Why Most Russians Will Stay Home for New Year’s

Why Most Russians Will Stay Home for New Year’s
As Incomes Crumble, Even Celebrating with Friends Is Too Expensive for Them
Vladimir Ruvinsky
Vedomosti
December 27, 2018

New Year’s, apparently, has become a truly stay-at-home holiday. The number of Russians who plan to spend the long New Year’s holiday at home has jumped from 41% in late 2015 to 70% in late 2018, according to a survey by Romir, a Russian research company. The main reason is the rapid return to the conservative tradition of growing poverty and uncertainty in the future, combined with the desire to maintain previous levels of consumption of the most vital goods and services, which no longer include a winter holiday away from home.

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“How do you plan to spend the upcoming New Year’s holidays?” Overall: at home, 70%; at dacha, visiting relatives, 19%; traveling in Russia, 2%; working, 6%; traveling abroad, 2%; other, 1%. Average monthly income per family member of 10,000 rubles: at home, 73%; at dacha, visiting relatives, 18%; traveling in Russia, 2%; working, 6%. Average monthly income per family member of 10,000 rubles–25,000 rubles: at home, 74%; at dacha, visiting relatives, 17%; traveling in Russia, 1%; working, 5%; traveling abroad, 1%; other, 1%. Average monthly income per family member of 25,000 rubles or greater: at home, 56%; at dacha, visiting relatives, 25%; traveling in Russia, 4%; working, 8%; traveling abroad, 5%; other, 2%. Source: Romir, December 2018. Courtesy of Vedomosti

Surveys of the same representative selection of respondents have shown a drop-off in all other ways of spending the New Year’s holidays, which have basically become yet another period of time off work for Russians. The number of Russians planning to spend the holidays at the dacha or visiting friends or relatives has decreased from 34% to 19% in three years. Trips within Russia have dropped from 8% to 2%, while trips abroad have fallen from 4% to 2%. Nearly everyone has been scrimping, including Russians with above-median incomes. Fifty-six percent of Russian with monthly incomes of 25,000 rubles [approx. $364] per family memberwill stay home, as will 74% of Russians with monthly incomes between 10,000 rubles and 25,000 rubles per family member. As Tatyana Maleva, an economist from RANEPA, notes, the Russian urban middle class, which has grown accustomed to traveling, cannot afford it.

The picture emerging from the survey reflects the mood of many Russians. Since 2014, real incomes have fallen four years in a row, and all indications are they will be shown to have fallen in 2018 as well. According to Rosstat, the monthly modal income in in 2017 was 13,274 rubles [approx. $233], while the monthly median income was 23,500 rubles [approx. $412]. Given these circumstances, the ruble’s devaluation, which has made trips abroad more expensive, is not such an important factor. In December 2015, one dollar cost as much as it does currently, 67 rubles, and its value was rising.

Holidays at home are not cheap, either. In November 2018, the percentage of Russians who had noticed a rise in prices had grown in comparison with October 2018, according to the Russian Central Bank. Forty percent of Russians noticed upticks in prices for meat and poultry; 32%, rises in the price of petrol; 28%, rising prices for cheese and sausage; while 26% had noticed that milk and dairy products were more expensive. All of these goods are part of the home holiday menu.

In comparison with 2014, consumption levels have fallen. They have not returned to their previous levels. Attempting to wriggle their way out of poverty or maintain their previous income levels, Russians have taken out an ever-growing number of consumer loans, which have proven difficult to pay back. Every fourth Russian who had outstanding loans in 2015–2017 spent 30% of their incomes paying them off, note Olga Kuzina and Nikita Krupensky, economists at the Higher School of Economics, in an article entitled “The High Debt of Russians: Myth or Reality?” published in the November 2018 issue of the journal Voprosy ekonomiki.

Generally, the Russian populace has transitioned to a minimalist model of consumerism, notes Maleva. Scrimping begins literally with the New Year. As Romir’s survey indicates, this transition has become a trend that will, apparently, shape the strategies and tactics of Russian consumers in the future, too. The only thing that has not changed over the years is the president’s televised New Year’s greeting: it costs nothing.

Translated by the Russian Reader

Falling

200 ruble note-1

200 ruble note-2 A year ago, Russian Central Bank chief Elvira Nabiullina triumphantly introduced the new Crimea-themed two hundred ruble banknote into circulation. Since the economy is shaped more by flows of goods, resources, people, services, knowledge, and money, and the actions of ordinary people, decision makers, and the snake oil salesmen known as capitalists, and less by puerile revanchist neo-imperalist symbolism, the new banknote, pegged at €2.90 by Deutsche Welle only a year ago, is now worth a mere €2.65. I am keeping my specimen as a souvenir of the current bad times until better days arrive. Image by the Russian Reader

Fall in Real Incomes of Russians Accelerated Sharply in September
Economists Say Government’s Forecast No Longer Realistic
Tatyana Lomskaya
Vedomosti
October 17, 2018

Real incomes of Russians have declined for a second month in a row, Rosstat has reported. Their decline accelerated in September to 1.5% in annual terms after falling by 0.9% in August. Prior to that, they had grown for seven months, from the start of the year, by 1.7%. (This figure excludes the one-time 5,000-ruble payments made to pensioners in January 2017.) Real wages accelerated their growth in September, from 7.2% to 6.8% in the previous month.

Incomes of ordinary Russian had been falling for four years in a row, from 2014 to 2017, resuming growth only this year. In the first half of the year, they increased by 2.6%, mainly due to wage increases, notes Igor Polyakov from the Center for Macroeconomic Analysis and Short-Term Forecasting (TsMAKP). Business income increased only by 0.7%, while social transfers (excluding the one-time payment to pensioners) increased by 1.2%, which was significantly weaker than all incomes generally. Other sources of income decreased. There was a slight increase in incomes derived from property, but incomes received from securities and deposits decreased, as did, apparently, incomes from unreported activity, says Mr. Polyakov. He argues it is unlikely circumstances have changed considerably in recent months.

But the anxiety of Russians caused by the volatility of financial markets has increased, says Mr. Polyakov. People have taken to withdrawing cash from foreign currency accounts and transferring it to safe deposit boxes, as well as spending it abroad on holiday. Rosstat cannot register these expenditures and thus reduces its assessment of miscellaneous income. In August, the public’s net demand for US dollars grew by comparison with July from $0.8 billion to $1.7 billion, an increase of nearly 53%, the Central Bank reported.

Retail growth slowed in September to 2.2% in annual terms from 2.8% a month earlier. It is likely the public preferred buying foreign currency while curtailing consumption, argues Mr. Polyakov.

The drop in incomes combined with the serious increase in wages [sic] remains a mystery, writes Dmitry Polevoy, chief economist at the Russian Direct Investment Fund. The growth in real incomes in the first half of 2018 was mainly due to the presidential election campaign, notes Vladimir Tikhomirov, chief economist at BCS Global Markets. Salaries in the public sector and pensions increased rapidly. [That is, the Kremlin bribed Russians directly dependent on its largesse to get out the vote for President-for-Life Vladimir Putin—TRR.] After the election, growth stalled. And, after a palpable devaluation of the ruble in April and accelerating inflation, a dip in incomes was anticipated, argues Mr. Tikhomirov. In September, prices for imported goods rose. In addition, the seasonal discount on fruits and vegetables ended, and the July increase in utilities rates made itself felt, explains Mr. Tikhomirov.

By the end of the year, the incomes of Russians will gradually decline a little, while overall incomes will grow less than 1% on the year, predicts Mr. Tikhomirov. Real incomes might grow by 2% on the year, counters Mr. Polyakov. In any case, this is noticeably lower than official forecasts. The Russian Economic Development Ministry anticipated a 3.4% growth in real incomes in 2018.

Real incomes of ordinary Russians fell by 1.7% in 2017, although the government had forecast a 1.3% increase, the Federal Audit Chamber noted in its opinion on the draft federal budget for 2019–2021. When the forecast was corrected, incomes had decline dsteadily from the beginning of the year, and there were no preconditions for rapid growth by year’s end, the auditors write.

Income growth depends on whether private enterprise will increase wages, argues Mr. Polyakov, but thos wages will be subject to the planned rise in the VAT to 20% in 2019.

President Putin has set a goal of halving poverty by 2024. (The official poverty rate last year was 13.2% of the populace.) The Economic Development Ministry’s forecast significantly increased the growth rate of real wages and anticipated higher growth rates for real incomes, which has raised doubts at the Audit Chamber. There is no wage increase for public sector employees planned in 2019, while the growth of wages in the private sector will depend on growths in productivity.

Rank-and-file Russians have been forced into debt, write analysts from RANEPA and the Gaidar Institute in their opinion on the draft budget. By mid 2018, Russians owed banks 13.7 trillion rubles (approx. 181 billion euros), an increase of 19% from the previous year, they write, and an amount that significantly outpaces the increase in nominal incomes. It is an alarming trend that means an increase in the amounts of money ordinary Russians spend servicing loans, experts warn.

Translated by the Russian Reader

Life on the Installment Plan, Part Three

DSCN9641 The “handy lawyer” at a place calling itself the Civil Legal Defense Center promises to relieve people “of their debts 100% quickly and legally.” Photo taken in central Petersburg on 22 July 2018 by the Russian Reader

Russians’ Bank Debts Grow Twice as Fast as Their Wages
Central Bank and Economic Development Ministry Plan to Reduce Banks’ Interest in Loaning to General Public
Tatyana Lomskaya and Emma Terchenko
Vedomosti
August 1, 2018

The Economic Development Ministry has reported individual consumer loans have been growing faster than wages and savings. In June, they grew by 15.9% in annual terms after a 15.1% uptick in May. If the season were not taken into account, this would amount to an increase of over 20%. However, real wage growth during the same period slowed to 7.2%, while the growth rate of savings deposits fell 7.1%. (The figures for May were 7.6% and 7.7%, respectively.)

The entire portfolio of loans to the general public increased by ₽1.1 trillion to ₽13.3 trillion [approx. €181 billion] during the first six months of 2018, according to figures from the Central Bank. Sberbank alone lent a record-breaking ₽714 million [approx. €9.7 million] in consumer loans during this period, which was 74% more than a year ago, while VTB Bank supplied the general public with ₽400 million in loans or 32% more than over the same period in 2017.

The public’s demand for consumer loans has grown. Inflation is relatively low in the wake of 2014, the Central Bank’s key rate has stabilized at a low level, and wage growth has picked up, explains Sergei Shirokov, managing director of Sberbank’s Borrow and Save Division. Since the start of the year, VTB has twice improved the terms of its loan programs and increased the issuance of loans by 17%, notes Dmitry Polyakov, a vice-president at the bank.

Companies, on the contrary, have increasingly gone on a savings binge, writes the Economic Development Ministry. In June, they increased their bank deposits by 8.3% in annual terms. (The increase in May was 6.5%.) Their outstanding loans have also grown, but only by 2.8%, compared to the same period in 2017, or by 3.3% when corporate bonds are taken into account. (In May, the same figures grew by 2.6% and 3.1%, respectively.)

Banks have focused on lending to the public. Under current regulations, they find this more profitable than lending to businesses, complained Economic Development Minister Maxim Oreshkin. This circumstance worried his ministry, he said. He suggested the Central Bank should make it more profitable for banks to loan to companies as opposed to making consumer loans. The ministry did not respond when we asked whether Minister Oreshkin, as a member of Sberbank’s advisory board, had voiced his concern about the high rate of consumer loans issued by Sberbank.

Retail lending has actually been recovering faster than corporate lending, partly because the public vigorously decreased their debts to banks in 2015–2016, whereas now, as wages have increased and rates have hit bottom, they have again accumulated debts, says Natalya Orlova, chief economist at Alfa Bank. Banks are also more interested in lending to individual due to western sanctions against Russian companies, she continues. If a company is at risk of western sanctions, it might also have trouble paying back its loans. Unlike mortgages, however, the growth of consumer loans has almost been exhausted. Outstanding loans have nearly reached 10% of GDP, the maximum for Eastern Europe, warns Orlova.

Consumer lending started to recover last year amid falling personal incomes. People were able to increase consumption only by taking out retail loans, analysts at RANEPA noted. In early 2018, on the eve of the presidential election, the salaries of state-sector employees increased dramatically. The government had to make good on President Putin’s May 2012 decrees and bring the salaries of teachers, doctors, and researchers to 100–200% of average regional wages. On the heels of the wage increases, personal incomes rose by 4,2–5,6% in annual terms from February to April. In May and June, however, real personal incomes of Russians returned to a near-zero growth rate. This sparked an increase—from 12% in May to 22% in June—in the percentage of Russians who anticipated that their family’s financial circumstances would worsen over the next year. The percentage of people who excepted their fortunes to change for the better shrunk from 24% to 19%, according to a poll conducted by inFOM.

The Central Bank has already been reducing the profitability of consumer loans for banks. The risk ratio for unsecured consumer loans was increased on May 1, and the regulator plans to raise it again on September 1 for loans whose total cost exceeds 10% per annum. The Central Bank has been also been reviewing other proposals for stabilizing the growth of consumer loans, said Vasily Pozdyshev, the Central Bank’s deputy chair, as quoted by RIA Novosti. For example, increased oversight requirements could be applied to banks whose consumer loan portfolios increased much more quickly than the market average, or the growth of such loans could be restricted, said Pozdyshev. According to him, the banks had made an interesting propose to introduce differentiated risk ratios for consumer loans depending on their amount: large loans in amounts greater than ₽300,000 [approx. €4,000] would bear the greatest risk ratio. In addition, as of 2019, banks should start regularly calculating the PTI (payment to income) ratio as a means of determining a customer’s credit worthiness, although the Central Bank would not use it as a regulatory instrument befored 2020, added Pozdyshev.

High-risk borrowers are more likely to seek loans from microfinance institutions (MFIs). According to the National Credit History Bureau, MFIs issued ₽26.3 billion [approx. €358 million] in so-called payday loans from April to June, which was 23.8% more than last year. Vulnerable segments of the populace are already seriously indebted, says Georgy Okromchedlishvili, principal analyst at ITS Wealth Management, and significant growth in these loans is not anticipated in the future, but nor is a noticeable decline expected. Stable economic growth has to be in place for that to happen, he argues.

Translated by the Russian Reader

Household Debt in Russia Over 170 Billion Euros

Reliable Future Consumer Credit Cooperative is one of many retail lenders ready to help ordinary Russians “boost their standard of living.” Photo by the Russian Reader

Household Debt of Russians Exceeds Twelve Trillion Rubles
Half of This Amount Was Borrowed Over the Last Year
Emma Terchenko
Vedomosti
January 31, 2018

This emerges from statistics gathered by the United Credit Bureau (OKB), based on information about the outstanding loans of 82 million Russians.

According to the Russian Central Bank, the Russian populace’s bank debt grew by 13.2% in 2017 to 12.2 trillion rubles [approx. 170.75 billion euros].

The OKB’s calculations show the number of new loans grew more slowly than their total amount. Over the past year, loans increased by 37% compared to 2016 (by 4.14 trillion rubles), whereas their quantity increased only by 12% to 34.8 million individual outstanding loans.

Moreover, an increase was observed in all segments of the loan market—mortgages, cash loans, auto loans, and credit cards—according to the OKB’s statistics.

Banks mostly disbursed money to Russians in the form of cash loans: nearly 3 trillion rubles or 33% more than in 2016. The number of such loans reached 24.7 million units, an increase of 14%.

The total amount of mortgages issued for the year increased by 42% to 1.8 trillion rubles, while the total number rose by nearly a third to 959,237 individual mortgages. According to Rusipoteka, a financial analytics company, 53% of the housing mortages issued last year were supplied by Sberbank.

In November, the mortgage portfolios of Russian banks exceeded a record five trillion rubles, the Central Bank reported previously.

“Afer the crisis, banks tried to build up their mortgage portfolios. Many of them reduced their down payments to accomplish this. Therefore, amongst the loans issued last year, around a third had down payments of less than 20%,” says Rusipoteka director Sergei Gordeiko.

According to the OKB, auto loans for all of 2017 increased by 36% to 333.3 billion rubles or by 25% to 436,539 individual loans. The National Credit History Bureau (NBKI) estimated the annual growth of auto loans at 29%.

“Auto loans have returned to pre-crisis levels, and the share of cars bought on loan has been growing,” notes NBKI’s director general Alexander Vikulin. “In 2017, every other automobile in Russia was purchased with a loan.”

The OKB claims credit cards are the fastest growing segment. Although the number of new credit cards issued last year grew only by 8% to 8.65 million cards (this figure excludes replacement cards), their total limit increased by less than half: by 48% to 544.5 billion rubles.

According to the NBKI, the number of newly issued credit cards grew by 52.6% to 6.87 million units in 2017. Equifax reported an 52% increase to six million new cards issued on the year.

The reason for the discrepancy is the databases of creditors monitored by the various credit bureaus differ. Unlike other credit bureaus, the OKB receives all information about loans made by Sberbank, which, according to different estimates, accounts for 42% to 46% of the loan market. The NBKI, for example, does not monitor figures from Home Credit Bank. None of the three bureaus—OKB, NBKI, and Equifax—take Russian Standard Bank’s statistics into account.

With its share of the credit card market, Sberbank has an impact on discrepancies in the calculations of the OKB and the other bureaus, argues Frank RG director general Yuri Gribanov. According to Frank RG’s data, based on the management statements of banks and taking into account the utilization of credit limits and overdue debts, Sberbank’s portfolio of credit cards and overdrafts constituted 42.5% of the overall portfolio of all Russian banks as of December 1, 2017. During the year, it grew by 16.4% to 559.6 billion rubles.

A Sberbank spokesperson did not provide exact figures for the issuing of new credit cards last year, but confirmed they had not grown, remaining at a “consistently high level.”

Tinkoff Bank issued 2.41 million new credit cards in 2017, 43% more than the previous year, while Sovkombank issued more than a million credit cards. Vostochny Bank increased its issuing of credit cards by 140%, OTP Bank, by 135%, and VTB Bank by 13% (440,000 cards).

“The main reason for the growth is that banks have returned to sales channels that were frozen after 2015, for example, lending to walk-in customers,” says Alexei Shchavelev, director of the cross-selling department at OTP Bank.

“In addition, many banks now have built up a broad base of quality customers: payroll customers, debit card holders, borrowers. It is now much easier for them to sell credit cards, because this customer base has been clarified,” Pavel Samiyev, managing director of the National Rating Agency, explains.

The demand for credit cards from borrowers themselves has been caused by the growth of consumer activity in general and improved customer solvency, argues Rostislav Yanykin, director of Russian Standard’s credit card sales. In the fight for customers, banks have been offering increasingly advantageous terms for using credit cards, he admits.

People who take out loans to boost their standard of living have mainly fueled the growth in lending to the populace, argues Nataliya Orlova, chief economist at Alfa Bank.

“In the past two years, they suffered more than others from the crisis in terms of reduced purchasing power.”

According to NBKI’s Vikulin, retail lending has been growing due to the economy’s stabilization.

Translated by the Russian Reader

NB. According to a May 17, 2017, article in the New York Times, household debt in the US had risen to $12.73 trillion in the first quarter of 2017, a new peak. Converted into rubles, this would amount to approx. 742 trillion rubles at current exchange rates. Based on the latest UN estimates, the current population of the US is nearly 327 million people, while the population of the Russian Federation is nearly 144 million people, based on the same estimates. In 2016, GDP (PPP) per capita in the US was over $57,000, while it was just over $23,000 in Russia, according to figures published by the World Bank. TRR

Mort à crédit

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Voronezh Region Residents Took Out Nearly 55 Billion Rubles in Loans over Six Months
Ilya Makar
Kommersant
September 28, 2017

From January to July 2017, Voronezh Region residents borrowed 54.7 billion rubles [approx. 800 million euros] from banks, reports the Central Bank’s Central Federal District regional office. Of this total, 43 billion rubles [approx. 630 million euros] were loaned for consumer needs, a figure almost 30% higher than for the same period last year. As of August 1, 2017, residents of the region owed banks 138.4 billion rubles [approx. two billion euros] in loans.

Thanks to Nikolay Mitrokhin for the heads-up. Translation and photo by the Russian Reader

The Russian Economic Miracle of 2017

fullsizeoutput_602 — “Pilling from 499 rubles. Ultrasound cleaning from 599 rubles.” Photo by TRR

More Than Five Million Russians Have Trouble Paying Back Loans
Takie Dela
May 30, 2017

Around five and half million Russians have trouble servicing their debts. Their debut burden is more than 60% of their income, reports Gazeta.ru, quoting a statement by Vladimir Shikin, deputy marketing director at the National Credit History Bureau.

According to experts, this figure is regarded as a critical indicator. Among the main reasons for arrears are the unreliability of borrowers and the lack of means to finance current debts.

Residents of the Kemerovo, Tyumen, and Novosibirsk Regions are the most indebted. According to the National Credit History Bureau, three million people cannot make payments on loans, which is 8% of all borrowers. Their current debt load exceeds half of their monthly incomes.

According to Shikin, the share of overdue loans remains at 16%, even as the number of new loans grows. The majority of Russian borrowers have several loans, and the average economically active Russian owes creditors 146,000 rubles [approx. 2,300 euros].

Meanwhile, research done by RANEPA shows that the debt burden of Russians is not critical. As Natalya Orlova, chief economist at Alfa Bank, stressed, the debt of Russians is estimated at 12% of GDP.

“In developed countries, debt is 60% to 80% of GDP, so the market has potential for growth,” emphasized Orlova. However, she argues that Russia issues a relatively small percentage of mortgages, whereas in developed countries, mortgages account for nearly 90% of all loans.

Experts hope that the debt burden of Russians will not rise greatly. After the 2014–2015 crisis, banks were more way about issuing loans, so the debut burden of Russians will fall. In the near future, banks will be even more cautious. In particular, the Central Bank has planned to consolidate the data of major of credit history bureaus in a single data base to combat indebtedness.

Earlier, the United Credit reported that half of Russian borrowers had been applying for new loans to pay off old loans. According to its figures, 45 million Russians with old loans had taken new loans in banks. Over half of them had done this to pay off old loans.

The analysis shows that 53% of borrowers had taken new loans in cash to partially or fully pay off already existing loans. 27% of the borrowers had spent more than half of the new loans on paying debts.

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Almost 60% of Russians Admit They Have No Savings
Takie Dela
May 29, 2017

Around 59% of Russian families have no savings, reports Rambler News Service, citing a report from the polling and market research firm inFOM.

According to a survey commissioned by the Central Bank, the figure has remained stable [sic] the last three months. In December 2016, 64% of those surveyed had no savings.

Yet a quarter of Russians believe that now is a good time to save money, while 44% hold the opposite opinion. According to experts, the tendency to save has grown noticeably since the beginning of the year. In February, fewer than 17% of respondents answered the question positively.

The majority of respondents replied that spare cash should be saved or put away for a rainy day, while a third of Russians would spend the money on expensive, major purchases.

The poll showed that 40% of respondents prefer to keep their savings in a bank account, 26%, in case, and 20%, partly in a bank, and partly in cash.

Two thousand respondents, aged eighteen and older, from fifty-five regions of Russia were involved in the survey.

According to research by RANEPA, the share of Russians who save money dropped by a third in 2016, from 55% to 40%. Moreover, in March, 40% of Russians claimed they had only enough money for food.

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VTsIOM: 67% of Russians Skimped on Groceries during the Past Year
Takie Dela
May 30, 2017

During the past year, 67% of Russian skimped on groceries in one way or another; 27% of them in a substantial way. Pensioners and residents of big cities had to skimp most of all. These figures were reported by pollsters VTsIOM.

The survey dealt with Russians’ attitudes to government regulation of the food market. 82% of respondents were against the idea of limiting supermarket opening hours on weekdays and weekends. According to 68% of them, if the government decided to do this, it would cause a number of problems. It would be hard to buy groceries in the evenings, and the selection would be reduced. Nearly 40% believed that limiting competition would generate price rises in small shops and produce markets.

Only 15% of Russians favored limiting competition, mostly pensioners aged sixty and older. When replying about what they thought about regulating prices for basic foodstuffs as a way of supporting the poor, Russians were divided in their opinions. Exactly half of them said such restrictions were ineffective, while 32% supported a combination of government and market measures, while 14% believed the government should solve the problem.

The VTsIOM survey showed that Russians were concerned about the government’s restricting prices for basic products. 55% said it would lead to the closure of stores, while 28% said it would lead to shortages, price gouging, and disruption of supplies. However, a quarter of respondents believed that prices would subsequently drop, and life would improve.

Russians see the government’s key role in regulating the produce market in support for domestic producers and developing farming, as well as in quality control. However, according to Yulia Baskakova, head of social modeling and forecasting at VTsIOM, “While worrying with all their heart for domestic producers, supporting improved food quality, and supporting the development of farming, Russians are not willing to sacrifice their comfort and put up with a reduction of the range of goods to which they are accustomed and its becoming less available. The survey showed that 88% of Russians are not willing to put up with a drop in their quality of lives to reduce the price of essential foodstuffs.”

The poll was occasioned by a suggestion, made by Federation Council member Sergei Lisovsky, that regional authorities could decide how large store chains should operate. Lisovky also suggested prohibiting supermarkets from opening at nights and on Sundays, and permitting them to work on Saturdays only until four o’clock in the afternoon. Lisovsky has argued that such measures would support small business and promote small-scale trade.

Translation and photo by the Russian Reader. Faithful readers might wonder why I have cited Russian opinion polls at such length after making a big effort, over the past couple of years to show that this pollocracy, while real enough as a practice, does not tell us much or anything at all about what actual Russians thinking or are planning to do. I have made an exception in this case, however, because I think the three news items, above, show, between the lines, as it were, what really afflicts the Russian economy, and how the feigned populism of the political/economic elite rears its head, quite often in fact, to suggest impracticable solutions to the knotty problems their own mammoth corruption and instinctive hatred of small business and independent individuals generates the dead end they claim to want to alleviate by, among other thing, commissioning one “public opinion poll” after another while stubbornly failing to notice that their enthusiastic terrorizing of Krasnodar farmers, independent truckers, and Moscow street vendors show they have no interest whatsoever in small business, much less reducing the prices of basic foodstuffs for pensioners. The only thing that interests them is getting richer and making their power untouchable. TRR

Life on the Installment Plan

“Sovcombank. Are you a pensioner? Your loan is approved!”

Half of Russians in Arrears Take Out New Loans to Repay Old Loans
Takie Dela
April 18, 2017

In 2016, according to the statistics of the United Credit Bureau (UCB), 45 million Russians with current loans took new loans from banks. More than half of these people intended to use the money to pay off outstanding loans.

The bureau’s analysis showed that 53% of borrowers took a new cash loan that was used to fully or partly repay existing loans. 27% spent more than half of the new loans to pay their debts.

On average, Russians borrow between 101 and 126 thousand rubles [between 1,650 euros and 2,080 euros, approx.] to repay debts. According to statistics, around half of the borrowers (56%) take the money to repay debts of 50 thousand rubles or less or debts over 500 thousand rubles (47%).

33% of those who take new loans before repaying old loans have a debt of 100 thousand rubles. Nearly a fifth of all borrowers (18%) have three outstanding loans and a total debt of 278 thousand rubles, while every tenth borrower has five or more outstanding loans and a total debt of 575 thousand rubles.

71% of those who have five or more outstanding loans have taken a new loan to repay the interest on the existing debt. 65% of those with four outstanding loans and 60% of those with three outstanding loans have done the same thing. Those who have only one outstanding loan are the least likely (42%) to use a new loan to make interest payments.

“The trend may indicate the growing popularity of loan refinancing programs, which many Russian banks have vigorously brought on line in the past year,” commented UCB’s director general Daniel Zelensky. “Borrowers who took out loans at high interest rates in 2015 naturally have wanted to refinance them on more favorable terms.”

He added that many borrowers have realized that now it is “irrational to service several loans in different banks at the same time.”

In May of last year, the National Credit History Bureau analyzed 3,700,00 Russian creditors and reported that the most indebted Russians were schoolteachers and physicians. Employees of the social sector and education sector spend 33.39% and 33.3%, respectively, of their income paying back loans. The highest ratio of monthly loan payments to income (33.56%) was recorded amongst pharmaceutical and medical workers.

According to UCB’s report, no fewer than 600,000 Russians are currently bankrupt. That is, they owe more than half a million rubles and have not made payments on their debts for three months.

Translation and photograph by the Russian Reader. If you found this article interesting, you might want to read “Kotlas: Russia’s Bankruptcy Capital,” posted here in December 2016.

Pay Your Rates

Gazprom Refuses to Name and Shame Russian Authorities Falling Behind on Bills
Moscow Times
March 29, 2017

Russian energy giant Gazprom has refused to name and shame regional governments for falling behind on their gas bills.

Previous press releases by the company had turned the spotlight on authorities who refused to pay up.

Gazprom’s last debt report in 2016 slammed local governments in Russia’s North Caucasus, reporting that officials in the region owed more than 48 billion rubles ($845 million)—more than 80 percent of all money owned to the company across Russia as a whole.

This year, the company took a less-confrontational approach, declining to name its main debtors despite a rise in outstanding payments. “Overdue payments remain an urgent problem,” the company said in a press release. “In 2016, it grew by about 6 percent, amounting to 161 billion rubles ($2.84 billion) as of January 1, 2017.”

Some have seen the change as part of a bid to appease Chechen leader Kadyrov after he locked horns with the energy company last month.

Kadyrov, whose government forms a vital part of Russia’s North Caucasus region, accused Gazprom of using “worn out” equipment. He said that the company’s “bad management” forced the Chechen people to live in “19^th century conditions.”

“People pay for light, for gas, but the money just doesn’t get there,” Kadyrov said.

The Chechen government has long waged a campaign to see local energy assets handed over to Kadyrov’s safekeeping.

The Kommersant newspaper reported in February that Russian oil giant Rosneft could sell its assets to the Chechen republic in a multi-billion dollar deal.

The Chechen government also took control of property belonging to Chechenneftekhimprom—the state-owned company that controls the republic’s oil-refining and petrochemical industry—in December 2015 after repeated requests to Russian President Vladimir Putin.

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That’s certainly a curious article.

I was walking round town the other day and came across several instances of Gazprom’s engaged in quite the opposite behavior, that is, naming and shaming ordinary flat dwellers to their neighbors for the money they had failed to pay the gentle folks who “hold[] the world’s largest natural gas reserves.”

The funny thing is that the worst gas-bill shirker in this particular block of flats, the bourgeois wrecker who lives in flat no. 48, owes mighty Gazprom the equivalent of a whopping 35 euros. The bastards in flats no. 35 and no. 41 owe a bit over nine euros each, but they’ve already been tied to the same whipping post as the foreign saboteur in no. 48.

The circumstances at a nearby block of flats is a bit more dire. Flat no. 58 has seemingly gone rogue, racking up an unseemingly debt of 245 euros. And yet Gazprom, which, as the Moscow Times article, above, suggests, has learned the lesson that discretion is the better part of wisdom, has also ratted out flat no. 9 for owing it the equivalent of eight euros fifty cents.

So the takeaway is that if you’re a North Caucasian republic, you can get away without paying your gas bill, which, I imagines, amounts to more than nine euros a month.

For the record, my monthly gas bill amounts to a little over six euros a month and I always pay it on time, such a fervid patriot am I.

But not everyone is conscientious as I am, as I saw a bit further down the same street, where Gazprom had named and shamed packs of shirkers wholesale—alas, to no avail.

Sigh. These folks don’t want to pay their rates at all, apparently.

Or maybe they can’t afford to pay them?

Well, that never stopped maniacal Russian debt collectors from going after debtors like Murder, Inc., carrying out a hit.

So pay your rates.

All photos by TRR

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Vladislav Inozemtsev: The Calm before the Storm

A common sight: first-floor commercial space for rent in downtown Petersburg.

The Calm before the Storm: Can We Avoid Economic Collapse in 2018?
Vladislav Inozemtsev
Slon.ru
August 1, 2016

Last week, Tatyana Nesterenko, one of Russia’s most experienced financiers and a person distant from politics, a person who has held the post of deputy finance minister and head of the Federal Treasury for almost twenty years, said the Russian economy should expect serious financial problems as early as next year, comparing the current situation with the “eye of a storm, [meaning] a condition in which everything [merely] looks quiet and safe.”

In my view, Nesterenko is undoubtedly right. The government has recently appeared to be the epitome of tranquility. It has even been drafting a new three-year budget, although in terms of revenues for 2016, the previous such plan (for 2014–2016) was off by 42%! Revenues were projected at 15.9 trillion rubles, but actual revenues in the first six months of the year were 4.6 trillion rubles. I don’t think the new draft budget will prove more accurate, if only because no sources of income for covering the deficit are envisioned after 2017. The president, who from time to time meets with economists and recommends developing a new development strategy for the country “roughly within a year,” meaning when the Finance Ministry’s reserves will run out and the budget’s huge social commitments will prove impracticable, has mainly been busy reshuffling the security forces, believing, apparently, that a sum changes by rearranging its components.

Coins tossed for good luck onto a stanchion in the Fontanka River — Coins tossed for good luck onto a cable spool anchored in the Fontanka River.

Today, Russia’s economy, to invoke Economic Development Minister Alexei Ulyukayev‘s maxim, really has hit rock bottom. The authorities are elated that the rate at which the GDP has been falling fell to 0.6% in the second quarter, but we should note this reduction took place in conjunction with an accelerating reduction of real incomes (by 6.2% in May, and 4.8% in June) and a considerable increase in inflationary expectations. Annual inflation was 7.5% as of June and showed no tendency toward decreasing.

Moreover, oil prices have fallen considerably. Brent fell by 15.2% during July, and, apparently, black gold is near a new equilibrium price ranging between 38.5 and 43 dollars a barrel. A 15–16% fall in the oil price will cost the Russian budget 430 to 460 billion rubles in the remaining five months of 2016, which is also no cause for optimism. Responding to it by “managing” the descent of the ruble will not be easy. Devaluing the national currency will no longer lead to a growth in exports, which this year has lagged behind last year’s figures by 30.5%. On the other hand, imports, which have basically not shrunk (they are down by only 10.4%) will inevitably become more expensive, dragging along with them the prices for a wide range of goods, thereby causing inflation and setting the tone for high interest rates.

Empty billboards are also not hard to come by in the city center.

In mid 2016, the Russian economy really is situated in the eye of a kind of storm. It is quite calm there at the moment: the authorities have become accustomed to the new circumstances. They have no hesitation in spending reserve funds. Generally, fears of popular discontent over lowing living standards have been overcome. Seemingly, a certain reduction in the degree of hostility toward western countries might do the trick of restoring relations with them. There has been a glimmer of hope the EU’s problems will deepen with the UK’s exit. The possibility of Donald Trump winning the presidential race in the US has been taken seriously. Putin feels like a winner in his confrontation with Turkey. It is no wonder officials have dubbed the situation the “new normal.” It really is the new normal, so as long we take into account two factors: oil at 50 dollars a barrel and spending accumulated reserves at the rate of 600 billion rubles a quarter. That is around 8% of the overall amount in both sovereign wealth funds, the Reserve Fund and the National Wealth Fund.

However, the problem is not so much that sooner or later we will have to break back into the open sea through the hurricane’s eye wall, but the fact that the eye of the storm might move, and it would appear we have no instruments for tracking it. The country has not been trying to find the best place in this “quiet corner.” It has simply been drifting, humbling waiting for what happens next.

Evaluating the numerous programs and strategies that experts affiliated with one or another wing of the government are now trying to draft, one cannot help thinking that none of them is capable of boosting the Russian economy in view of two circumstances.

An elderly woman turning in scrap paper and other junk to supplement her pension.

On the one hand, anti-crisis measures should have been implemented yesterday, rather than postponing their preliminary discussion to 2017. By the way, Russian Finance Minister Anton Siluanov warned in early 2016 that, at current oil prices, the Russian budget would be short 3 trillion rubles, which in turn would lead to spending the greater part of the National Wealth Fund. Little has changed since then. In the absence of reserve funds, the hole in the budget cannot be closed in 2018 either by raising funds on the international capital market (in this case, we would have to raise considerably more money than all the central government’s current international obligations) or by privatizing. (One year’s deficit could be papered over only by selling off the lion’s share of the state’s holdings in Gazprom and Rosneft.) Whatever economic development strategy the Kremlin approves a year from now, it will not prevent a large-scale collapse in 2018, with all the attendant consequences.

On the other hand, all the existing programs, however much Alexei Kudrin and Boris Titov stress their differences, are generally focused on the same thing: relaunching the economy on behalf of manufacturers. There is in fact only one difference between them. Titov’s Stolypin Club has suggested priming major enterprises with money through the earmarked and regulated distribution of cheap loans, subsidized by the Central Bank, while Kudrin’s Center for Strategic Research favors institutional reforms that could include reducing taxes on business and limiting the rights and opportunities of security services and the bureaucracy for extracting additional income from business. The assumption is that either by getting its hands on cheap money or ridding itself of the unbearable pressure of regulators, business will be reanimated, sparking life-saving economic growth.

More commercial real estate for rent in the city center.

I would love to be wrong, but I don’t think these measures will produce any meaningful outcomes, because the most important factor in the economic slowdown of 2014–2016 has been the crisis in consumer demand. The state has diligently performed its investment obligations, saturating heavy industry with funds via defense sector orders. It has not halted its sometimes pointless but expensive infrastructure projects. It has been encouraging state companies to build new pipelines and railways, but none of it can compensate the effect of declining consumer demand. Moreover, this demand has increasingly shifted towards the continuing flow of imports, while the share of domestic goods on the market has stopped growing. As I understand it, none of the economic development programs has so far offered a solution to this problem.

Therefore, in my opinion, we should introduce as least three new story lines into the ongoing debates.

First, we should stop regarding increases in wages for low-paid earners, pensions, allowances, and other payments to low-income Russians as “costly measures.” Saving money by reducing the incomes of doctors, teachers or pensioners is much more destructive than reducing costs at Gazprom or expenditures in the program for rearming the Russian army. These segments of the populace are most focused on purchasing domestic goods and services, and investing in them produces a multiplier effect in the sales and production of consumer goods. The crisis of 2008–2009 was negotiated much more successfully than the current crisis not only due to the relatively radical reversal in oil prices but also because the government considerably increased people’s incomes at the time, despite budget problems, whereas 41% of the population now say they lack money for food and clothing.

Second, we should think hard about a one-time credit and debt amnesty for people whose indebtedness to banks, the tax authorities or housing and utilities sector companies does not exceed, say, 30 thousand rubles. Obligations of this amount now account for around 20% of the population’s entire debt burden, and a measure like this would affect 10 to 12 million people. The state would have to allocate up to 2 trillion rubles to implement the program, but both the social and political (why deny it) effect of such a measure would be incomparable with a Stolypin Club-style emission of a similar scale, which would completely vanish in the offshore accounts of executives of major companies in bed with the state and sympathetic officials. In my view, we cannot do without this measure now, but none of the people involved in the current discussion has deigned to mention it in their programs.

Third, direct measures for stimulating demand are necessary. They were adopted by all the governments of developed countries hit by the crisis of 2008–2009, but our officials were quite reluctant to copy them. I have in mind not only programs for encouraging purchases of new automobiles but also a system of issuing food stamps, analogous to the American one, to poor people. For example, pensioners could buy stamps nominally worth four to six thousand rubles for two to three thousand rubles at welfare offices. The stamps would be accepted in shops as payment for domestic food products only, with the exception of cigarettes and alcohol, and commercial outlets would then turn them in at banks at face value and have the amount credited to their accounts. This could be a powerful stimulus both to domestic manufacturers and commerce, not to mention the popularity of such a step among socially vulnerable groups themselves.

Ads like this one for a prostitute service are stenciled and pasted on every available surface in the city center.

In other words, now it is not enough to say that Russia has sailed into a perfect storm. It must be understand that not only the captain and his mates will have to fight for our ship’s survival but absolutely all the passengers as well, and so the basis of an anti-crisis program should be attention to the general population, not to state corporations. And, of course, to be at least relatively prepared to fend off the mighty blows of the elements, we must stop postponing actual steps until tomorrow, and begin taking them today.

Source of original text: Worldcrisis.ru. Translated by the Russian Reader.