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Financial Crisis In Russia Holds Threat Of Social Unrest

Protesters gather in Vladivostok. Can the Kremlin maintain the social contract?
Protesters gather in Vladivostok. Can the Kremlin maintain the social contract?
By Claire Bigg
Muscovites will have to wait longer than planned to see the Russia Tower soar above the capital. Work has been halted on the 612-meter skyscraper, designed as Europe's tallest building, due to lack of funding.

A number of other construction projects intended to symbolize Russia's economic might have been put on ice amid deepening financial woes. The powerful state gas monopoly Gazprom, too, has shelved plans to build a glossy $2 billion headquarter building in St. Petersburg.

There are many other, less visible signs of the global financial crisis's deepening impact on Russia.

The crisis had so far largely spared the Russian population, mainly because share ownership and private pensions are still rare. But ordinary Russians have begun feeling the pinch in recent weeks, prompting talk of looming social unrest.

"The crisis has only just reached the masses," says Marina Krasilnikova, a living-standards expert at Russia's independent Levada polling center. "The number of people whose salaries weren't paid in time, whose salaries were scaled back, or who were fired has doubled. Last month, these problems affected every fifth family in Russia."

December has seen the first street protests linked to the crisis. Depositors last week rallied outside a Moscow bank, Capital Credit, to demand the return of their funds. And on December 21, riot police clubbed and detained dozens of demonstrators in the Pacific port of Vladivostok protesting an increase in car import tariffs.

The government hiked tariffs on imported automobiles to bolster flagging domestic car production and try to prevent layoffs among the country's more than 1.5 million auto-industry workers.

Plummeting oil prices have dealt a severe blow to the ruble, a currency considered immune to international financial turmoil just months ago.

Leading companies such as carmakers KamAZ and GAZ have registered a 30 percent slump in demand for their products compared to the same period in 2007. Both companies have already announced layoffs.

Economic growth for October was a mere 0.6 percent -- a 10th of September's figure -- making Russia one of the worst performers among emerging economies.

The Kremlin Grows Nervous

The Kremlin has taken emergency measures to prop up the country's economy, including an unprecedented rescue package worth $180 billion. At $450 billion, its foreign-currency reserves are still enormous. But they are quickly dwindling, down from almost $600 billion in August.

The Kremlin also seems aware that growing public discontent over the crisis could eventually grow into a genuine challenge.

President Dmitry Medvedev has instructed law enforcement agencies to stamp out any unrest and take action against those seeking to "exploit the consequences" of the financial crunch. "We have a stable state," he told a meeting of senior officials in November. "We don't need to return to the 1990s, when everything was boiling and seething."

The authorities have not allowed protests to grow, so far.
A decade-long economic boom has helped the Kremlin maintain political stability and sky-high popularity ratings. But memories of the 1998 financial meltdown that wiped out life savings overnight and sparked street protests are still fresh in people's minds, and some analysts believe serious social unrest is once again on the cards.

"It's not only possible, it's practically inevitable," says Russian political analyst Nikolai Petrov. "There are many localities where much depends on a single company. When this company closes down, goes bankrupt, or lays off staff, whole cities find themselves without any real source of income and sometime even without infrastructure -- companies don't only supply work, sometimes they also provide the city with heating and electricity."

Weakening Social Contract

With opposition parties weak and divided, the financial crisis is unlikely to pose any immediate threat to the government. The crisis has nonetheless shaken the very foundations of the current regime's popularity.

"In recent years, the country's economic prosperity has gone hand in hand with a purge of the socio-political sphere," Levada's Krasilnikova notes. "The population has been largely indifferent to this because its social contract with the authorities was based on steadily rising living standards for almost all layers of society. The crisis undermines this social contract, and this represents a serious challenge to the current status quo."

Past events have shown that traditionally long-suffering Russians are prepared to take to the street when their revenues are threatened. In January 2005, angry pensioners braved sub-zero temperatures to protest the monetization of Soviet-era social benefits with weeks-long, nationwide rallies that spooked the Kremlin.

Among its raft of anticrisis measures, the authorities have reportedly cautioned journalists against fuelling pessimism over the country's financial difficulties. But even Russia's Kremlin-friendly media have been helpless in stemming public disgruntlement.

A recent poll by the Public Opinion Foundation found that 39 percent of Russians are dissatisfied with the government. In another study by the Levada center, almost half of respondents said they expected years of hardship ahead. Less than a fifth of respondents thought so in the spring.
Unfinished Moscow

Moscow's once-booming real-estate market is in a state of crisis, and the signs are everywhere.

 


Claire Bigg

Claire Bigg covers Russia, Ukraine, and the post-Soviet world, with a focus on human rights, civil society, and social issues. Send story tips to BiggC@rferl.org​


 

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Comment Sorting
Comments
     
by: Richard Mimna from: www.herbalindex.com
December 23, 2008 11:27
The Russian government system is flawed to the core. If the Russian people do not want to go back to the horrors they faced in the 90's, then that same government will have to be replaced. Soviet-era politics do not work and Putin is still KGB. Doing the same things repeatedly will usually result in the same results. If the results are not favorable it is probably time to try something different. I'm sure that NATO would be happy to help the Russian people restructure a new government once it has been put into place.

by: David Arbaty from: San Francisco
December 23, 2008 21:06
Wolfs have been waiting for Russia collapse for 2,000 years. Has not happened yet. Putin is too smart for that. But Ukraine is on the verge of collapse and Russia should install pro-Russian government on the cheap.

by: Walter from: U.S.A.
December 24, 2008 03:15
I think Mr. Putin is finally running into reality. He has a one-dimensional resource based economy that cannot handle cyclical stresses well. Also, since Mr. Putin has effectively eliminated any credible opposition, he cannot point the finger at others. I think the public may begin to question his military and foreign policy adventures.

by: Dennis from: Trinidad
December 24, 2008 17:55
Every western press and some stupid Russian juornalist and political foes are just wating to see Russians on the streets they just sit by their desk with pens in hand saying Russia fall i need something to write, this is why they keep writing all kinds of stories about Russian revenues. Russian should be aware not to fall for this barage what you call usefull idiots.

by: jaked amani
December 24, 2008 19:56
What goes around comes around!

by: Anton from: Auckland
December 28, 2008 03:04
Russia is surely not a 3rd world country, fully depended on resources sale. Neither was USSR. It is simply wrong to think this way, as this way of thinking may hurt the thinker at the end.<br /><br />Russia is an alternative form of the same civilization as the West is. The difference is that the West was always limited in territories and resources, while Russia always had and still has the abundance of both. Russia would never lose a war of attrition - it can only be taken by a Blitzkrieg. It is very important, that neither Sweden and France nor Germany would ever in the future plan any assault on Russia, as they keep the historical memories of the results. The only country, planning such assault can be the one that never had a war with Russia in the past (whoops, in all cases Poland is an exception, but the Poles are the same Russians but without Russian history, Russian confidence and Russian capabilities or resources).<br /><br />For the last 500 years Russia always looks as falling apart into pieces. It has social/ethnic/religious conflicts, rebellions, riots, revolutions et cetera - but for some reason any outside force, ever dared to interfere in these internal affairs, always finds itself beaten and looted. I guess it happens because geopolitically Europe in its total was never a real match to what Russia always was.<br /><br />Russians know that. They surely want their government to give them more than they have (and are happy to claim Western support if this is needed) - and Putin's government was washing their brains for a looooong time saying they are superior to anyone else on the planet, but the small print in Putin's contract was adding &quot;for as long as we rule over you&quot;. On the other hand, Russians know pretty well what it is to have a crisis and what it is to have a useless weak democratic government. At the end of the day they would always prefer a smart Dictator to a dumb Humanrighter, as the human rights (western form) say that a crook can rob your appartments, rape your wife, kill your children - and then get a suspended sentence because of his hardships during childhood... And the foreign crooks can arrive and take over their RESOURCES... The Law is blind, but people are never blind. So, the Russians prefer a dictator who can always override the Law and send the bastard to the gallows. They treasure not money or diamonds, they treasure Stability - and Putin is the facade of such! <br /><br />I bet the Far East would brawl for awhile, and then when they are offered the following options - &quot;Great Putin and his noble lapdog Medvedev&quot;, &quot;Maozedong human-face LTD&quot; and &quot;Japanese best cars, best whores and best samurais&quot; - they woud surely choose well-familiar to them Mr Putin, and would fight for him, chewing wooden AK47 butts with their unrepaired teeth amid the swamps. What's good about Japanese cars anyway? Well, comfortable allright, but try to repair the thing! Japs lost the war because their tanks were unrepairable, specially in cold - and if about their cars, can anyone here show me where the camry has its f..n' sparkplugs? I had here a $400 quote to change the backrow plugs, dumped the whole car at the end - who needs such a thing? Russian Lada is sure crap to drive, but at least one can repair it and move on! <br /><br />At my estimate all Russians who were not happy living in Russia, are already outside Russia - and those who are happy living there, are just sorting their personal income levels, not really fighting the government. Now they have income from Toyota-great-secondhand-samurai-ltd, so they draw their katanas and threat the nasty Pu-Tin, but they still know he is a Superior, so all their fight is only to remind the Great One that they also exist on this crusty surface and they better exist with Toyotas than with Ladas... No principal issue here.

by: Anton from: Auckland
December 28, 2008 03:05
Russia is surely not a 3rd world country, fully depended on resources sale. Neither was USSR. It is simply wrong to think this way, as this way of thinking may hurt the thinker at the end.<br /><br />Russia is an alternative form of the same civilization as the West is. The difference is that the West was always limited in territories and resources, while Russia always had and still has the abundance of both. Russia would never lose a war of attrition - it can only be taken by a Blitzkrieg. It is very important, that neither Sweden and France nor Germany would ever in the future plan any assault on Russia, as they keep the historical memories of the results. The only country, planning such assault can be the one that never had a war with Russia in the past (whoops, in all cases Poland is an exception, but the Poles are the same Russians but without Russian history, Russian confidence and Russian capabilities or resources).<br /><br />For the last 500 years Russia always looks as falling apart into pieces. It has social/ethnic/religious conflicts, rebellions, riots, revolutions et cetera - but for some reason any outside force, ever dared to interfere in these internal affairs, always finds itself beaten and looted. I guess it happens because geopolitically Europe in its total was never a real match to what Russia always was.<br /><br />Russians know that. They surely want their government to give them more than they have (and are happy to claim Western support if this is needed) - and Putin's government was washing their brains for a looooong time saying they are superior to anyone else on the planet, but the small print in Putin's contract was adding &quot;for as long as we rule over you&quot;. On the other hand, Russians know pretty well what it is to have a crisis and what it is to have a useless weak democratic government. At the end of the day they would always prefer a smart Dictator to a dumb Humanrighter, as the human rights (western form) say that a crook can rob your appartments, rape your wife, kill your children - and then get a suspended sentence because of his hardships during childhood... And the foreign crooks can arrive and take over their RESOURCES... The Law is blind, but people are never blind. So, the Russians prefer a dictator who can always override the Law and send the bastard to the gallows. They treasure not money or diamonds, they treasure Stability - and Putin is the facade of such! <br /><br />I bet the Far East would brawl for awhile, and then when they are offered the following options - &quot;Great Putin and his noble lapdog Medvedev&quot;, &quot;Maozedong human-face LTD&quot; and &quot;Japanese best cars, best whores and best samurais&quot; - they woud surely choose well-familiar to them Mr Putin, and would fight for him, chewing wooden AK47 butts with their unrepaired teeth amid the swamps. What's good about Japanese cars anyway? Well, comfortable allright, but try to repair the thing! Japs lost the war because their tanks were unrepairable, specially in cold - and if about their cars, can anyone here show me where the camry has its f..n' sparkplugs? I had here a $400 quote to change the backrow plugs, dumped the whole car at the end - who needs such a thing? Russian Lada is sure crap to drive, but at least one can repair it and move on! <br /><br />At my estimate all Russians who were not happy living in Russia, are already outside Russia - and those who are happy living there, are just sorting their personal income levels, not really fighting the government. Now they have income from Toyota-great-secondhand-samurai-ltd, so they draw their katanas and threat the nasty Pu-Tin, but they still know he is a Superior, so all their fight is only to remind the Great One that they also exist on this crusty surface and they better exist with Toyotas than with Ladas... No principal issue here.

by: Richard Mimna from: www.herbalindex.com
December 28, 2008 17:23
Hey, Anton from Auckland, Are you a Russian? Nobody believes the things that you rant. Unless, you just happen to be one of Putins &quot;blind&quot; followers. Go read a copy of George Orwell's &quot;Animal Farm&quot;.

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