Scenes From Putin's economic meltdown
Get the hot deals while they last! Whatever's on your holiday shopping list--buy now, it may never be this cheap again! In a single day this past week, the ruble exchange rate dropped from 59 to 80 to the dollar, further eroding confidence in the Russian economy and ensuring a deep recession next year--but also briefly turning Moscow into the shopping capital of the world.
Although this past week's currency crisis marked the worst fall for the ruble since Russia defaulted on its debt in 1998, no one was waiting in bread lines or starting a run on the bank. Instead, anyone with any cash at all went on a buying spree. Long lines snaked through Ikea branches around Moscow into the early hours of Wednesday morning as people picked up furniture, bedding and other household goods at what had suddenly become bargain-basement prices. Crowds of eager buyers emptied shelves of computer monitors and snapped up flat-screen televisions at consumer electronics chains.
People were purchasing refrigerators, washing machines, cameras--anything that was less likely to lose its value as fast as the plummeting ruble. Cars in some dealerships were being sold at 30 percent to 50 percent above the recommended retail price, yet "people run and bring their last money," one social network user wrote.
"Yesterday the line for the cash register was to the other end of the hall," Ravil Daizrakhmanov, an employee of the consumer electronics store M.video, said Wednesday. "They were buying very expensive tech products."
The ruble has lost over half its value this year as falling oil prices and Western sanctions over the Ukraine crisis hit Russia's energy-dependent economy. But a drop of 10 percent on Monday and another 10 percent on what has come to be known as "Black Tuesday" further shook consumers, undermined investor confidence and revealed divisions among the country's elite on how to react. Nonetheless, Russians' approval for President Vladimir Putin has remained sky-high.
Buying continued on Wednesday as major electronics chains had yet to raise their prices. "I apologize; I argued with them, but they sold every last one," an M.video employee informed a man who was trying to purchase a washing machine. "F--k your apologies," the man yelled back as he stormed off to complain to a manager.
Others were just out for a good deal. Even after the ruble came down to 67 to the dollar, an iPhone 5S at electronics retailers now cost $100 less than in the United States. Apple.ru even halted online sales on Tuesday "due to extreme fluctuations in the value of the ruble."
On Thursday, Ikea Russia said it was suspending sales of kitchen furniture and home appliances until Saturday "in connection with the large number of orders still being processed."
Natasha, who said she works in the finance industry but declined to provide her last name, was buying a 27-inch iMac at M.video even though her family already had a good computer, she said. "I wouldn't buy it otherwise, but my rubles are losing their value every day, so I'm trying to solve this problem," she said.
Another customer, Denis, who also declined to give his last name, said that because of the unstable exchange rate this past week he had "bought a lot of stuff I had been planning to buy three months from now," including a new PlayStation.
Even state television, which normally doesn't dwell on uncomfortable truths, was reporting Wednesday from a car dealership in Orenburg that had already sold a record 26 cars. Some of them went to residents of Kazakhstan who had come across the nearby border to capitalize on a newly advantageous exchange rate.
At one point, the newscast was interrupted by a commercial for the online investment site Forex Club: "Are you afraid to try something new? But losing something old is even more terrifying. Have you seen today's exchange rates?"
The falling ruble has launched a spate of jokes in the style of Russians' notoriously dark humor. One from a few weeks ago--"What do Putin's age, the ruble and the oil price have in common? They all hit 63 next year"--has already become a grim reality. The site Zenrus.ru, which showed the dollar exchange rate, the Euro exchange rate and the price of Brent crude changing in real time against a background of soothing New Age music and slow-motion waves, became a runaway hit on social networks. Last week, the site's background changed to funeral black.
For many, though, it was no joking matter. A businessman who reportedly owned a stake in an investment company shot himself in the head at the Hotel National in Moscow on Tuesday night, with Russian media reporting the ruble's fall had driven him to suicide. On Thursday, the Moscow Psychological Help Service announced free consultations for those suffering from the effects of the economic crisis.
But besides the surging demand at electronics and furniture stores, there was no indication that anything was amiss on the streets of Moscow last week. Although lines were reported outside some currency exchanges on Tuesday, many others were empty, and several locals said they had either bought foreign currency months ago or had decided not to purchase it after the exchange rate dropped so far. Upscale shopping malls were even full of customers doing their holiday shopping on Tuesday night. "We're buying less than usual, leaving ourselves some reserves," said engineer Alyona Kubayeva as she walked out of a mall with bags of Lego toys under her arms. "We're already thinking today that next year could be worse, so we're trying to save. But you can't do without presents on New Year's."
An employee at a local Sberbank said the line there was typical for the end of the year, and several clients said they were just there to pay utility bills.
According to Marina Krasilnikova, head of quality of life research at the independent pollster Levada Center, while affluent areas like Moscow saw a buying spree on expensive products, most Russians are in fact hunkering down to weather the crisis with what little they have.
"In 2008, we only saw frenzied buying from the top third of population in terms of income," Krasilnikova said. "Poorer people weren't trying to leave all their money in the store, and despite the reports of frenzy during the current crisis, I think it's being shown only by the top layers of society, not middle and poorer classes."
In the two and a half decades since the fall of the Soviet Union, several economic shocks have already hardened Russians against the specter of another crisis. Last Tuesday was the latest of several "Black Tuesdays" in post-Soviet history, including October 11, 1994, when the ruble collapsed 27 percent against the dollar amid rising inflation.
The 1998 financial crisis, remembered vividly by many Russians, saw the stock market fall by 75 percent, forcing Boris Yeltsin's government to default on $40 billion of domestic debt. Most people's ruble savings became worthless as inflation skyrocketed to 84 percent and food prices rose by 100 percent. Many businesses cut off wages, and 43 million people--nearly a third of the population--fell below the poverty line.
Timur Nigmatullin, a macroeconomic analyst at Finam, argued that Russians during the latest crisis were not remembering the 1998 default as much as the 2011 crisis in neighboring Belarus, when the local currency depreciated by 2.5 times and Belarusians rushed to buy cars, appliances and foreign currency amid hyperinflation. But he predicted that the current ruble crisis wouldn't result in inflation more than 15 percent, since most Russians don't have enough extra money to buy expensive goods. According to a recent Finance Ministry study, only 15 percent of Russians have bank savings.
"That's a Russian peculiarity, a panic can flare up quickly but it won't go very deep because no one has any savings," Nigmatullin said. "An inflation spiral comes when people buy goods at a high price, the price goes up, people see this and buy again, and inflation grows very fast. But here there aren't many savings and not money to pay high prices."
Already inflation increased from 8.3 percent in October to 9.1 percent in November, forcing up prices for food and other goods, many of which are imported. The cost of fruits and vegetables reportedly went up by 8.7 percent in November. After the ruble fell last week, customers at large supermarkets were reportedly stocking up on as much food as possible, dropping up to a few thousand dollars on groceries.
Meanwhile, those Russians who do have savings have been converting them to foreign currency or investing elsewhere. According to an October survey by the National Institute for Financial Research, 41 percent of respondents said they preferred bank accounts for long-term investment, 17 percent said real estate and 11 percent said foreign currency.
"We bought an apartment in a new building exactly for the reason that it wasn't clear what the situation with the ruble was, and we decided in the hope of protecting our money to invest it in real estate," homemaker Nadezhda Yudina said.
Besides private citizens' ruble holdings, small businesses will suffer in the coming recession, and a majority will shut down, according to Sergei Batovsky, owner of the Kroshka Kartoshka fast-food chain. He was meeting with an architect and interior designer at a cafe in the Yevropeisky shopping mall on Tuesday evening for his latest project, called Pizzerito. The falling ruble will drive up the cost of materials to build the pizza parlor, he said.
"We haven't discussed the technical details yet," said interior designer Anastasia Rozanova. "When we do, we'll talk about the price."
"And I'll have a heart attack," Batovsky said.
"We've been working on this for months. What are we supposed to do, stop now?" he added.
Alexander Krupetskov, owner of the gourmet shop Cheese Sommelier, said his suppliers had refused to meet a large order he tried to place on Tuesday because of the ruble fluctuations. "We need to understand what the new exchange rate will be and go off of that," Krupetskov said. "No one will buy cheese that is so expensive, so I'll have to look for Russian alternatives."
At his annual news conference on Thursday, Putin tried to rally support for his government's economic policy, arguing the central bank was acting effectively to fight inflation--although he admitted it could have acted sooner than its early morning rate hike on Tuesday. Putin argued that although it would take two years or more, oil prices would eventually rise and lift the country out of recession.
Ordinary Russians have already lost confidence, it would seem, with 80 percent reporting in a Levada Center survey published early this month that they were worried about the country's economic problems, mainly rising prices and reduced quality of life.
Yet Putin's approval ratings remain stellar. A survey by the Associated Press and NORC Center for Public Affairs Research, published Thursday, found that 81 percent of Russians still support him, similar to the high ratings that have been reported since the annexation of Crimea in March.
Many Moscow residents said they liked Putin for standing up to what they said was unfair persecution by the West. For a little Cold War-style national pride, they were willing to put up with economic difficulties, they suggested.
"The United States has a poor attitude toward us," said Alexander, an art professor, arguing that "everyone but us" was to blame for the economic crisis. "Our government and our president do a lot of good things. ... Why did they adopt these sanctions against us?"
Olga, a teacher I spoke with who declined to give her last name, explained that two months ago she was able to buy buckwheat for 39 rubles a kilo but that by the middle of last week, its price had spiked to 66 rubles a kilo. "You put sanctions on us ... but you won't break us. We will buy buckwheat for 100 rubles if we have to," she said defiantly. "Our government is doing a good job, Putin is doing a good job."
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