Putin’s dream costs Crimea its banks

Pedestrians stand outside a UniCredit bank branch in Moscow. After Putin annexed Crimea, the government in Kiev banned all lenders operating under Ukrainian law from the region.

Bloomberg/Moscow

President Vladimir Putin is trying to transform Crimea into the Singapore of the Black Sea. That effort so far has cost Russia’s newest republic its entire banking system and all three of its McDonald’s.

After Putin annexed Crimea in March, the government in Kiev banned all lenders operating under Ukrainian law from the region. Now almost every bank on the peninsula, from billionaire Igor Kolomoisky’s Privatbank, Ukraine’s largest, to Italy’s UniCredit SpA has been shuttered. Unlike UniCredit, which is refunding deposits, Privatbank simply pocketed the cash, leaving its clients to seek compensation from Russia.

“Thank God they decided to return my money,” said Alla Anisomova, a retiree in her 60s who gets by on less than $300 a month. Anisomova is among the thousands of people who have flocked to the former Privatbank branch on Lenin Street in Kerch, a city on the eastern edge of Crimea, to apply for redress from Russia’s Deposit Insurance Agency. The agency, which now controls the building, has pledged to return deposits of as much as 700,000 roubles ($20,000).

For Anisomova and Crimea’s other 600,000 or so pensioners, the headaches of navigating the new bureaucracy have an upside.

Putin has increased their monthly stipends 50% and by July will raise them to double what Ukraine paid. Those payments are made through local post offices, in cash.

The pension increases, deposit compensations and pay raises for 140,000 public workers are part of the $48bn Russia may spend by the end of the decade to transform Crimea into a commercial hub similar to Singapore, according to Oleg Savelyev, head of the new Crimea Affairs Ministry. That’s about 10 times the annual output of the region of 2mn people.

“I blew the dust off the book, ‘Singapore: From Third World to First’ by Lee Kuan Yew to have another read when I became minister,” Savelyev said in an interview in his office in the Economy Ministry in Moscow, where he was deputy minister before his promotion. “We will pursue Singapore’s model in Crimea, we’ll ensure a comfortable business environment there.”

Lee, who ruled Singapore from 1959 to 1990, turned the former impoverished British colony into one of the wealthiest countries in the world.

The World Bank ranks Singapore No. 1 on its annual ease of doing business survey. Russia is 92nd, just behind Albania and Barbados.

“Regulatory principles in Crimea will be much better, simpler than in the rest of Russia,” said Savelyev, 48, who was added to the European Union’s sanctions list last month. “The region will not have the stifling bureaucratic system that Russia is notorious for. Our task is not to replicate the Russian model, but to create a much better one.”

It’s not just banks that Russia has in mind for Crimea, there’s also gambling, tourism and wine. The peninsula will be designated a special economic zone, unique among the 84 regions of the world’s largest country. The casinos will probably be located in Yalta, acting Prime Minister Sergey Aksyonov said.

“Casinos won’t be scattered around Crimea,” Aksyonov said in an interview in Simferopol, the regional capital. “The zone will be confined to an area of 50 to 100 hectares.”

Yalta, a resort city where Leo Tolstoy and Anton Chekhov did some of their writing and czars Alexander III and Nicholas II built palaces, became the main holiday destination for Soviet workers under communism. Now the real estate along Yalta’s picturesque embankment is the most expensive in Crimea.

The main attraction is the Livadia Palace, where wax statues of Soviet dictator Josef Stalin, US President Franklin D Roosevelt and the UK Prime Minister Winston Churchill commemorate their meeting in 1945 to discuss the reorganiSation of Europe after the defeat of Nazi Germany in World War II.

“Crimea’s economic potential is incredible,” Aksyonov said. “We’ll only need Russian aid during the transitional period. We’ll return the funds with interest.”

Vladimir Gubanov, who runs a division of Massandra, the winemaker founded by Nicholas II before Russia’s last czar and his family were murdered by the Bolsheviks, said he couldn’t agree more. Orders for Massandra’s wines from Russian retailers have doubled and even tripled since annexation, Gubanov said.

“Taxes in Russia are lower than in Ukraine and the number of potential investors is many times higher,” Gubanov said.