Russia Should Be World’s No. 1 Tourist Destination

zarina Zarina Doguzova. Photo courtesy of Maxim Stulov/Vedomosti

New Rosturizm Head Assesses Russia’s Tourist Potential
Vedomosti
February 11, 2019

Russia’s tourist potential was as huge and immense as the country itself, said Zarina Doguzova, Rosturizm’s new head. On Monday, Economic Development Minister Maxim Oreshkin introduced Doguzova to staff at the agency, which has been given a new leader at the same time as it has come under the jurisdiction of the Russian Economic Development Ministry.

“The principal task you and I face is discovering this potential and realizing it to the maximum extent,” Doguzova said.

She argued Russia should be the first country that came to mind when foreigners were planning their next holiday, while Russians should be happy to show Russia’s unexplored corners to their children and plan to travel to a neighboring region during the next long weekend, not to a neighboring country.

“This won’t happen tomorrow, but maybe it should,” she said.

When introducing Doguzova, Oreshkin noted that, under her leadership, Rosturizm would be tasked with creating the right image within the country, an image that would present the real picture and thus attract both domestic and foreign tourists.

In September 2018, President Putin signed a decree transferring Rosturizm from the purview of the Culture Ministry to the Economic Development Ministry’s jurisdiction. On February 8, Prime Minister Medvedev appointed Doguzova the agency’s new head.

Doguzova was born in 1985. In 2008, she graduated from the Moscow State Institute for International Relations (MGIMO) and, according to friends, got a job in the press service of Vladimir Putin during his stint as prime minister. In 2012, Putin won the presidential election, and Doguzova transferred to the Kremlin’s office of public relations and communications.

Thanks to Sergei Damberg for the heads-up. Translated by the Russian Reader

Grigorii Golosov: The Year 2020

Living it up with Russia’s shrinking “middle class.” Sulphur Island, St. Petersburg, 19 May 2018. Photo by the Russian Reader

Grigorii Golosov
Facebook
February 5, 2019

Many people have been citing a 2008 article in Rossiiskaya gazeta.

“By 2020, Russians will be earning an average of $2,700 a month, a family of three will have no less than 100 square meters of living space, and the middle class will constitute over half of the population.”

This is a paraphrase of the “Social and Economic Development Strategy to 2020,” drafted at the time by the Russian Economic Development Ministry.

The article goes on.

“Experts have already dubbed the strategy a ‘breakthrough scenario’ that will see Russia establishing itself as a leading world power by 2020.”

The Economic Development Ministry was wrong, of course, but the experts were right. Russia has already established itself as a world power, albeit in roughly the same sense as North Korea and Iran. It has gone even farther. Iran and North Korea, at least, are not in everyone’s face all the time, while Russia butts in everywhere nowadays.

We should look for the root of the Economic Development Ministry’s mistake in the machinations of Russia’s enemies, of course, although the reason Russia has so many enemies is to be sought in the circumstances that also explain its promotion to the same league as North Korea and Iran.

That is the intriguing dialectic at work here.

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

How Rosstat Stopped People’s Incomes from Falling by Fudging the Stats

1024px-Centrosoyuz_Moscow_-_Ak_Sakharova_view The Tsentrosoyuz Building, on Sakharov Avenue in Moscow, was designed in 1933 by Le Corbusier and Nikolai Kolli. Originally built as headquarters of the Central Union of Consumer Cooperatives, it now houses Rosstat and the Russian Federal Financial Monitoring Service. Photo courtesy of Wikipedia

Rosstat “Stopped” Populace’s Incomes from Falling
Analysts Accuse Agency of Fudging the Figures
Yelizaveta Bazanova and Filipp Sterkin
Vedomosti
February 19, 2019

“The worst thing you can do is mess around with statistics. […] When we lose sight of our system of coordinates, we wander in the dark, and anything we say is fraught with delusions,” said German Gref when sizing up the resubordination of Rosstat (Russian Federal State Statistics Service) to the Economic Development and Trade Ministry in 2007 during Gref’s tenure as minister.

Rosstat has several times been reassigned from the Russian government’s oversight to the Economic Development Ministry, and back again. The last time Rosstat came under the ministry’s wing was spring 2017. Economists also predicted at the time Rosstat would have to produce statistics showing he authorities in a good light.

On Monday, Rosstat reported on the populace’s real incomes in January 2018. For the first time in a long time, they did not decline in annual terms, nor did they increase, according to the agency’s estimate. But a fall in incomes was prevented only due to the fact that Rosstat did not take into account income a segment of the populace had earned a year ago: a one-time payment to pensioners of ₽5,000. At the time, it allowed the agency immediately to record a growth in incomes of 8.8%. This was the only month in 2017 when such growth was recorded. If this payment is not included in calculations, incomes grew only by 1.3% a year ago, Rosstat said on Monday. Rosstat took this payment into account all last year and did not reconsider its results: a decline in incomes by 1.7%. The data had been corrected for the sake of its comparability, the agency explained.

This is “frank manipulation,” claims Kirill Tremasov, director of the analytics department at Locko Invest. According to his own computations, incomes actually fell by 7% last month, but in the run-up to the March presidential election there is no stomach, apparently, for publishing figures about this decrease in incomes. Rosstat should publish real data, possibly furnishing them with adjusted calculations. Or the figures for all of 2017 should be revised, in which case incomes would be shown to have fallen by 2.1–2.2%, not by 1.7%, argues Tremasov.

fullscreen-7e Real Incomes of the Russian Populace in Terms of Percentages Relative to the Previous Year. The seven-percent drop in January 2018 is based on Kirill Tremasov’s estimate (see above). Source: Rosstat. Courtesy of Vedomosti

The statistics would have then deviated even more from the forecast of the Economic Development Ministry, which had anticipated a 1.3% uptick in incomes in 2017. Rosstat’s figure mislead the public, Tremasov concludes.

The way Rosstat treated the indicator was wrong, says Vladimir Bessonov, head of the Laboratory for Research in Inflation and Growth at the Higher School of Economics. He is certain that if the one-time payment to pensioners was taken into account in January 2017, it must also be taken into account now. Although it is unlikely Rosstat cheated on purpose, he argues, because hat would pose much too serious reputational risks to the agency.

This approach changes the picture of trends, say Igor Polyakov of the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASF). Both the one-time payment and seasonal phenomena should not be factored into calculations for the whole of 2017. Compared to December 2017, incomes increased by 1.5% in January 2018, he claims, but public sector wages were indexed by 4%at the beginning of the year, and the pensions of unemployed pensioners by 3.7%. To get a real take on incomes, we should wait for February’s figures, which will be free of temporary factors, argues Polyakov.

In reality, real incomes are 3.3% lower than they were in 2011, and 11.4% lower than their peak values in 2014, Tremasov has estimated. 2017 was the fourth year in which people’s incomes fell. In 2014, 2015, and 2016, they contracted by 0.7%, 3.2%, and 5.8%, respectively.

In 2018, incomes will continue their downward trend, argues Vladimir Tikhomirov, chief economist at BCS Financial Group. According to its own forecast, however, the Economic Development Ministry anticipates a 2.3% growth in real incomes.

“Monthly data on people’s incomes are unrepresentative anyway. The reliability of the primary data used in the methodology is not perfect, to put it mildly, sometimes to the point of directly contradicting reality,” a federal official says in response to Rosstat’s report.

Bessonov confirms there are, indeed, many bones to pick with the performance figures for the populace’s real income, and problems with the methology for estimating them.

The indicator has not been terribly representative since 2014, argues Natalya Orlova, chief economist at Alfa Bank. We need it, among other things, to estimate the performance of the informal sector, where wages are counted as income. However, whereas miscellaneous income had grown by 25% in 2015, it fell by 7% in nominal terms in 2016. But even if the indicator is not representative, says Orlova, this does not mean it can be treated the way Rosstat has treated it.

A spokesperson for the Economic Development Ministry did not respond to our request to comment on this article, while Rosstat refused to comment.

Translated by the Russian Reader

Previous posts on the same subject:

Opaque

Finance Ministry Deletes Info on Ministerial Salaries
Ivan Tkachov
RBC
December 31, 2017

Information on the salaries of federal ministers in 2016 has disappeared from the website of the Russian Finance Ministry. The information was deleted a day after RBC published the article “Finance Ministry Discloses Salaries of Ministers for First Time.”

More than ten sets of publicly accessible information, including the number of employees and average monthly salaries at state ministries and agencies, the number of official vehicles, etc., was posted by the Finance Ministry on December 11. On December 27, RBC discovered the open data essentially disclosed the official average monthly salaries of the heads of federal ministries, except the Defense Ministry and the Interior Ministry, for 2016. Previously, information about the salaries of ministers had not been disclosed.

On December 28, this information disappeared entirely from the Finance Ministry’s website without any explanation. As of December 31, it was still not listed in the ministry’s open data registry. Data on salaries at government ministries and agencies had earlier been located on this page, and information that this was the case has been saved in Google’s web cache.

Screenshot of Russian Finance Ministry website page that had previously listed the salaries of ministers. Now it reads, “Error 404: Page Not Found.”

The liaison officer at the IT Department for State and Municipal Finance Management and Budget Processs Informational Support has not responded to our request for information. The Finance Ministry’s press secretary also failed to respond to our request.

In the open data, now inaccessible, the Finance Ministry disclosed the average monthly salary of “employees holding public offices” at each of the federal ministries. Since only one person, the minister, occupies public office at each ministry, the data actually amounted to information about the salaries of ministers.

Accordingly, the finance minister was the highest paid minister in 2016, earning 1.729 million rubles a month [approx. 25,000 euros]. He was followed by the economic development minister, who earned 1.266 million rubles a month [approx. 18,000 euros] and the energy minister, who earned 1.155 million rubles a month [approx. 16,700 euros]. They earned from eleven to thirteen times more than the average staffer in their ministries. Twelve ministers listed their ministerial salaries as basically their only source of declared income, according to our calculations.

RBC has learned that publication of ministers’ salaries has provoked discontent in the ministries. Thus, a source in one ministry compared it with “sabotage.”

The information removed from public access had mostly been published on the Finance Ministry’s website in June 2017. The .pdf file contained information about the number of employees in federal ministries, the travel expenses of federal ministries and state agencies, and the number of official vehicles, but not the salaries of individual ministers, which was disclosed for the first time.

What Else the Finance Ministry’s Data Told Us
In 2016, Russian federal ministries and agencies owned or used a total of 47,000 vehicles. The average monthly cost of maintaining each vehicle was 27,000 rubles [approx. 390 euros].

The Prosecutor General’s Office (its central administration and regional offices) had the most vehicles: 4,269. The Federal Bailiff Service was in second place, with 4,209 vehicles, followed by the Federal Tax Service, with 4,030 vehicles. The Emergency Situations Ministry had approximately 3,500 vehicles at its disposal, while the Investigative Committee, Federal Customs Service, and the Federal Service for State Registration, Cadastre and Cartography (Rosreestr) each had approximately 3,000 vehicles in their motor pools.

In 2016, the Health Ministry, which had only 47 vehicles at its disposal, had the most expensive maintenance costs per vehicle: 341,000 rubles [approx. 4,900 euros]. The Russian Government’s maintenance cost per vehicle was 327,000 rubles. It had a motor pool of 270 vehicles.

Last year, the federal ministries and agencies spent almost 7 billion rubles on official travel [approx. 101 million euros]. The biggest spenders were the Federal Customs Service and the Federal Tax Service, which spent 742 million rubles and 712 million rubles, respectively. If we talk only about official foreign travel, the biggest spender was the Foreign Ministry: it spent 200 million rubles on travel abroad in 2016. It was followed by the Finance Ministry and the Economic Development Ministry, which spent 57.9 million rubles and 51.8 million rubles, respectively, on official trips abroad.

Translation and photo by the Russian Reader