This Crisis Will Never End

Despite all the statements from Russia’s leaders that the worst of the crisis is behind us and that we are seeing signs of an economic rebound, the crisis will not go away.

No sooner had the government announced that the decline in manufacturing had ended than it resumed its decline, threatening to ruin the statistical picture at the worst possible moment — right before year-end results are reported. Moreover, financial markets remain unstable, oil prices are fluctuating, and the exchange rates between various currencies swap positions relative to each other like dancers doing an old-fashioned minuet.

And the authorities have no idea what to do about the crisis that is here to stay.

As usual, politicians and economists have failed to consider the social consequences of their decisions. Companies were able to make modest improvements to their financial profiles by laying off staff, putting employees on forced vacation and reducing salaries.

But by “solving” one problem, they created a whole new set of new ones. Now that Russians have lower incomes and less work, they buy far fewer goods and services. They have also stopped paying off their loans and begun demanding unemployment benefits and other government assistance on a scale much greater than the authorities had ever expected.

Meanwhile, the financial sector will never be able to resolve its own problems as long as its clients cannot resolve theirs. As bank credit portfolios are shrinking, debt arrears reached 1 trillion rubles ($33 billion) on Nov. 1. Worse, the volume of this debt will get even worse during the first half of 2010, making a second major wave of the financial crisis inevitable.

The 2010 budget published in Rossiiskaya Gazeta does not inspire much optimism either. By fulfilling its funding obligations for social services during a period of falling oil prices, the government has run up a whopping debt of 2.9 trillion rubles ($96 billion).

Finally, there is the problem of high unemployment. According to the authorities, Russia has a lower level of unemployment than most European Union countries and the United States. But those presumably reassuring statistics are achieved by including employees who have been sent home on forced vacations, idled or shifted from full-time to part-time jobs. What’s more, the typical Russian practice of delaying workers’ wages, which we experienced all too often in the 1990s, has come back in full force during this crisis. The situation is aggravated by the fact that about 29 percent of the unemployed are under 25.

The government’s approach for combating the crisis boils down to plugging the largest holes in the economy and trying to stave off protests wherever leaders identify the greatest threat. Tolyatti, the headquarters of AvtoVAZ, is a perfect example. The huge car factory is on the verge of shutting its doors, and the authorities are seriously concerned that the idled workers could stage a rebellion and spark protests across Russia.

The other important question is that once the crisis is over, will people want to return to jobs offering salaries only slightly higher than Russia’s miserly minimum wage? Even if Russia manages to extricate itself from the economic crisis, the social disruptions that it has caused are here to stay.

Boris Kagarlitsky is director of the Institute of Globalization Studies.