Crushed by Debt in Putin’s Russia

Reuters reports:

KARABASH, Russia – Each weekend, copper worker Sergei Begutov cuts stones from this toxic, frozen hillside and sells them for five roubles ($0.15) apiece to help fund car loan repayments that now exceed his wages. Like workers across Russia, he has been thrust into poverty by the economic crisis as plunging wages render unaffordable repayments on loans that had offered a taste of a better life.

In 2008 Russian banks doled out over 1 trillion roubles in mortgages and consumer loans in a flood of easy money that reached every corner of this vast country. After 80 years of communism and the economic collapse that characterised Russia in the 1990s, a consumer spending-spree brought home-cinema systems and flat-pack Swedish furniture into Soviet-era tower blocks across the country. Total consumer debt at 3.8 trillion roubles or 9.1 percent of GDP according to Central Bank, is only around half the average of emerging economies. But it is almost double the level of four years ago, said Natalya Orlova, chief economist at Moscow’s Alfa Bank. And in a place where winter temperatures fall to minus 40 degrees Celsius (minus 40 degrees Fahrenheit), the pain of the crunch is acute. Sweeping through this desolate town of 16,000 and the Urals Mountains rust belt surrounding it, it is leaving deep social scars that may undermine Kremlin efforts to contain an economic crisis aggravated by weak oil prices.

“Everyone here has credit,” said Begutov a pale 23-year-old, leaning his axe on the snow-covered hillside. “On the wages we earn… if you don’t take credit you can’t get anything.” By his side stood a shivering co-worker who helps sell the stones to a local builder to pay his own debt: an 80,000 rouble bank loan to repair his dilapidated wooden cottage. Since a metals boom ended last year, Begutov says the privately owned copper works has cancelled overtime and cut wages, slashing his monthly pay to 6,500 roubles from over 16,000, less than the 7,000 roubles he pays for a car loan. “I’m only surviving because my wife helps,” he said.

Many miners and metal workers are struggling to pay back loans after wage cuts that average 30-35 percent, said Andrei Shvedov, the deputy head of the million-strong Mining and Metallurgical Union. “It’s an acute problem,” he said.

In Karabash, a copper-smelter town dubbed one of the dirtiest on the planet by environmentalists for sulphur dioxide and heavy metals, every second store still has a sign offering credit, though shopkeepers say demand for loans has dried up. Vyacheslav Kuznetsov, the owner of the local electronics store, said 70 percent of sales last year were taken on credit as four banks jostled to give out loans of up to 40,000 roubles at interest rates of up to 40 percent. The banks demanded just two proofs of identity and none of income. “If they said they earned a million, we’d write a million,” he said of his customer’s declarations. He has no idea how many are now struggling to pay off their loans: “Thankfully that’s not my problem.”

A one-company town where the local branch of Shvedov’s union toes the company line by denying workers’ pay has been cut, Karabash has not seen social upheaval emerge from its boom. But in nearby Zlatoust, an industrial city of 200,000, the strains are starting to show. Last month 16 steel workers captured national attention by holding a five-day hunger strike, the first by Russian workers in a decade. The leader of the strike said every one of the strikers was struggling to repay consumer credit. The strike was called off after employers agreed to pay wage arrears, but workers are threatening to resume it if pay is not doubled to two-thirds of their pre-crisis levels. The Zlatoust steel mill director Sergei Khomyanin dismissed the strikers as extremists, but agreed credit would make the current crisis more painful for workers than the economic collapse of 1998. “Of course it will be worse, because credit has entered the equation,” he said. “The social problem is far more acute.” The town’s mayor, Dmitry Migashkin, is worried people struggling with credit may turn to crime: “It’s dangerous.”

Yevgeny Dereguzov, an unemployed 53-year-old single father of two and veteran of the Soviet war in Afghanistan, has received threatening letters from the bank and is expecting a visit from the bailiffs. “I even bought my kettle on credit,” he said in his three-room apartment in an ageing wooden apartment block near the steel plant. It is crammed with the fruits of credit down to its faded brown-velvet living-room suite. “The bank gave me everything,” Dereguzov said. Last year the trucking company that had been paying him up to 18,000 roubles per month as a driver wound up. Now he makes no more than 300 or 400 roubles for a 14-hour day driving an unlicensed cab. He is three months and 26,000 roubles behind on repayments of a loan for 129,000 roubles that he used to buy PVC windows to protect his two children against the winter cold. It charges 39 percent per annum interest. “I was someone they respected. Now I’m on their blacklist. It’s not my fault,” he said. “If they come I don’t know what will happen, from a fight to God knows what. I’ll defend my property. I’d rather go to prison than lose it.”

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