Russians Retrench as Crisis Evokes Memories of 1998 --Déjà vu?

It took Marina Zaporozhtseva a decade to save for a new car after Russia’s last economic crisis. Scared of living through a repeat, she’s hanging on to her money.

Back in 1998, when the country let the ruble plunge, defaulted on debt and millions of people’s savings were wiped out, the Moscow accountant couldn’t find a job and had to work as a cook to make ends meet. “Now, once again, there are nightmares at work,” said Zaporozhtseva, 46. “I have to think over every little purchase because I’m not sure if I’ll have a job tomorrow.”

Staggering growth in Russia:
Russia has lurched into reverse after 10 years of uninterrupted growth driven by revenue from oil, gas, metals and consumer spending. The government expects the economy to shrink 2.2 percent this year after expanding about 7 percent a year since 1999. Already, household incomes have sunk with the 35 percent plunge in the ruble against the dollar since Aug. 1 and inflation surged to 13.4 percent in January because of the cost of imported goods.

Russian President Medvedev said on Feb. 15 that lower global demand for commodities like oil and gas, which constitute Russia’s main source of export, unemployment has risen and become the “biggest problem” and the “biggest pain,”. According to the head of research at a Moscow-based investment bank Russia has been hit twice as hard- first through the tremendous drop in commodity prices, and second by the global financial crisis.

Retail sales Diminish:
The jobless rate in Russia rose to 8.1 percent in January, the highest since March 2005.
For those who have jobs, the average monthly wage fell 4.6 percent in December from a year before to 17,112 rubles ($470), the first contraction since October 1999.That 'fueled' slow growth in retail sales to the slowest pace in nine years.

Soaring Interest Rates:
The Russian central bank has raised its benchmark repurchase rate four times since November, to 12 percent. Car loan rates have almost doubled to as much as 21 percent in ruble terms, compared with 12 percent to 13 percent “before the crisis,” or between January and May last year. Russia’s peers including Brazil, India and China, have cut borrowing costs.

Irina Pivovarova, 25, a manager at an aviation company, said she decided against buying an apartment for 3.8 million rubles after VTB Bank decreased the amount of mortgage she had applied for and said it would raise rates. “I couldn’t get that much money anywhere,” she said. Tatyana Volkova, 26, an advertising specialist, also pulled out of purchasing a home for 4.5 million rubles ...

Living through it:
Yet the weaker ruble is pushing some Russians towards shopping rather than saving, meaning consumer spending is growing at a reduced pace rather than falling like in countries in Western Europe. Volkova ended up buying a car instead of an apartment because “you can’t keep rubles now,” she said.

For people like Zaporozhtseva, the fear is there might be no escape from the sudden reversal in Russian fortunes. Unlike the previous years, she has no vacation plans and is wary of her travails a decade ago.

“Obviously the current crisis is reminding me of the one in 1998,” said Zaporozhtseva. “It’s just that we’ve lived through so many economic shocks we’re used to them by now.”