Between a Rock and a Hard Place: Kaliningrad to Become ‘Special’ Again

Having lost its Special Economic Zone (SEZ) status on April 1, 2016, Russia’s westernmost region, Kaliningrad Oblast, has once again demonstrated an inability to cope with mounting economic challenges. Meanwhile, floods and adverse weather conditions near the close of 2017 compelled local authorities to beg the Kremlin for additional financial support (163gorod.ru, December 2, 2017), thus corroborating the failure of the post–April 2016 experiment.

On December 5, President Vladimir Putin signed a decree that, in effect, reinstated the Kaliningrad SEZ (Kremlin.ru, December 5, 2017). However, initial expectations that this Russian Baltic-littoral exclave—wedged between Poland and Lithuania—would soon become a Territory of Priority Development (Territoria Operezhayushego Razvitiya) were quickly extinguished, once the details of the new legislation became public (Government.ru, July 27, 2017). Instead of heralding new subsidies and a privileged status (including visa-free entrance for foreigners) the new law is likely to worsen conditions and incur significant damage to Kaliningrad’s economy.

The local business community was not informed about this “surprise,” which aroused shock and discontent. On top of that, it came to be known that the so-called “Kaliningrad team” of lawmakers in the Russian Duma (the lower chamber of the Russian Parliament) had tacitly agreed to water down and impair the legislation in order to “speed up” the process of passing it into law. As a result, instead of 2095, the SEZ regime in Kaliningrad will be in force only until 2045, thus making long-term investments for external investors virtually senseless. Second, the new law introduces an amendment that significantly complicates cooperation between local retailers and producers of agricultural products and commodities. This has dismayed locals the most given the current economic situation, with prices on staples having increased by 18–24 percent within the past several months (Newkaliningrad.ru, November 16, 2017).

In his comment, the local governor, Anton Alikhanov complained that “we should have warned the public a bit in advance. However, this is how things will be from now on. The most important thing is that these conditions are entirely satisfactory for businesses” (Newkaliningrad.ru, November 20, 2017). This judgement, however, seems overly optimistic.

In early November, the position of the greater part of Kaliningrad’s business community vis-à-vis the new SEZ law was expressed by one of the most reputable local entrepreneurs, Stephano Vlakhovych (a businessman of Croatian origin): blatantly, but rather to-the-point, he stated, “We are going to kick the bucket!” (Kaliningrad.bezformata.ru, November 11, 2017).

Meanwhile, so-called Small- and Medium-Size Enterprises (SME) are not the only potential victims of the new law. Large business are also suffering. In just one example, BaltAgroKorm, an agro-industry enterprise that earlier looked like a success story and a showcase for “rural prosperity” in Kaliningrad, has gone bankrupt. BaltAgroKorm’s failure suggests that the local economic model is seriously troubled and largely inefficient in the absence of continued subsidies and financial injections from Moscow (Newkaliningrad.ru, accessed December 9, 2017).

The abolition of the Kaliningrad SEZ in 2016 was preceded by apocalyptical prophecies about an imminent economic collapse of the oblast. Yet, this never came to pass. And most likely, in view of the upcoming soccer World Cup 2018 (Kaliningrad is hosting several matches), Moscow will grant necessary funding to this Baltic oblast—if not out of good will, then at least to make a positive impression on the international stage. Thus, the real impact of economic hardships looming over Kaliningrad might be “postponed” at least until the fall of 2018.

Beyond its economic status, Kaliningrad is already “special” in another way: since last autumn, the region has come under a fresh wave of hysteria over so-called “creeping Germanisation.” The campaign was initiated in late September, when Anna Alimpieva, a professor of sociology at the Immanuel Kant Baltic Federal University (BFU), was accused of “brainwashing” students, promoting an LGBT agenda among local youth, and (the most serious “offense”) suggesting that “Kaliningrad might be better off on its own, without Moscow.” Notably, the TV news channel Russia-24 aired a special program devoted to this issue: its main thesis stated that “the promotion of such viewpoints will result in the liberalization of political views among students” (Vesti-kaliningrad.ru, November 29, 2017).

The widespread campaign against the “Germanisation of Kaliningrad” was promulgated and ardently supported by such influential ultra-conservative Russian information outlets as Exclav.ru, Regnum, NewsBalt, and the State Television and Radio Broadcasting Company “Kaliningrad.” Judging by its financial support (in 2017, it received close to $450,000 from the state) and the range of media tasks it has been carrying out, the last outlet appears to have become the leading power in the campaign. At the end of March 2017, the channel produced a highly provocative “film investigation” entitled “Konigsberg: Sprain.” The main issues discussed in this feature pertain to the alleged activities of foreign agents in Kaliningrad and their role in fostering “the spirit of neo-Nazi ideology in the Russian trophy-region” (Vesti-kaliningrad.ru, March 30, 2017).

The public campaign against an Immanuel Kant University professor and the related anti-Nazi frenzy that has gripped the oblast happened to also bring to light the activities of the Kaliningrad branch (inaugurated in March of 2016) of the Department of Regional Security Problems at the Russian Institute for Strategic Studies (RISS) (see EDM, April 25, 2016). Headed by former BFU professor Vladimir Shulgin (expelled from the university for his xenophobic views), the local RISS branch has organized a number of anti-German (and in a broader sense anti-Western) conferences and round tables in 2017. Many of these events were attended by influential speakers from Moscow (Rugrad.eu, July 20, 2017).

This heightened anti-Western atmosphere in the Baltic exclave resulted in an outcry of discontent among local intellectuals and university professors, whose “letter of 64” expressed their “serious dismay” over the worsening academic conditions in Kaliningrad (Newkaliningrad.ru, October 5, 2017). Governor Alikhanov, meanwhile, has largely abstained from public comments on the situation, only posting on Instagram that “it is disgusting” (Instagram.com, accessed December 9, 2017).

Be that as it may, the seriousness of the state-sponsored campaign against “Germanization” (which in early 2017 led to the closure of Kaliningrad’s oldest non-governmental organization, the German-Russian House—Newkaliningrad.ru, January 28, 2017) as well as the repressions of local intellectuals could have far reaching consequences. Moreover, these trumped-up charges are being aggravated by the negative economic conditions (thanks to a variety of factors). Together, the situation in Russia’s westernmost oblast could trigger an outcome that Moscow has long feared, but which, until now, had never truly been likely—Kaliningrad separatism.