By Andrei Makhovsky, Dmitry Solovyov and Margarita Antidze
Russian President Vladimir Putin, President of Kazakhstan Nursultan Nazarbayev and President of Belarus Alexander Lukashenko, May 29, 2014.
MINSK/ALMATY/TBILISI (Reuters) - Growing damage from Russia's financial crisis on neighboring former Soviet states could bury President Vladimir Putin's dream of creating an economic union to rival the United States and European Union.
From Belarus on the European Union's fringe to Kazakhstan on the border with China, some of those once firmly in Moscow's grip are now questioning whether Russia has what it takes to lead.
While some, such as Belarus, have been forced by the economic blowback from Russia to devalue their currencies, others, such as Azerbaijan, are spending millions of dollars to keep exchange rates steady.
Officially, the heads of the neighboring states are sympathetic to Russia's plight and several outwardly back Putin's Eurasian Economic Union (EEU), which he hoped could recoup the potential lost when the Soviet empire collapsed more than two decades ago.
But the Russian ruble's more than 46 percent fall against the dollar in 2014 and its continued weakness this year has loosened some tongues, most notably that of President Alexander Lukashenko in Belarus, which briefly imposed a 30 percent tax on buying foreign currency to prevent a run on dollars.
It has now lowered the tax to 10 percent for companies and scrapped it for individuals.
"The task has been set - to trade not in rubles but in dollars ... With Russia, we should have long ago worked with and demanded that they should pay us in hard currency," Lukashenko said in December.
He later criticized Russia's "stupid and brainless" curbs on the transit of meat products from Belarus, a move intended to stop attempts to sell banned Western produce in Russia. Russia curbed imports in retaliation for U.S. and EU sanctions over Ukraine.
While much of Lukashenko's bluster is aimed at a local electorate that has seen the Belarussian rouble fall 25 percent against the dollar since mid-December, trade restrictions and demands to use foreign currency strike at the heart of the EEU, which offers free movement of labor and trade.
"REALLY HAPPY"
The Kremlin saw Ukraine, the third biggest economy behind Kazakhstan and Russia in the Commonwealth of Independent States, a loose grouping of 11 former Soviet republics, as a vital member of the new union.
But after Crimea was annexed by Russia in March last year and Moscow supported separatists in eastern Ukraine, the country's central bank chief, Valeriia Gontareva, summed up Kiev's position toward Moscow.
"As a person I am really happy about what's happening with the Russian rouble," she said in December. "But as a central bank head it can't make me happy, as Russia remains an important trade partner."
Russia accounted for 19 percent of Ukraine's exports and 25 percent of its imports in the first nine months of 2014, official data show. The hryvnia fell about 50 percent against the dollar last year.
Few if any of Russia's former Soviet neighbors can escape the impact of its crisis, deepened by oil prices plunging to almost six-year lows, and the pain may encourage some to think more independently.
Oil-producing Azerbaijan, which sold nearly $1.13 billion to support its manat currency in December, has shown no interest in joining Putin's Union and Georgia, also in the South Caucasus, says the turmoil in Russia should cement its Western-leaning policies.
There also seem to be few benefits for Armenia, the EEU's newest member, with Anush Sedrakyan, vice-chair for the opposition Free Democrats Party, saying the country received no subsidies, "neither financial nor political benefits".
For Central Asia's Kyrgyzstan, one of the former Soviet Union's poorest countries which is due to accede to the bloc in May, business could not be worse for many after its som currency depreciated by 19.7 percent last year against the dollar.
The official rate stood at 59.90 to the dollar on Wednesday, but exchange booths were buying the U.S. currency at 60.00-60.50 soms.
"I don't understand this - maybe it's the wrong season or people have no spare cash, spending all the money they have to buy dollars," said Nuriya, a 43-year-old seller of women’s clothes in the capital Bishkek.
Kyrgyzstan, like many former Soviet republics, also relies on worker remittances for about 30 percent of its gross domestic product and more than 1 million of its citizens work abroad, mainly in Russia.
Worker remittances grew to $1.943 billion in January-October last year from $1.874 billion in the same period of 2013, central bank data showed. It is unclear what effect the collapse of the rouble will have on full-year remittances but some hope joining the EEU will mean better working conditions.
"(This) will lead to an increase of cash remittances by our workers," said Asel Sultanaliyeva, economist at the Kyrgyz national bank’s balance of payments and external debt division.
Many in neighboring oil producer Kazakhstan took advantage of the plunging rouble to buy up television sets and cars across the border. But as the shopping spree subsided, many are now watching the tenge currency.
Murat, a Kazakh businessman who invests in grain farming, said he did not hold even $100 in tenge cash.
Many analysts expect a devaluation soon and suggest the central bank is propping up the currency by using reserves. Official data showed reverses grew to $28 billion on Dec. 31 from $27.9 billion on Nov. 30.
"If you have a big neighbor and a trade partner whose currency is sharply depreciated while you wish to protect your currency and not to devalue it, the only way to do so is to build a safe and solid new Great Wall of China," said Oraz Jandosov, a former head of Kazakhstan's central bank.
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