As we reported last week, the Russophile propaganda line that the country’s stock market collapse doesn’t affect the common man is laughably false, though to be sure the disaster has had devasting consequences for Russia’s wealthy class. If the market really doesn’t matter, then Russians should be outraged to see their government burning rapidly through the national savings in order to salavage the market’s reputation and the fortunes of a few oligarchs. But, of course, it does matter. We’ve already reported on the Washington Post story showing the massive falloff that has already occurred in construction contracts in Moscow, which will lead to layoffs in the industry and ever-worsening shortages of housing. Russia’s commodity-based economy is being victimized across the board as demand for products like oil and steel disappear. These events are major boons, of course, for manufacturing economies like those in Europe and the United States.
Indeed, the mere fact that those on the Kremlin’s side believe it might be possible that their stock market could collapse without affecting life on the street is a pretty good explanation of why the stock market has collapsed. And now the Times of India adds more detail to this horror story:
No longer quite so flush from vast oil and gas wealth, Russia’s economy is feeling the pinch from the global crisis and problems at home, putting investors and small businesspeople on edge. While economic growth has surged upwards at rates of over seven percent in recent months, plunging stockmarkets and massive central bank intervention have told a different story, denting a feeling of immunity from wider trends.
“To be honest I think the American crisis, which seemed so far away, could affect Russia,” said Yury, a computer programmer employed by a large mobile phone company, complaining that he had lost “all confidence in stock market instruments and the financial market.”
“As a result of this crisis I’ve lost 300,000 rubles (8,400 euros/$11,600) – 40 percent of what I had managed to save in recent years,” said the 37-year-old Muscovite, who asked that his surname be withheld.
The downbeat mood was expressed last week by Prime Minister Vladimir Putin, who said Russia had picked up an “infection” from the United States. Global financial turbulence has been accompanied by falling world oil prices, a factor particularly likely to concentrate minds in Russia given its position as a top world energy producer.
Russia’s stockmarkets have plunged from one low to the next, partly affected by negative perceptions connected to August’s war with Georgia. The benchmark RTS index lost 27 percent in September and is down 42 percent from the start of the war.
Alexander and Mikhail, two brothers from Moscow each with their own businesses, are feeling the pinch from a lack of liquidity in the banking system. “Money is circulating more slowly. Normally when we make a bank transfer the recipient gets it the next day. Now it takes two days or more. We have to telephone the bank and ask what’s going on in order to get them to make the transfer,” said Mikhail, 25, who heads an electrical goods company.
“The banks are behaving inappropriately,” he said. “The banks are holding on to the money,” said his 34-year-old brother Alexander, who employs about 20 people in a carpentry business. “As I’ve got reserves I’m not suffering yet but people are complaining,” he said.
He goes on to describe the difficulties he has encountered obtaining credit for a new car, despite huge billboard advertisements around Moscow offering credit, and complains his bank has announced a “review” of it credit policies.
Moscow-based financial analyst Chris Weafer estimated this week that ongoing injections of cash into the economy by Russia’s authorities – money taken from the national budget and the country’s vast currency and gold reserves – could ultimately reach $135.5 billion (187.8 billion euros).
He predicted that many smaller institutions among the more than 1,000 licensed banks in Russia could fail in the coming six months and said the government’s decision to divert large quantities of cash into the economy would slow down needed infrastructure investment.
But ultimately, he concluded, the authorities have little choice, especially against the background of a devastating 1998 banking crisis that became a symbol of post-Soviet failure.
“With memories of the banking defaults in the 1990s still relatively fresh in the mind of the public the government knows full well that any accident or badly handled problem in a well-known bank or corporation could easily lead to panic among depositors and huge lines at banks to withdraw money,” Weafer said in an article in the English-language Moscow Times newspaper.