Central Asia-Caucasus Analyst

29 Pages·2010·0.482 MB·English

by  Svante E. Cornell (Ed.)

Central Asia-Caucasus

Analyst

BI-WEEKLY BRIEFING VOL. 12 NO. 20 27 October 2010
Searchable Archives with over 1,500 articles at http://www.cacianalyst.org

ANALYTICAL ARTICLES:
FIELD REPORTS:

GROZNY ATTACK INDICATES REVIVAL OF
CHECHEN NATIONALIST INSURGENCY GEORGIA EASES VISA RULES FOR
NORTH CAUCASUS RESIDENTS
Murad Batal Al-Shishani
Eka Janashia

KAZAKHSTAN’S BANK
TWO JOURNALISTS UNDER FIRE
RECOVERY STRATEGY
IN UZBEKISTAN
Richard Weitz
Erkin Akhmadov

IRANIAN AZERBAIJAN: THE BREWING FORMATION OF CUSTOMS UNION
HOTSPOT OF FUTURE SEPARATISM? IS ENTERING ITS FINAL STAGE
Emil Souleimanov Georgiy Voloshin

ARMENIA EXPECTS FEW OUTCOMES OF
TENSE U.S.-PAKISTAN RELATIONS ECLIPSE
MINSK GROUP FIELD MISSION
REAL GOALS IN AFGHANISTAN
Haroutiun Khachatrian
Naveed Ahmad

NEWS DIGEST

Central Asia-Caucasus Analyst

BI-WEEKLY BRIEFING
VOL. 12 NO. 20
27 OCTOBER 2010
Contents

Analytical Articles

GROZNY ATTACK INDICATES REVIVAL OF CHECHEN NATIONALIST INSURGENCY 3
Murad Batal Al-Shishani

KAZAKHSTAN’S BANK RECOVERY STRATEGY 6
Richard Weitz

IRANIAN AZERBAIJAN: THE BREWING HOTSPOT OF FUTURE SEPARATISM? 9
Emil Souleimanov

TENSE U.S.-PAKISTAN RELATIONS ECLIPSE REAL GOALS IN AFGHANISTAN 12
Naveed Ahmad

Field Reports

GEORGIA EASES VISA RULES FOR NORTH CAUCASUS RESIDENTS 15
Eka Janashia

TWO JOURNALISTS UNDER FIRE IN UZBEKISTAN 16
Erkin Akhmadov

FORMATION OF CUSTOMS UNION IS ENTERING ITS FINAL STAGE 18
Georgiy Voloshin

ARMENIA EXPECTS FEW OUTCOMES OF MINSK GROUP FIELD MISSION 19
Haroutiun Khachatrian

News Digest 21
THE CENTRAL ASIA-CAUCASUS ANALYST

Editor: Svante E. Cornell

Associate Editor: Niklas Nilsson

Assistant Editor, News Digest: Alima Bissenova

Chairman, Editorial Board: S. Frederick Starr

The Central Asia-Caucasus Analyst is an English-language journal devoted to analysis of the current issues facing Central Asia and the
Caucasus. It serves to link the business, governmental, journalistic and scholarly communities and is the global voice of the Central Asia-
Caucasus Institute & Silk Road Studies Program Joint Center. The Editor of the Analyst solicits most articles and field reports, however
authors are encouraged to suggest topics for future issues or submit articles and field reports for consideration. Such articles and field
reports cannot have been previously published in any form, must be written in English, and must correspond precisely to the format and
style of articles and field reports published in The Analyst, described below.
The Analyst aims to provide our industrious and engaged audience with a singular and reliable assessment of events and trends in the
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analytical articles is between 1,100 and 1,500 words. The articles are structured as follows:
KEY ISSUE: A short 75-word statement of your conclusions about the issue or news event on which the article focuses.
BACKGROUND: 300-450 words of analysis about what has led up to the event or issue and why this issue is critical to the region. Include
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Svante E. Cornell
Research Director; Editor, Central Asia-Caucasus Analyst
Central Asia-Caucasus Institute & Silk Road Studies Program
Paul H. Nitze School of Advanced International Studies, The Johns Hopkins University
1619 Massachusetts Ave. N.W., Washington, D.C. 20036, USA.
Tel. [phone]; Fax. [phone]
Central Asia-Caucasus Analyst, 27 October 2010 3
GROZNY ATTACK INDICATES REVIVAL OF
CHECHEN NATIONALIST INSURGENCY
Murad Batal Al-Shishani

On October 19, four Chechen militants stormed the Chechen parliament in Grozny, causing
the deaths of six police officers and wounding 17. According to the Russian Interfax news
agency, the militants arrived at the parliament by car and forced their way into the
parliamentary compound; one of them blew himself up and two were shot dead. This attack
is the second serious incident in Chechnya in recent months. In August, militants launched
a massive attack on Chechnya’s pro-Russian leader Ramzan Kadyrov’s native village of
Tsentoroi. These incidents in Chechnya indicate a split in the North Caucasian
insurgency.

BACKGROUND: Chechnya, which allegiance) to Umarov, while insisting they
experienced two brutal wars in the 1990s and were not withdrawing from the Emirate. Later,
early 2000s and was the major theater of 25 other commanders claimed to support
violence in the North Caucasus over the last Umarov’s replacement.
decade, has ironically been relatively calm in
These developments suggest that the IEC is
recent years. Instead, neighboring republics (in
divided between “jihadists” who want to link
particular Dagestan, Ingushetia, and Kabardino-
the North Caucasus to the global jihad and take
Balkaria) have witnessed an increase in armed
advantage of the presence of Umarov and his
activities after fighters from Chechnya sought
reputation to secure funds, and those who are
refuge in these republics, increasing the
aiming to “re-Chechenize” the resistance
numbers of local insurgents. This resulted in
movement, stop its regional expansion and take
the emergence of the “Islamic Emirate of the
advantage of the existing unofficial support for
Caucasus" (IEC), which serves as an umbrella
the Chechen cause in Muslim countries and in
group for the armed Islamist movements in the
the West.
region.
Among those supporting the jihadist faction are
The leader of the (IEC), Doku Umarov,
the leaders of armed groups in Dagestan and
appeared last August in a video clip saying that
Kabardino-Balkaria. As a Chechen analyst put
he was resigning from the leadership of the
it, “this means that there is an ongoing struggle
"Emirate”, only to withdraw his resignation a
between the two major components of the
day later, stating that the clip was fabricated
North Caucasus movement: the nationalists
and he was still the Emir. Three top Chechen
and the supporters of the idea of creating an
rebel field commanders (the would-be leader of
Islamic state from the Black Sea to the Caspian
the Emirate and Emir of the Vilayat of
Sea”.
Nokhchiycho [Chechnya] Khusein Gakayev,
IMPLICATIONS: The latest attacks inside
Umarov’s former successors Aslambek Vadalov
Chechnya and the daily violent incidents across
and Tarkhan Gaziyev) and one Arab
the North Caucasus suggest that both factions
commander who goes under the name
are capable of carrying out attacks either inside
“Muhanad”, then renounced their bayat (oath of
4 Central Asia-Caucasus Analyst, 27 October 2010

(AFP)
Chechnya according to the aims of the attacked the parliament building were from a
nationalist faction of the IEC, or to expand “unit” led by Khusein Gakayev. The Ministry’s
operations in the entire region according to expert said that “according to our information,
those of the jihadist faction. today's attack, aimed at eliminating the
parliamentary leadership, was planned by
With nearly 300 attacks or instances of
Gakayev, who recently ostentatiously stopped
insurgency-related violence tied to the IEC this
taking orders from Doku Umarov and has
year alone, it is apparent that the Chechen jihad
taken most of the extremists with him”. This
is spreading through the North Caucasus even
indicates the capabilities of the IEC’s
as it recedes within Chechnya itself. In
nationalist faction and the threat they are
descending order, the main sites of such
posing to the pro-Russian government in
violence are now Dagestan, Ingushetia,
Chechnya.
Kabardino-Balkaria, Chechnya and Karachai-
Cherkessia. Moreover, in a parallel development, the
capabilities of the IEC’s jihadist faction are
In this context, the split between nationalists
increasing, especially due to increasing efforts
and jihadists does not mean that insurgents are
by the global salafi-jihadist movement to link
weakened. In contrast, their violent activities
the IEC to their movement. The Salafi-
are expected to increase. By storming the
Jihadists consider the North Caucasus region to
parliament building and conducting the attack
be an important strategic spot. Since late 2007,
on Tsentoroi village, the nationalist faction is
they have shown a renewed interest in the
showing its capabilities to again destabilize
region after their earlier role in the area
Chechnya. According to the Russian state news
represented by Arab fighters in Chechnya
agency ITAR-TASS, quoting Chechnya’s
diminished several years ago. This interest
Ministry of Internal Affairs, the militants who
Central Asia-Caucasus Analyst, 27 October 2010 5
takes various forms, most notably a remarkable CONCLUSIONS: The evolution of the
reactivation in cyberspace, after a lengthy jihadist faction in the North Caucasus coincide
period without such postings on jihadist with efforts by al-Qaeda and its affiliates to
websites. Jihadist web-forums have circulated build a localized jihad by convincing local
numerous items on Chechnya and the North elements to absorb the Salafi-Jihadist ideology,
Caucasus since early 2008. An integral part of rather than just allying the movement with
this internet campaign is an emphasis on local militant groups in various areas. However,
translating jihadist materials into Russian, the North Caucasus has recently generated its
specifically on the aforementioned websites. own local jihadists, such as Astemirov and the
This activity is significant, as many local North two Dagestani female suicide bombers who
Caucasian jihadis cannot read Arabic. attacked the Moscow Metro on March 28, 2010.
Another indication of the ongoing effort to link Maryam Sharipova and Dzhanet
the Caucasian armed groups to the global jihad Abdurakhmanova, unlike most of the female
movement was seen in an exchange of letters suicide bombers from the region, were not
between Abu Muhammad al-Maqdisi and directly linked to the war-torn situation in
Anzor Astemirov (a.k.a. Amir Sayfullah), the Chechnya, but acted for ideological reasons.
late leader of Yarmuk Jama’at in Kabardino- The adaptation of such a strategy by al-Qaeda
Balkaria and an ideologue of the IEC, who was and affiliated groups comes in the context of
killed by security forces in March 2010. The the lessons learned from their experiences in
letters concerned Astemirov’s translation of al- Iraq and Chechnya, most importantly that they
Maqdisi’s books into Russian. Astemirov also lost their local bases as they lost the support of
sent al-Maqdisi the Emirate’s ruling against the the local public. At the same time, a re-
London-based Prime Minister of the nationalist emergence of the nationalist faction which aims
Chechen Republic of Ichkeria (ChRI), Ahmed to Chechenize the conflict in the North
Zakayev, declaring him an apostate. The ruling Caucasus, would increase the burden on Russia
was approved by al-Maqdisi. and the local North Caucasian governments,
and extend the geographical space where these
Astemirov also asked al-Maqdisi about a
groups are active. This means that they will
Shari’a ruling on participating in the Olympics.
share the security pressure and work more
The 2014 Winter Olympics are scheduled to be
freely. Finally, restoring Chechen national
held in Sochi, a city in present day Krasnodar
resistance rhetoric could play a significant role
Krai that was previously home to Muslim
in attracting young people from Chechnya itself
Circassians who were driven out from the
to the IEC’s nationalist faction.
region with enormous losses by Russian
imperial troops in the 19th century. Al-Maqdisi AUTHOR’S BIO: Murad Batal Al-Shishani is
ruled that participation is prohibited. a London-based analyst. He holds an M.A
Astemirov’s request for direct advice from jihad degree in Political Science, specializing in
ideologues such as al-Maqdisi demonstrates Islamic Movements in the Middle East and the
increasing attempts to tie the Caucasian armed North Caucasus. He is author of the book
groups, which are still driven by local "Islamic Movement in Chechnya and the
grievances, to the global jihad. Chechen-Russian Conflict 1990-2000, Amman
2001 (in Arabic).
6 Central Asia-Caucasus Analyst, 27 October 2010
KAZAKHSTAN’S BANK RECOVERY STRATEGY
Richard Weitz

The Kazakh banking system has returned to solvency. A comparison of the macro-situation
of October 2008 with that two years later shows that the national inflation rate has fallen
from 18.2 percent to 6.7 percent, banks’ liquidity as a percentage of all their assets has risen
from 14.1 percent to 22.6 percent, the volume of banks’ assets placed in the National Bank
has risen from US$ 9.1 to US$ 10.5 billion, and the gross external debt of the national
banking system has decreased from US$ 41.6 billion to US$ 17 billion. Although the
national economy grew by only 0.3 percent in 2009, most Eurasian countries experienced
GDP contractions that year.

BACKGROUND: According to Kazakh The government also implemented further
government assessments, tightening conditions rescue measures. These steps included replacing
in international financial markets beginning the senior management of many banks and
around August 2007 made it more difficult for appointing independent advisors to develop and
local banks to raise external financing. The implement banking sector restructuring plans.
resulting bank liquidity deficit negatively Over time, assets were recovered and
affected Kazakhstan’s construction sector and distributed while debts were restructured. In
real estate market, which had been fueled by July 2009, the government adopted a new
generous loans. In October 2008, the Lehman restructuring law to provide an adequate
Brothers bankruptcy engendered a second phase legislative framework for bank restructurings.
of the crisis, as Kazakhstan’s banks suffered like
Kazakhstan’s international reserves became
others from turmoil on the world’s major stock
increasingly vulnerable due to the currency
and financial markets and the resulting surge in
devaluations conducted by neighboring
the risk premiums. Kazakhstan’s economic
countries — with Russia and Ukraine leading
growth declined considerably due to the
the way — as well as low world prices for
substantial drop in capital inflows and the sharp
Kazakhstan’s commodity exports. The resulting
fall in world commodity prices. The lending
need for Kazakhstan to devalue its own
activity of Kazak banks fell precipitously since
currency obliged the Kazakh government to
Kazakh businesses stopped asking for credit.
provide public financial support to the domestic
The bank restructuring process began in earnest banks with high external debt. Unfortunately,
in October 2008, when the government several banks experienced severe external over-
promulgated its financial stabilization law indebtedness and lacked adequate domestic
aimed at strengthening its capacity to manage private funding sources. Various Kazakh banks
the crises. From November 2008 through also suffered from other problems, including
February 2009, the government developed and the lack of liquidity in the domestic financial
implemented its anti-crisis plan for the banking markets, worsening asset quality, illegal
sector. In February 2009, the Sovereign Wealth practices such as money laundering, inadequate
Fund Samruk-Kazyna injected capital into collateral, fictitious capitalization, non-
troubled banks in return for additional shares. transparent sources of capital, affiliated and
Central Asia-Caucasus Analyst, 27 October 2010 7
connected lending, non-opaque decision appealed to their economic and political
making, and a general lack of economic and contacts, which included national ministers of
professional foresight. important European countries. Despite
occasional contentious moments, more than 90
In considering their response, the Kazakh
percent of the creditors eventually approved the
authorities assessed but rejected two possible
outcome. The recovery rate has averaged almost
extreme options, both of which were supported
50 cents for each dollar loaned by the
by certain officials. On the one hand, if the
restructured Kazakh banks.
government had simply declared bankruptcy, as
Russia did in 1998, they anticipated that this IMPLICATIONS: Kazakh officials attribute
decision would have resulted in a complete loss their country’s successful financial
of confidence in the entire national banking restructuring to a novel asset recovery
system. This collapse would in turn have led to technique that they believe could be applied to
a large-scale bank-run by their depositors, other Eurasian countries in economic distress.
which would have been replicated by the flight This unique “burden-sharing” approach
of foreign investors and enduring speculative brought together the National Trust Fund
pressure on the national currency. On the other Samruk-Kazyna and other partners to
hand, if Kazakhstan had chosen the bail-out collectively address the problem with a
option, the country would have faced an representative Creditors Steering Committee
enormous moral hazard problem. The bailouts for each troubled bank. The members for each
would have encouraged further reckless of the restructured banks included official
behavior since bankers would plausibly expect sector creditors, Eurobonds holders, commercial
the government to again step in and cover any banks, and private trade finance creditors. The
major losses. A bailout would also have banks and the committees then undertook due
imposed a significant burden on state finances diligence assessments of each bank’s loan
and possibly led the banks to become addicted portfolio.
to government support. Finally, it could have
This review and negotiations focused on
reduced the international competitiveness of
addressing four key issues: how to secure
Kazakh banks since they would not have
additional funds to sustain bank operations;
undergone effective restructuring.
how to preserve Kazakhstan’s strong fiscal
In the end, the authorities restructured US$16 profile; how to limit the risk of moral hazard
billion of bank debt. Approximately US$11 and discourage future irresponsible behavior;
billion were written off; some loans were and how to improve the bank’s management
converted into equity, with the common shares and governance. The banks, the steering
distributed among claimants; while other committees and Samruk-Kazyna signed a
claims were cancelled in exchange for cash and memorandum of understanding on the terms of
new bank notes. Furthermore, the maximum each financial institution’s restructuring plan.
maturity of some financial debt was extended, All the creditors would then vote on the
in some cases more than twice its original date. proposed restructuring and recapitalization
Negotiations occurred between creditor steering blueprint. If they approved it, the plan was then
committees and the banks. These negotiations submitted to Kazakh national bank regulators
were difficult in that the major creditors often for further scrutiny and possible approval.
8 Central Asia-Caucasus Analyst, 27 October 2010
The restructured banks have strongly liquidity; and expanded the list of instruments
committed to implement aggressive recovery it accepted as collateral. The reappointment of
strategies to retrieve the maximum value from Grigory Marchenko, a well-respected economic
their old loans, including suing the former bank reformer, as NBK chairman in January 2009
owners in British courts. The committees hired helped restore international confidence in
independent accounting firms to confirm that Kazakhstan’s battered financial sector. As NBK
fraud had occurred, as well as legal and head from 1999-2004, Marchenko managed to
financial advisers for each of the banks. In limit the fallout from Russia’s 1998 default on
addition to cash and new debt instruments, the Kazakhstan by introducing key financial
restructuring packages offered equity and reforms aimed at promoting transparency and
recovery units to the different categories of good governance.
creditors.
CONCLUSIONS: The Kazakh authorities
The Samruk-Kazyna National Welfare Fund, believe their burden-sharing approach to bank
created in October 2008 as a state-owned joint recovery yielded considerable benefits. First, it
stock holding group to implement a coordinated eschewed the extremes of bailing out troubled
strategy among strategic national industries banks or allowing them to go bankrupt. Second,
representing almost half of Kazakhstan’s GDP, the approach enabled Kazakh bankers and
played an essential role in stabilizing the regulators to show foreign partners that they
national financial system. The Fund increased had nothing to hide. Third, the steering
its majority shareholding positions in some committees helped improve corporate
banks, especially the most troubled ones, by governance by drafting the most stringent
exchanging debt for shares. Although all the corporate charters for each of their banks ever
creditors incurred initial financial losses by seen in Kazakhstan. To avert future banking
writing off bad loans, Samruk-Kazyna allowed crises, Kazak authorities are now strengthening
each bank and their creditors to split any assets their national banking regulations by imposing
they recovered 50-50 by waiving its own more restrictions on intra-group transactions,
recovery claims. And the fund urged banks to additional transparency obligations on large
implement good corporate governance practices banking clients, and further requirements on
according to the highest international the structure and management on banking
standards. conglomerates.
In addition, the National Bank of Kazakhstan AUTHOR’S BIO: Richard Weitz is Senior
(NBK) took other measures to further the Fellow and Director of the Center for Political-
banking system’s recovery. The National Bank Military Analysis at Hudson Institute. He is
reduced its policy interest rate and reserve the author, among other works, of Kazakhstan
requirements to record low levels; provided and the New International Politics of Eurasia
refinancing loans to banks to ensure short-term (Central Asia-Caucasus Institute, 2008).