The Sinking Russian Economy
Last week it was revealed that Russia’s rate of wage nonpayment among employers is on the rise, soaring a shocking 15.5% in January. Total unpaid wages exceeded $135 million, and a million dollars goes a very, very long way in a country where the average wage is $3/hour. The sum which the Kremlin admits is currently outstanding to Russian workers (the actual sum could, of course, be far higher) amounts to 45 million man-hours of unpaid wages, and it occurred even though Russia’s unemployment rate is also soaring.
Why are Russian employers holding back wages?
The reason is clear: Massive debt threatens to crush them. Last week the Association of Russian banks reported that bad debt may increase by more than one third this year from its already horrifying, uncivilized 12% rate last year. Banks, of course, faced with this impending crisis are cutting employers off from new credit, meaning that they can’t obtain new loans to pay old wage obligations or to build their businesses and increase revenue.
Russian bankers believe the nation’s banking system will need to set aside 3 trillion rubles, roughly $75 billion, to cover non-performing loans next year. That is a truly stunning sum to be removed from the economic growth pipeline and used to pay for bad debt. There is, of course, no guarantee that the banking system has such sums available, and if it doesn’t there will be massive bank default.
As we reported last week, Russia’s core economy, the oil and gas industry, is in deep trouble. The combination of rising prices in world markets and rising dictatorship, arbitrary and thug-like conduct in Russia has seriously motivated the Western world to move away from Russian energy supplies, and the development of shale resources has made it possible for the West to do so. Meanwhile, the total incompetence of Russia’s top leadership to manage basic economic challenges is beginning to wear deeply on the nation’s performance.
And the result is that more and more Russians are going unpaid, going without the wages that were already inadequate to being with. More important than the financial deprivation is the loss of faith in the Russian economy these workers experience. Why work hard if you’re not sure you’ll be paid at the end of the week? It is exactly this phenomenon (“we pretend to work and they pretend to pay us” as the old Soviet joke went) that brought down the USSR, and that leaves Russia’s per capita economy outside the top 50 in the world.
There is simply no way that Russia can hope to survive this pernicious cycle of failure and despair.