Kremlin’s image makes all Russians forget about financial crisis

Talking to Russians on the street, you'd be forgiven for thinking there was no economic crisis.

Photo: Kremlin’s image makes all Russians forget about financial crisis

Kremlin’s image makes all Russians forget about financial crisis

TV channels gloss over the subject and state news agencies are under orders to avoid frightening language. But beyond the spin, Russia's stock markets are plunging, some grocery shelves are empty and one newspaper has even suggested its readers stash some cash - under the mattress.

The Kremlin is grappling with its worst financial crisis in a decade - feeding a liquidity crunch as banks clamp down on lending. And economists are now fretting about how deep the slowdown will be.

In dozens of supermarkets in Moscow this month, shoppers have encountered shelves empty of even the most basic items. At one chain on Wednesday, meat, fish, vegetables, fruit and cigarettes were nowhere to be seen. The dessert section was empty except for a pricey brand of imported Scottish shortbread - priced at $48 - while sugar and salt were in plentiful supply.

Still, Nikita Bondarev, an academic researcher in his early 30s shopping at the Samokhval chain, said he had no particular concerns about the crisis.

"I'm not playing the (stock) market, and I'm getting my salary as usual," he said. But the sight of empty shelves, "brings up unpleasant memories of Soviet times."

This is not the early 1990s, when images of bread lines and food shortages were beamed across the world. But small businesses and even some mid-size chains like Samokhval are finding it impossible to get credit or that it is available only at exorbitant rates.

In the case of Samokhval, which has 60 stores in the Moscow area, and Mosmart, which has 54 stores and four superstores, suppliers are refusing to deliver goods because of outstanding debts, distributors said.

The problems appear to be limited to a few chains so far in a city that is still enjoying a consumer boom - fed by robust economic growth averaging more than 7 percent over the past eight years and windfall oil profits.

Still, memories of the financial collapse of 1998 are fresh in the minds of many. Savings were wiped out amid a wave of bank foreclosures fed by a crisis of confidence. And that's something the Kremlin is eager to avoid repeating.

Last week, the RTS stock exchange suffered its worst trading day on record, plunging 19 percent. The markets were hit after oil prices - the backbone of Russia's economy - slid heavily amid mounting concerns over the global economic meltdown.

But in Russia, it didn't even make the evening news on the three state-controlled channels.

Instead, they aired a meeting between President Dmitry Medvedev and one of the country's richest billionaires, Mikhail Fridman, in which the two discussed the investment opportunities created by the global crisis.

Vladimir Varfolomeyev, first deputy editor at Ekho Moskvy radio, wrote in his blog that the Kremlin recently sent an order to all broadcasters banning the words "collapse" and "crisis." The word "fall," the memo said, should be substituted with "decline." His blog promptly went down.

Meanwhile, a memo circulated at the state-run ITAR-Tass news agency reportedly advised reporters not to publish "provocative reports that can cause panic."

"We're requesting you to STOP covering queues at banks and a shortage of banking funds," said the memo, circulated by several respected bloggers.

Many newspapers, which operate under more liberal constraints, have carried reports of depositors switching their savings from less-secure private to state-owned banks, while noting some smaller lenders have frozen early withdrawals of accounts.

Still, the Kremlin's message seems to be getting across.

In a poll carried out in late September by the Public Opinion Foundation, one-quarter of those questioned said they had heard nothing about the global financial crisis, while 57 percent said they were satisfied with the country's economy - up from 53 percent in July.

The survey of 1,500 people in 102 cities across Russia had a margin of error of 3.6 percentage points, according to the foundation Web site.

Ignoring domestic factors, such as Russia's five-day war with Georgia in August and growing fears of government interference in business, Medvedev and Prime Minister Vladimir Putin have repeatedly singled out the U.S. as the chief culprit for the global financial crisis and Russia's economic troubles.

"Trust in the United States as the leader of the free world and the free economy, and confidence in Wall Street as the center of that trust, has been damaged, I believe, forever," Putin said recently.

The pro-Kremlin newspaper Izvestia, meanwhile, has suggested readers set aside enough cash to cover three months of living expenses - and stash it under the mattress. The advice recalls more difficult times for Russians, when confidence in the banking system was shattered.

For a government that has built its popularity on an eight-year economic boom, the prospects of a severe downturn and a long-term crisis in its financial sector arealarming indeed.

"All we have at the moment are anecdotes, so we simply don't know" how serious the problems are in Russia, said Rory MacFarquhar, a managing director at Goldman Sachs. "The scary anecdotes have just started to come out with the acute phase of this financial crisis basically starting in October. For a statistical reading ... we're going to have wait a whole month. So we're left guessing."

Still, there are signs everywhere.

Construction has been hard hit, with many projects put on hold or canceled. At Moscow's flagship business center Moscow City - a scene of feverish building activity a few months ago - there were only a few workers at the site this week.

The head of Mirax construction group Sergei Polonsky recently urged journalists in an open letter not to fan the flames of crisis.

"We are already lying on our backs, but we still have some strength left to climb back," he wrote. "We beg you to give us reasoned coverage of this sector."