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Monday, 12 January 2015

Russia and the economic crisis: this ruble crisis was definitely different from the one in 1998, but the political situation remains worrisome anyway… Pt I

“In 1998, we were hoarding food and essentials...
Now we are hoarding cars and television sets”
Tatyana – statement made during a conversation with my wife Olga

When I left to St-Petersburg in Russia on the 19th of December, together with my lovely wife Olga and our children, I had a peculiar feeling that I seldomly had before while visiting Russia during the last 13 years.

We went there in order to celebrate the 75th birthday of my mother in law, but I was very well aware that our visit was taking place at the peak of the ruble crisis. It was at the time when the official exchange rate of the ruble was around 80 per €1, but unofficial quotations were already touching 110-120 per €1. And a time in which the prices of household appliances, consumer electronics and durable consumer goods were seemingly rising by the hour.

Although I personally know most Russians as very kind and welcoming people, I – as a Dutch man coming from the disavowed EU– expected some angry looks and harsh words about the economic sanctions from the EU against Russia and the alleged involvement of the EU and US in the freefall of the ruble. I was to receive none at all; rather genuine interest and curiosity about my opinions…

Equally surprising was the total lack of panic and hoarding behaviour among the Russian people: although the local branch of ‘MVideo’ – a Russian store chain in consumer electronics and household appliances – showed a lot of empty shelves at the television department, the situation was quiet and peaceful. 

Store of the MVideo store chain in St-Petersburg with lots of
empty shelves, after Finns and Russians hoarded television sets
Picture copyright of: Ernst Labruyère
Click to enlarge
All supermarkets were opened and filled to the brim with food and non-food products; ready for New Year, the most important of Russian holidays. 
When there was scarcity in St-Petersburg, it must have been the best disguised scarcity in the world. My impressions that there were no scarcity problems whatsoever, were confirmed by friends of ours, who visited Moscow during the same period. 

The sales of fireworks had been slightly disappointing at the end of 2014
Many Russians did not want to spend their hard-earned rubles on it
Picture copyright of: Ernst Labruyère
Click to enlarge
Of course, St-Petersburg and Moscow are not the usual suspect when it comes to situations of scarcity, but I never got the impression that the situation in other Russian cities, villages and hamlets would be much worse.

As a matter of fact, during the short-lived ruble crisis the biggest hoarders– if any – of television sets and cars were Finns and not Russians, if I can believe Olga’s cousin Tanya (Tatyana). These Finns were lured to Russia by the lagging effect of store prices, after the sudden steep drop of the ruble took place.

The peaceful situation in Russia seemed almost unreal. The only sirens that I heard during my 2.5 week trip, were sirens of ambulances and the fire brigade: no police at all. There was almost no police on the streets and no incidents of any kind (including public drunkenness) whatsoever.

Business as usual in St-Petersburg: any signs of panic
and structural hoarding were virtually non-existent
Picture copyright of: Ernst Labruyère
Click to enlarge

In spite of the difficult economic situation, there were more lights
and splendour than ever before in St-Petersburg
Picture copyright of: Ernst Labruyère
Click to enlarge
During the period of our holiday, Olga and I had a few interesting conversations with our friends and family about the emerged political situation in Ukraine, the terrible attack upon the MH17 and the question whether the invasion of Crimea was a strategic blunder of Putin.

To start with the most painful topic: everybody we spoke was really shocked about the Malaysian Airways MH17 being brought down with 300 passengers in July, but nobody could believe that there was any direct involvement of Russia in it [for what it is worth of course – EL].

About Crimea, however, the general opinion was that it had always belonged to Russia and that it was a justifiable action, to actively support the desire of the largest part of the population to make it Russian territory again. Even a Russian, internationally active professor-in-Roman-law was convinced that this had been a justifiable move by the Putin regime.

Only one friend of ours, Andrei, was convinced that it had indeed been a strategic blunder of president Vladimir Putin and that he had caused the economic sanctions upon Russia himself with this presumptuous, maverick action against Crimea and his alleged interference in East-Ukraine.

This general endorsement of Putin’s Crimea policy and his overwhelming popularity might sound surprising in West-European ears. Sometimes I think that many West-Europeans still have the post-Cold War idea that Russian dissidents reflect the true opinions of the Russian people. Opinions that the normal Russian people also have, but do not dare to utter in public.

There are Russians, who are so extremely wealthy that they
don't have any worries in the world when it comes to the economy
Picture copyright of: Ernst Labruyère
Click to enlarge

The general idea in The Netherlands and the western part of the EU is that Vladimir Putin will lose all his supporters and endorsements, as soon as the Russian economy starts to seriously falter, due to the oil price crisis and the economic sanctions. The West-Europeans might be in for a surprise…

Almost all of our common, Russian middleclass friends with normal, honest daily jobs and no attachments to the Russian government at all – with one blatant exception – back Putin’s politics in Russia and with respect to Crimea. These people are neither indoctrinated, nor afraid of anything.

They are fully aware that Putin and his friends and family have expropriated large amounts of money for their own interests and that Putin thinks more about himself than about the rest of the country. They consider this business-as-usual unfortunately, as this is one of the uncurable diseases of Russian leadership and Russia in general.

Nevertheless, after the hopeless boozers Leonid Brezhnev and Boris Yeltsin, the short-lived leadership of Yuri Andropov and Konstantin Chernenko and especially the ‘traitor’ Michail Gorbachev, the powerful, strong and impressive Vladimir Putin makes the Russians proud of themselves again. Proud that Russia refound its self-confidence and has not turned into the puppy dog of the Western world.

Olga’s cousin Tanya gave us the following concise summary of the 'communis opinio' about Vladimir Putin: “In 1998, during the last ruble crisis [Boris Yeltsin was president - EL], we were hoarding food and essentials… Now we are hoarding cars and television sets. We owe Vladimir Putin for that”. She is probably right.

I cannot emphasise enough, how much Russia changed during the twelve years that I know the country. In 2002, it was a country lying in tatters and rags: everything – houses, cars, public transport, offices and everything else – was (almost) broken down and suffered from fatigue after 10 years of ‘cowboy capitalism’ under President Boris Yeltsin. The 1998 ruble crisis sent shockwaves through Russian society, especially for the middle and lower classes. Mafia-style murders were an every day-affair in the nineties and people felt generally unsafe and left alone.

There were some cautious signals of a stabilizing economy in 2002, but these were only small greenshoots.

Everywhere in St-Petersburg, you will find this mixture of old-Soviet style
blocks of flats and new ones being built next to them
Picture copyright of: Ernst Labruyère
Click to enlarge
Nowadays, the country looks completely different, with supermarkets everywhere, selling high quality food and non-food products, and shopping centres that feature the latest technology and modern products from the East and the West. 

Even when you take into consideration that the economic growth is almost completely oil and credit-based, the progress still seems impressive.

The old-fashioned Lada's and Volga's have almost all been replaced
by modern European, Japanese and Korean cars
Picture copyright of: Ernst Labruyère
Click to enlarge
Countless new blocks of flats, office buildings, infrastructure and even a totally refurbished airport have dramatically changed the skyline of St-Petersburg. 

The new shopping centre of the total refurbished Pulkovo Airport
Picture copyright of: Ernst Labruyère
Click to enlarge
And where driving in St-Petersburg was akin to a kamikaze ride at the beginning of this century, due to the numerous large potholes in the road and the unsafe general situation, the new highway around the city and improved roads everywhere strongly lifted the safety situation.

The new Mariinskiy Theater, which has been built next to
the old theater and hosts more than 500 shows per year alone
Picture copyright of: Ernst Labruyère
Click to enlarge
The impressive outside of the new Mariinskiy Theater, which has brought
new splendour to the city centre of St-Petersburg
Picture copyright of: Ernst Labruyère
Click to enlarge
These changes were made with Vladimir Putin and his strawman Dmitriy Medvedev at the helm and many Russians did not forget that: hence, their enduring support for their government, in spite of the current economic crisis.

Still, the difficult economic and political situation in Russia itself and between Russia and the EU remains worrisome. After the ruble had stabilized during our holiday to around 70 per €1, the situation deteriorated again when we returned home: probably this was a consequence of the oil price dropping further and after new sanctions against Russia seemed in the making.

Rob van Wijk, the distinguished columnist and strategic expert of Dutch newspaper Trouw, stated the following about the situation with Russia in his column of January 2, 2015:

The biggest threat for the [Dutch - EL] economy is the conflict with Russia, that could run easily out of hand in 2015. Politicians and civillians are putting themselves to sleep with the idea that the worst has passed. That seems a premature thought.

A flawed appraisal of Russia with respect to NATO military trainings or Russian provocations above NATO territory could both lead to escalation. When the economy in Russia further deteriorates, it could be that Putin searches for external conflicts to distract from the awkward, domestic situation. A tell-tale signal is that the new, Russian military doctrine, which was deployed after Christmas, identified the NATO as enemy number one for Russia.

I am afraid that Rob van Wijk could be right with this concept. The atmosphere between Russia and the EU (in the eyes of the Russian leadership almost equal to the NATO) has already been in a downspin since 2008 – after the Russian / Georgian war about Abchazia and South Ossetia emerged. 

Things like the Polish/Czechian rocket shield, the open flirts of the EU and the NATO with Ukraine and Moldova and the emerged situation in Crimea and ‘Novorossiya’ (Eastern Ukraine) did not help one bit about that.

Tomorrow, I will write part II of ‘my adventures in Russia’. Especially with respect to the current economic conundrum in this country. 

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