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Last Updated: Oct 8, 2008 - 12:11:03 PM |
Zvyagin has built a profitable company, Slip Ltd., which constructs
custom-made yachts for the super-rich. Business is still good, for now
at least. But Russia's oil-fueled economic boom is slowing and global
financial markets are in turmoil as the crisis on Wall Street spreads
east.
He says he doesn't expect the salad days to last much longer.
"We have long-term contracts. It takes from 18 to 36 months to build a
yacht," Zvyagin tells RFE/RL's Russian Service. "So this far, we
haven't felt [the financial crisis]. But soon credit will become more
expensive and harder to get. Then we will feel it."
Zvyagin adds that inflation is already driving up production costs --
metals prices have risen 25 percent this year -- and will soon begin
eating away at his profits.
Struggle To Survive
Stories like Zvyagin's are becoming increasingly common in Russia as
small and medium-sized businesses struggle to survive amid declining
demand and tightening credit.
And as Mikhail Delyagin, director of the Moscow-based Institute for
Globalization Studies explains, it won't be long before the troubles
trickle down.
"It is a problem for business because it reduces the possibility to get
funds for operating capital and for refinancing. Financial problems are
becoming worse," Delyagin says. "This hasn't yet hit ordinary people,
but it will soon hit them as well. Not extremely badly -- not like it
was in 1998 [during the financial crisis], but there will be
unpleasantness. People will have to take lower-paying jobs."
Rarely, if ever, in Russian history has life been so good for so many
as it has been in the past several years. Sociologists say the middle
class in Russia now comprises between 20 and 25 percent of the
country's population. And with the improved living standards came a
consumer boom. Shopping malls are full, foreign car sales are brisk,
and Russians are ubiquitous in many of the world's tourist destinations.
Russia's leaders point to this fledgling middle class as one of the key
accomplishments of former President Vladimir Putin's rule. And this new
bourgeoisie has largely acquiesced to the paternalistic and
authoritarian rule that has marked the past decade under Putin and that
of his handpicked successor, Dmitry Medvedev.
But analysts say that could change if the economy sours.
'Irresponsibility'
"One of the big successes that Putin can point to is the growing middle
class in Russia [and] the strength of the economy," says Roland Nash,
head of research at Renaissance Capital, a Moscow-based investment
bank. "If that's undermined, people will begin questioning that facet
of Putin's success story."
Perhaps aware of the political risk, Putin slammed the United States on
October 1, saying the crisis on Wall Street shows the "irresponsibility
of a system that...had claims to leadership."
One of the big successes that Putin can point to is the growing middle
class in Russia [and] the strength of the economy. If that's
undermined, people will begin questioning that facet of Putin's success
story.
Russia's economy, which has grown at around 7 percent a year over the
past several years, began been cooling off earlier this year, even
before the U.S. financial crisis spread.
Between mid-May and mid-September, the index of the Russian main stock
markets -- the MICEX and RTS exchanges -- lost nearly 60 percent of its
value. Much of these losses resulted from an exodus of foreign capital
following the outbreak of armed conflict between Russia and Georgia in
early August.
To stem the bleeding, Russian authorities have twice stopped trading
and have also poured massive state funding into the market.
In mid-September, the Russian government announced a
multibillion-dollar package to inject liquidity into Russia's banking
sector. According to the plan, which is making its way through the
State Duma, up to $50 billion would be available to help Russian firms
refinance debts taken on or before September 25.
Nash gives the government high marks for responding quickly to the
crisis.
"The authorities have been surprisingly proactive. They started
providing funding a year ago, before the U.S. did. And they have been
talking to the financial sector very closely for the last several
weeks," he says. "They've been far more reactive than I thought they
would be."
Not As Severe As 1998
The help, however, did not come fast enough for some troubled firms. On
October 2, for example, Russia's leading mobile-phone retailer,
Yevroset, was sold at bargain-basement prices as it struggled under
mounting debts and falling liquidity.
While Russia can expect to take a hit from the global financial crisis,
analysts say it will probably not be nearly as severe as in August
1998, when the country defaulted on its debt and devalued the ruble,
causing banks to fail and wiping out the savings of ordinary citizens.
Nash points out that although credit has been growing at a clip of
about 50 percent a year, Russians are not nearly as "hooked on debt" as
their counterparts in the West, meaning that a crisis in the financial
sector will not hit ordinary households as hard.
"Financially speaking, Russia is entirely globalized already, so a
global financial crisis is bound to have an impact on Russia as well,"
Nash says. "But for better or worse, the financial sector in Russia is
not as integrated into the country as it is in most Western countries.
Mortgages as a percentage of GDP are only around 4 percent, compared to
around 130 percent in the U.S. and higher in places like the U.K. So
the chances of negative equity resulting from this crisis are pretty
small."
But for business owners like Zvyagin, concerned about fulfilling orders
made before the crisis hit, the financial storm looks anything but
small.
"It is hard to guess [what happens next]," Zvyagin says. "I have signed
contracts earlier without taking into account the crisis. And for my
customers, there is no reason to renegotiate."
Source:Ocnus.net 2008
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