Oil's Crash Stirs Unrest In Russia As Slump Hits Home
The Wall Street Journal, 19th December 2008 11:32
By Andrew Osborn and Alan Cullison
BARNAUL, Russia -- Russia's oil-fired economic miracle is unraveling as industry shrinks and job losses mount. Now the first stirrings of social unrest have the Kremlin groping for a response.
Gloom deepened over the outlook for oil-export revenue, Russia's main earner, as prices plunged Thursday despite OPEC's move this week to deeply cut production. Oil hit a 4 1/2 year low on anxiety about falling global demand, with crude closing at $36.22 a barrel in New York, down $3.84. This could spell trouble for Russia, which has pegged its 2009 budget on much higher oil prices, meaning it will have to trim spending.
The drop in oil prices is eroding the Kremlin's ability to replenish its gold and foreign-currency reserves just when it needs them most. Although the country's reserves are the world's third-largest behind China and Japan, it has been spending tens of billions of dollars in an attempt to prop up its falling ruble and stave off public panic.
The central bank let the currency slide more quickly Thursday, the third small devaluation in four days. The currency has lost more than 11% against the government's dollar-euro basket since August, when it hit its historic peak.
Prime Minister Vladimir Putin on Thursday painted a bleak picture of the economy. Since October, more than 7,500 firms have informed the government they intended to lay off people, and 207,000 workers have had their working hours reduced, he said, calling these "worrying signals."
The government is drawing up a list of the most significant enterprises that might need a bailout, Mr. Putin added. That would come on top of the more than $200 billion the Kremlin has already pledged to shore up the economy, and will cover a minimum of 1,500 firms. Deputy Economy Minister Andrei Klepach said on Thursday that the economy wouldn't grow again until the middle of next year.
The Kremlin has tried in state media to downplay the impact of the global financial crisis. Yet popular discontent is growing.
Last weekend, thousands of angry residents in the far eastern city of Vladivostok took to the streets and blocked traffic to protest government plans to raise tariffs on secondhand foreign cars, which are one of the impoverished region's biggest moneymakers. Similar protests have been attempted in Moscow, St. Petersburg and Kaliningrad, and further demonstrations are planned for Sunday in Vladivostok.
Public anger also spilled onto the streets this fall in the Siberian town of Barnaul, as thousands of pensioners who had lost their right to discounted public-transport tickets staged noisy protests.
The government's response says a lot about the Kremlin's growing angst over the financial crisis. After several tense days, the pensioners got their discount tickets back, police detained younger protesters who had joined the demonstrations, and state media made little mention of the events.
The prospect of further unrest poses what could be the biggest challenge yet to the authoritarian system built by Mr. Putin. It also foists a stark choice on the Kremlin: to stifle dissent, or to placate protesters to provide some kind of pressure outlet. For now, the Kremlin has decided on a mixture of both. But the government's options may narrow as its financial reserves shrink.
"They're incredibly scared of this," says Yevgeny Gontmakher, an economic adviser to the Kremlin. "They don't know how to operate in this environment."
Previous periods of low oil prices in the 1980s and 1990s contributed to the downfall of two Kremlin administrations -- those of Mikhail Gorbachev and Boris Yeltsin. Often, social discontent has begun in Russia's far-flung regions, where Kremlin control is comparatively tenuous.
Russia is just beginning to feel the impact of a slowdown that economists say could take the economy from nearly 8% growth earlier this year to near recession in the next few months. Wage delays have already led to a strike by migrant workers on a construction site in the Ural Mountains city of Yekaterinburg. Such social protest has been rare in recent years amid widespread political apathy and fear of government retribution.
Russia posted its first monthly budget deficit in November as falling oil prices and slowing production battered the economy. Meanwhile, Standard & Poor's has downgraded Russia's sovereign debt for the first time in 10 years.
Public panic is one of the Kremlin's greatest fears. "I've already seen how things get worse as the result of an oil-price collapse," says Yegor Gaidar, who was acting prime minister in 1992. "It's dangerous -- but people who have not governed a nuclear-armed country don't quite understand that."
Mr. Putin's party has told lawmakers to report layoffs in their regions, and a draft law would oblige employers to warn the government of problems that might trigger job or salary cuts.
The Kremlin has recently begun to talk publicly about the financial crisis. Before, it was seldom mentioned on state TV. Members of a Kremlin advisory body that monitors the media say officials told journalists not to use the word "crisis." Last month, regulators chastised Moscow's daily Vedomosti newspaper after it printed an article examining the potential for social unrest, the editor, Elizaveta Osetinskaya, says.
The Kremlin has accused the West and homegrown economic liberals of using the crisis to fan discontent. In a recent question-and-answer session with voters aired on Russia's two main state television channels, Mr. Putin blamed Russia's problems on "financial and economic authorities" in the U.S. They had "infected" the global economy, he said.
Meanwhile, lawmakers in his party have turned on liberal Finance Minister Alexei Kudrin, complaining about the speed at which Russia's foreign-currency reserves are being spent on anti-crisis measures. Mr. Kudrin has said the money is being spent "accurately."
This fall, Barnaul, an ailing Siberian industrial hub some 2,000 miles south of Moscow and one of the last regions to benefit from the oil boom, became one of the first to feel the crisis.
As the credit crunch poisoned Russia's economy, supply chains broke down on a lack of cash and trust, and orders dried up at the town's factories, which churn out diesel engines, heavy machinery and tires.
Three months ago, workers say, several factories sent workers home on reduced salaries until better times. Government data show over 1,000 workers in the region are in the process of being laid off; opposition lawmakers say hundreds more layoffs are likely.
In late October, when authorities revoked subsidized transport tickets for more than 200,000 pensioners in Barnaul, they gave no warning or explanation. When the pensioners -- among the poorest groups in Russian society -- learned the tickets were being axed, they panicked.
On Oct. 26, about 1,500 gathered in front of the regional government building to protest, according to people who attended. The pensioners blocked the town's main thoroughfare, Lenin Avenue, for three hours, and only dispersed after a local government official invited a few of the leaders inside for a chat, promising the tickets would be reinstated.
Still, protesters came back the next day. This time, they numbered only a few hundred but demanded the resignation of the local Kremlin-appointed governor, Alexander Karlin.
In a third protest, a crowd of 2,000 again blocked Lenin Avenue as regional lawmakers debated the decision to do away with the discount. Some demonstrators tried to storm the government building, but police lines held. The governor tried to calm the crowd, but was forced to retreat.
Eventually, the government decided pensioners could keep their discounted transport tickets, while a new system allowing them to choose between cash payments and free transport passes is introduced.
Spokesmen for the local parliament and regional government said that the unrest came about because of a "misunderstanding" and a government failure to adequately explain the reforms to welfare benefits.
Alexander Romanenko, a pro-Kremlin lawmaker in Barnaul,says the protests fizzled out after pensioners realized the government recognized their needs.
But political opponents believe remote regions and towns like Barnaul are the Kremlin's Achilles' heel. "They can only control what's within the Moscow ring road," says Vitaly Boldakov, a left-wing activist in Barnaul. "But beyond that road, their control collapses."