling, because this measure was planned in the Russian-Abkhaz agreement, which stipulates that co-financing of salaries would end at the end of 2024. Economist Akhra Arista commented on Sergey Shamba’s explanations of the protocol given at the briefing.

Akhra, Abkhazia’s Foreign Minister Sergey Shamba stated at the briefing that Abkhazia’s failure to meet its obligations—specifically, the law on apartments, investment activities, and mutual recognition of judicial decisions—would lead to sanctions. Sergey Shamba referred to the suspension of co-financing by the Russian Federation for the salaries of teachers, doctors, and law enforcement personnel as sanctions. However, you have repeatedly warned since 2022 that, according to the Russian-Abkhaz agreement, Russia would cease co-financing of public sector salaries by 2025. The time has come; why is Foreign Minister Shamba talking about “sanctions”? Is he unfamiliar with the agreement? What do you think about this?

I don’t know why he used the term “sanctions”. He is an experienced diplomat, and sanctions are usually applied to unfriendly countries. The Republic of Abkhazia is not just a friendly country but a strategic partner. I think this is a different matter altogether. We need to recall the 2022 agreement on salary co-financing.

The Republic of Abkhazia committed to independently paying 85% of public sector salaries in 2024, and 100% from 2025. The Republic of Abkhazia also committed to carrying out reforms such as implementing turnover tax, digitalization, currency control, and several others. This includes the adoption of laws on leasing and insurance. All of this was reflected in the harmonization agreement in a list of 45 issues, but all deadlines have been missed. These laws were supposed to be adopted partially in 2022 and partially in 2023.

For example, the law on currency control was only adopted a month ago. Therefore it is likely that the Republic of Abkhazia has not fulfilled its obligations.

In any case, the requirement for the Republic of Abkhazia to independently pay public sector salaries was specified in the agreement. The executive branch assumed these obligations. According to the agreement, the Russian Federation is ending its assistance in paying public sector salaries by the end of 2024. This is not news; everyone has known about it for three years. Dmitry Volvach openly stated this in an interview in March 2022 to the TASS and Sputnik agencies. I think the issue here is that the executive branch did not implement the reforms.

Of course, when you take on such commitments, involving 4 billion rubles in aid from Russia, to compensate for these funds, serious and deep reforms were necessary both in the executive governance system and in the economy itself. It needed modernization and the introduction of new tools such as leasing, insurance, preferential lending, conducting tenders and competitions, simplifying the business registration system—there are a multitude of reforms required.

If you do nothing for three years and are unclear about what you are waiting for, 4 billion rubles will not just fall from the sky. This falls squarely within the responsibility of the executive branch of the Republic of Abkhazia. I think the term “sanctions” was used too harshly towards our strategic ally. This is not about apartments; I do not think it is related. When we talk about apartments or investment agreements, there are numerous benefits, including VAT exemptions, which would not fill the budget. I don’t see a connection here.

Yes, we hear that our Russian colleagues are irritated and may be dissatisfied with something, but this is not connected. Most likely, the issue is that the executive branch itself committed to paying salaries in Abkhazia and did not implement the necessary reforms. That’s all there is to it. The situation is absolutely straightforward. Yes, you are right, I repeatedly warned in interviews, and you as a journalist drew attention to this; all of this is in the press. But unfortunately, no one listened to our concerns and warnings.

In the protocol currently being discussed in Abkhazia, there is also a point about supplying electricity to Abkhazia at commercial rates if necessary. What can you say about this?

You know that last year Abkhazia already purchased electricity at commercial rates. It was reported to be around 1 billion rubles last year; they found and paid this amount. We also want to sell a significant portion of goods and services at commercial prices. And if we need something, we also need to purchase it at commercial prices. The country must fully transition to market mechanisms. To make this transition natural and painless for the people, these market instruments need to be integrated into daily life; reforms must be conducted. Then we will not face such situations and mutual dissatisfaction in interstate relations.

We do not have a classic market economy in the Republic of Abkhazia; it is simply absent. And, when non-standard situations arise, such as disruptions in electricity or issues with gasoline, it is all because the country is not on solid ground; there is no foundation of market relations in the country.

Market relations include not only labor compensation but also pension provision. There is the concept of the labor market and many other issues that I mentioned earlier. If all of this is done, the mechanism will work, and people’s lives will become more predictable, calmer, and more comfortable. If you do nothing and later blame Russia, or the opposition, or someone else, it’s all excuses. As people simply say, start doing something only if you can complete it. That’s all there is to it. It’s that simple.

What do you think will happen?

– It is difficult for me to say how it will develop. It was anticipated; the members of the People’s Assembly knew about it, and there were discussions. I mentioned this last year during a parliamentary session when the republican budget was being adopted. Honestly, I am more hopeful about our deputies, who have an understanding of the necessary steps to take. Most likely these steps will be taken; I don’t see any tragedy in this. Yes, the amount is significant for our people and our state. The fact that it was announced today that Russia is ending salary co-financing means that there are standard measures to exit the crisis, and they need to be done.

First and foremost it is urgent to adopt a turnover tax, a law to support small businesses, and preferential lending. I believe that all of this can be established within six months. We need to approach the banking community to ensure that all currency control measures are implemented. The law was passed a month ago, and I think the National Bank has already been preparing for this. We also need to consider an austerity regimen.

I think the Budget Committee, led by Beslan Khalvash and Dmitry Marshan, has experience in coordinating various measures and finding additional sources of income. We need to activate an effective working mode. I believe that both the business community and the scientific community will come together in this effort. The only downside is that we have lost more than three years, and now we will have to do everything under more stringent time constraints. I think that Abkhazia, relying on the deputies of the People’s Assembly, will navigate through this situation. We will hold presidential elections, and I still hope that we will find a proper and dignified solution.

Interview with Akhra Aristava