By Maria Ermakova
Feb. 20 (Bloomberg) -- It took Marina Zaporozhtseva a decade to save for a new car after Russia’s last economic crisis. Scared of living through a repeat, she’s hanging on to her money.
Back in 1998, when the country let the ruble plunge, defaulted on debt and millions of people’s savings were wiped out, the Moscow accountant couldn’t find a job and had to work as a cook to make ends meet.
“Now, once again, there are nightmares at work,” said Zaporozhtseva, 46. “I have to think over every little purchase because I’m not sure if I’ll have a job tomorrow.”
Russia has lurched into reverse after 10 years of uninterrupted growth driven by revenue from oil, gas, metals and consumer spending. While almost half of all Russians still have no savings, people with spare cash like Zaporozhtseva say they are guarding it to pay bills and survive as wages decline and the number of jobless rises beyond 6 million.
The government expects the economy to shrink 2.2 percent this year after expanding about 7 percent a year since 1999.
Already, household incomes have sunk with the 35 percent plunge in the ruble against the dollar since Aug. 1 and inflation surged to 13.4 percent in January because of the cost of imported goods. The Russian central bank has raised its benchmark repurchase rate four times since November, to 12 percent.
“Consumers everywhere have been hit, but they’ve been hit twice as hard in Russia,” said Roland Nash, head of research at Moscow-based investment bank Renaissance Capital. “Russia has been hit twice: first through the tremendous drop in commodity prices, and second by the global financial crisis.”
Jobs ‘Pain’
Lower global demand for commodities like oil and gas, Russia’s main source of export revenue, are cutting jobs in the country, making unemployment its “biggest problem” and the “biggest pain,” President Dmitry Medvedev said Feb. 15.
The jobless rate rose to 8.1 percent in January, the highest since March 2005, the Federal Statistics Service said yesterday.
Sergei Ivanov, 26, a St. Petersburg resident, lost his job a month ago after the leasing company he worked for went bankrupt. Gone are the $200 weekends he spent snowboarding at the Korobitsyno sports resort outside the former tsarist capital.
“It makes you think twice about these kinds of expenses after your income dries up,” said Ivanov. “I just don’t have the spare money for what once seemed part of my routine.”
For those who have jobs, the average monthly wage fell 4.6 percent in December from a year before to 17,112 rubles ($470), the first contraction since October 1999, according to the statistics service. That helped slow growth in retail sales to the slowest pace in nine years.
No More Fun
Sergey Raizberg, 24, a student with a part-time job in a hospital, started to cut down “on everything, from going to restaurants, to shopping” after his salary was reduced. Rent on his apartment also has increased because it’s fixed in dollars, a common practice in a country where the U.S. currency dominated day-to-day transactions in the 1990s.
He’s ditched a planned vacation to Spain in July, which would have required about 1,500 euros ($1,887).
Bank Rossii, the central bank, last raised interest rates on Feb. 10 to stem the flow of money being used by the banks to bet on the ruble’s decline. In response, banks lifted loan rates. Its peers, Brazil, India and China, have cut borrowing costs.
Irina Pivovarova, 25, a manager at an aviation company, said she decided against buying an apartment for 3.8 million rubles on the outskirts of Moscow after VTB Bank decreased the amount of mortgage she had applied for and said it would raise rates. “I couldn’t get that much money anywhere,” she said.
Tatyana Volkova, 26, an advertising specialist, also pulled out of purchasing a home for 4.5 million rubles after OAO Sberbank, Russia’s biggest bank, raised the down-payment from 10 percent of the apartment’s cost and increased rates.
Soaring Rates
Sberbank’s minimum deposit is now 30 percent, and the lowest rate is 13.25 percent a year, according to the bank’s Web site.
Car loan rates have almost doubled to as much as 21 percent in ruble terms, compared with 12 percent to 13 percent “before the crisis,” or between January and May last year, according to Mikhail Pak, an analyst at IFC Metropol in Moscow.
Yet the weaker ruble is pushing some Russians towards shopping rather than saving, meaning consumer spending is growing at a reduced pace rather than falling like in countries in western Europe. Volkova ended up buying a car instead of an apartment because “you can’t keep rubles now,” she said.
Forty-five percent of Russians haven’t saved up cash, according to a poll conducted by the Romir research service in January and released Feb. 6. Of those who have, 88 percent hold rubles, 12 percent hold dollars and 11 percent hold euros.
“Unstable exchange rates are raising a tendency towards consumption,” said Yaroslav Lissovolik, chief economist in Moscow at Deutsche Bank AG.
For people like Zaporozhtseva, the fear is there might be no escape from the sudden reversal in Russian fortunes.
Unlike previous years, she has no vacation plans and is wary of her travails a decade ago, she said.
“Obviously the current crisis is reminding me of the one in 1998,” said Zaporozhtseva. “It’s just that we’ve lived through so many economic shocks we’re used to them by now.”
To contact the reporter on this story: Maria Ermakova in Moscow at mermakova@bloomberg.net
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