EDITORIAL: The Sinking Russian Economy


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.

28 responses to “EDITORIAL: The Sinking Russian Economy

  1. Putin’s disastrous policy of making gas a “political weapon” has well and truly blown up in his smug little face,

    The non development of the Shtoman field, which was supposed to provide western Europe with all its gas needs has been thoroughly examined on this site, briefly EU diversification of its energy needs, driven by Russia’s politicising now means that the Shtoman field is surplus to EU requirements, and has been superseded by LNG which is now at a competitive price on the “spot market”, Plus new shale technology now being developed will side line Russia’s piped gas even further. The days of long term contracts are coming to an end, Russia will have to compete for the EU market.

    Now when these facts are pointed out, we are told by Russophiles; the European market doesn’t matter to Russia as the future for Russian energy lies in the east with china being sited as the premier market.

    Well now my little Russophiles I am going to have to give you some disappointing news,

    It would appear that not only Shtoman in the west, but Russia’s giant trillion cubic meter field Kovyta in the east is in big trouble
    Russian billionaire Viktor Vekselberg, Head of Renova Investment, which in turn is a stakeholder in TNK-BP, which holds the licence to operate the field complained to the President. On February 12 in Omsk, Vekselberg highlighted the need to develop Kovykta, and the role of the Natural Resources Ministry in frustrating this. He said,

    “We are losing the Southern Asian market. China is among the first to go. In the past year we have seen our CIS neighbours building a gas pipe to China so it made entering the Chinese market more difficult for Russia. Here I also need to mention our Kovykta gas deposit. The Ministry of Natural Resources has resumed an unscheduled inspection of the Kovykta field. This does not support the investment climate in our country.”

    Gazprom who are already in debt to the tune of $59 billion have been dragging their heals, work on a pipe line to the eastern markets is still 5 years away

    It would appear that Russia’s CIS neighbours and China are not prepared to wait for a lumbering Russia there getting on with the business of energy supply.

    Poor Russia one door closes and another door…..closes,

  2. This is good news for Russia’s neighbors. Russia will not have the resources to keep up it’s military.

    As others have noted the shale gas story underlies a geopolitical shift of massive proportions.

    The Russian people, who apparently support Putin, are getting what they deserve.

  3. Sure. You have nothing to worry about. Russia’s per capita GDP that is significantly higher than that of all its ex-USSR neighbors (except for two Baltic states), but this irrelevant, isn’t it.

  4. AT: It is not irrelevant, but it means that Russia is becoming less powerful which is good in my view.

    Shale gas is causing deep concern in Alberta, Canada. A new shale gas well is producing in Quebec. Quebec has never seen such a thing before. Ontario now has a brand new, nearby source of energy

  5. AT – except all three Baltic states, really, despite that those don’t have any gas or oil or gold or diamonds to sell. :D

  6. Latvia doing worst of the Baltics because Latvia has most Soviet-imposed Russian immigrants who guaranty “the best” relations of Latvia and Russia.

  7. So? Economic development rarely correlates with mineral deposits, and there are theories that there is negative correlation between the two.

  8. @ Russian immigrants — oh, sure, kill the Russians and everything will be fine. Your SS-serving grandfathers would be proud of you.

  9. AT, Russia is poor and backward not only compared to Western Europe, but compared to Central/Eastern Europe as well. But if CEE countries can blame the legacy of decades of Soviet interference and exploitation for their economic problems, Russia has only itself to blame for squandering immense resources.

    And another thing: Russians like to see themselves as superior to Ukrainians etc. Well, I have an acquaintance (who also happens to be a Russophile and a commie) who has lived in places like Venezuela and has traveled extensively through Eastern Europe, including Ukraine, Belarus, Moldova etc. Yet she was shocked when she traveled around rural and small-town Russia, she had never before seen so much poverty, drunkenness and misery. So there goes your “superiority”, apart from Moscow and St Petersburg you’re no better than Ukraine or Belarus, most likely worse.

  10. Well, that’s a productive argument. I say Russia is poorer than France but not as poor as Romania. A. claims Russia is poor than Romania. I say no. He says yes. I say no. He says he has a friend who saw a poor town. I tell him I visited a poor Romanian village, as I had never before seen so much poverty, drunkenness and misery before. Where would this lead us? Seriously, for every post saying how much you despise the Russians, I can tell you how not fond of the Romanians I am. Any idea what we are both trying to achieve here?

  11. AT, I don’t despise Russians at all, the Russian people aren’t better or worse than the French, Ukrainians, Romanians or Chinese. If you are “not fond” of a certain nation or ethnicity that makes you a xenophobe, but that’s another issue. My point was not that the Russian people are somehow “inferior”, but that Russia still has a long way to go to match the level of development that CEE states (incuding the poorer ones) have already achieved. And on another discussion thread I mentioned specific areas where Russia lags behind. It should also be mentioned that while CEE countries started with a tremendous handicap in 1989 and managed to come a long way, Russia had everything going for it (including massive handouts from the West) yet it’s still very far from catching up with Europe. And that’s not because Russian people are stupid, but because they have an undemocratic political culture and a faulty mentality rooted in Soviet imperialism, where Russians were used to having social and economic privileges over other people. They still haven’t got used to the idea that they can’t rely forever on other people’s labor or resources to survive.

  12. Well, the statement that Russia is less civilized is pretty close to saying that you despise the Russians. In real life, I do not hate Romanians either. You, however, tried to impose your impressions “Russia is poorer than Romania”, while my experience suggests the opposite. Maybe this is evident that both countries are pretty close to each other. I would never say that Russia is more rich than Hungary, or the Czech Republic. But having been to Romania and Bulgaria many times, I have serious doubts these countries are more prosperous and more civilized than Russia. And I genuinely believe that Bucharest is an ugly city, like many Russian cities — Perm is no exception. I would never say this about Prague or even Kyiv. So for you to trash Russia is a little far-fetched in my view.

    I don’t think your understanding of what the Russian “problem” is right. But I guess, you are entitled to your opinion, as much as I am entitled not to share it. In any case, you cannot claim Russia used any privileges vis-a-vis Romania for the last 20 years.


  13. Bucharest is not the prettiest Romanian city (most of the old city was destroyed by the Communists, who you guys shoved down our throats), but it’s definitely an interesting, cultured and civilized city (just as East Berlin or Warsaw aren’t exactly pretty, yet very hip and happening). And when I say that Bucharest is more civilized than any Russian city, I don’t mean wealthier (I’m sure Moscow is wealthier than Bucharest), but I’m referring to civic and political culture, to public behavior and to the levels of corruption and crime.

    Calling a country “poor” or “rich” is problematic. Russia is richer than Hungary, Poland, Romania or Japan in terms of natural resources, no doubt about that. But in terms of development and quality of life you still have to put forth a valid argument that Russia is even close to any country in the EU, including Romania and Bulgaria.

    It’s true, fortunately Russians in the last 20 years have no longer enjoyed the privileges they had in Soviet times, nor can they rob other countries (as they did to Romania, for instance, after World War II, when they took 25% of our territory, moved our industry to Russia, and exploited our resources ruthlessly). That’s why Russia is now in the shitter, and countries like Romania and Bulgaria are in the EU. Lose that imperialist mentality and things will get better for you too.

    • @”Communists, who you guys shoved down our throats” — Well, A., accepting whatever is shoved down your throats is your national habit. The Russians were the last in a long list of nations who shoved something unpleasant down the Romanian throat, there were the Ottomans, the Austrians, the Germans before that. The Communist period was not fun, however, reading your post makes me realize its not a small thing that Russia both brought them to power and destroyed their system — by itself. At least no one shoved anything down our throats — that’s not a small thing.

      @”Russia is now in the shitter, and countries like Romania and Bulgaria are in the EU” — trust me (after all I’ve been to Romania many times, and you have not been to Russia), the quality of life in these two countries are quite unimpressive by the Russian standards. Again, I would never say that about your Hungarian or Czech neighbors.

    • @A It’s true, fortunately Russians in the last 20 years have no longer enjoyed the privileges they had in Soviet times, nor can they rob other countries (as they did to Romania, for instance, after World War II, when they took 25% of our territory, moved our industry to Russia, and exploited our resources ruthlessly)
      If you compare what was done by Romania and allies in WW2, it had an input not only to economy, Millions were dead, 100 % of territory was to be occupied and total population negilation need to be mentioned. “Privileges they had in Soviet times” where merely achieved through impact on science, recreation, building and investment, what shouln’t be understated also. The is input and output, not output. And that echoes in employment places, that people had, what didn’t hang from nationality, produkt prises. There was no political agitation against other communist nations, no underhumans. Lets compare truthly the hatred Romanians had againt Moldavans, who STILL take them for a lower race, claim that women are prostitutes, I know it quite well, I’ve grown up in it and what they did when they had the power, when they could strike people on the street just because of hatred to the race. Dont forget the other facts.

  14. AT @ @ Russian immigrants — oh, sure, kill the Russians and everything will be fine. Your SS-serving grandfathers would be proud of you.

    You can kill them if you are a killer. I am sure you know NOTHING about MY GRANDFATHERS (who worked for your “glorious” country in Siberia during your “glorious” WWII).

    I just wanted to refer to some sad consequences of good relations with your beloved hyper-corrupt country. More than 50 percent of world’s neonazis live and kill in and for RuSSia, btw.

    • Then, my grandfathers and yours were at the same place at the same time. Could be worse though, yours could be members of Estonian Waffen SS.

  15. [More than 50 percent of world’s neonazis live and kill in and for RuSSia, btw.]

    Citation please.

    • In a country that lost at least 26 million people to Nazi Germany 60 years ago, tens of thousands of young people are embracing the beliefs their grandparents fought against, attacking foreigners, especially anyone with dark features hailing from the Caucasus, Asia or Africa.

      A growing number of neo-Nazis are turning to violence, human rights groups say. Nearly half of the world’s skinheads — about 50,000 of them — live in Russia, according to a January report by the Moscow Bureau for Human Rights

      In 2004, neo-Nazis killed 44 people across Russia — more than double the previous year, Amnesty International reported. One of the victims, 9-year- old Hurshida Sultanova from Tajikistan, was stabbed 11 times in front of her father and older brother by about 10 neo-Nazis in St. Petersburg. Another Tajik girl, Nikufar Sangbaeva, 5, died when skinheads beat her and her relatives with brass knuckles and metal rods at a train station. Last month, a dozen skinheads beat a Vietnamese man to death in a Moscow park, chanting, “Russia for Russians!”


    • As of 2005 the total number of skinheads in Russia, as reported by the Moscow Human Rights centre, amounted to a staggering 50,000 members, with active cells operating in at least 85 cities including Vladivostok.

      This amount is nearly half of the world’s total registered population of skinheads, making Russia the hotbed of Neo-Nazi activism worldwide. In 2004 the Moscow Bureau on Human Right’s reported that 20 to 30 victims a year die from skinhead assaults, which are increasing at an annual rate of 30 percent.


  16. The name LA RUSSOPHOBE is ironic here. It was chosen because there are lots of people who would call you a Russophobe for every harsh (no matter how true it would be) criticism of Russia. :) It might exaggerate or evaluate things too harshly sometimes, but it collects so much negative (yet factual) info to be a counterweight to what is usually officially said about Russia by politically correct kissers of all huge, dangerous or useful asses. The creator of the site wanted to underscore the contrast between these fake lovers of Russia and herself by the name chosen. Ass-kissing is no love, to believe Putin’s lies is no love to Russia, to rebuke them is more of a real love.

  17. Thank you, Andrew. Well, I shall have said “around half” to be correct, sorry. Still true, that Russia is no country to teach others about outrooting Neo-nazism and no country to call ALL grandparents of the Balts Nazis or their helpers. No country to call all the Balts who express their readiness to defend their country in case it would be assaulted Nazis either. No country to call itself the sole and exceptional haters of and fighters against Nazism either.

  18. @ AT
    So? Economic development rarely correlates with mineral deposits, and there are theories that there is negative correlation between the two.

    Look at any good European example? Norway is doing perfectly because Norvegian people are not letting the few of them at power to squander the resources of their country. Norwegians work and control these at power there. That’s it.

  19. fewer russians = progress

  20. on a more serious note, when you consider the barbarous way the russians treated other eastern european peoples for decades (generations, really) it is beyond belief that they can evince surprise that they are hated in many parts of the continent – and mistrusted elsewhere.

    • during communism many infractures were build in and outside the country, the edication level was higher. now it’s decreasing or stays at the same rate as it stayed for years in only fewer after communism coutries, which are clother to Eupore and development. I can depict current situation in Moldova, the older people mean they had it more stable back then, because the state provided and covered the needs. But as we have working immigrates in Italy, it’s not as bad as in some urban regions of Ukraine, where the communists didnt manage to make water and gas communications complitely before they fell apart, so now people have to wait, probably EU or progress will. The situation has changed dramatically, the rate has not only dropped it’s decreasing, as well as life quality, expectancy, intellectual abilities, because of the life quality. “Edinnaya russia” shortes school programm and desciplines. It’s frightfull. And it’s kind of doof and unnatural to see that it makes somebody hapy, ok then, its your chose.
      Few years ago the communist party was chosen once more in Moldova, in a hope or no hope something would increase economy http://www.europeanforum.net/country/moldova, it had no inpackt on economy. The fact is, if it were hatred, it wouldnt be elected.
      @Andrew total number of skinheads in Russia is less than totall number of “гопники” in russia, the both “didn’t” exist in hated closed soviet russia. why? probable because of higher life quality. The same counts for maniacs, physihally instable. Thankfully those are not all people yet and hopefully will not be. Have you counted them?

      @RonThe Russian people, who apparently support Putin, are getting what they deserve.
      They have nothing else to choose. If you’d live in SNG, Russia, you would know that corruption has riched the level, where it’s hardly beatable, if one government will strike another away nothing will change. Some of smaller regions are so tired of regional government, that they are close to rebell. Though it the corruption has taken that much over, that it will just reverse the situation. You should tipe in google партия , you’ll become партия воров и жуликов as proposual, that HIGH are the rates(!)
      As someone on the web sad “Кто такие русские – запечатанный, задавленный, замалёванный и обворованный народ.” It’s frightfull that some people have that hate to another. And yet at the time, when other fall apart. (!)

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