Airbrushing Russia's economic problems

Feature column on Russia in denial over economy

Recently, the glossy Style section of the Russian newspaper Kommersant published a surprising full-page photograph of Svetlana Medvedeva, the fashion-conscious wife of the new Russian president.

Russian President Dmitry Medvedev with his wife Svetlana Medvedeva in Japan in July 2008. (Michel Euler/Associated Pressl)

In the photo, Russia's first lady is wearing a luxury Breguet watch, worth upwards of $15,000. The story was all about the watches that first ladies and prominent female politicians wear all over the world.

Many here seemed shocked by this ostentatious display of wealth in a country where the average monthly salary is less then $700, especially now that the international economic crisis is rearing its ugly head here in Russia.

But "crisis" is a bad word at the moment, to be used only when absolutely necessary and with caution. Russian authorities, in fact, seem to be using all possible means to try to conceal the gravity of the situation and the extent of the economic meltdown.

A few weeks ago, for example, the Russian prosecutor general, Yuri Chaïka, issued a directive to all prosecutors across the country urging them to scrutinize media coverage of the economic troubles.

Any article judged too pessimistic might be considered extremist and legal actions could be taken against the authors, the directive warned.

Test case

The business daily Vedomosti, a high-profile joint venture involving the Wall Street Journal and the Financial Times of London among others, experienced this new political correctness first hand.

It received a warning from Russian authorities after it published an article by the economist Yevgeny Gontmakher, director of the centre for social studies at the Russian Academy of Science's Institute of Economics.  

Gontmakher's piece looked at the potential social unrest that an economic crisis could create. The prosecutor's office and the government's media watchdog, Rossvyaznadzor, threatened the newspaper with sanctions for promoting extremism.  

Other business journalists have felt the chill as well, including Oksana Panova, chief editor of a local news agency,, based in Yekaterinburg.

She has also been threatened for publishing bad news about the economy in the region. Don't stir up panic, she was told by the local prosecutor when summoned to his office.

She was given a list of terms to be used in regard to the economic situation.

Layoffs, for example, should be called "structural transformations;" and when people are buying dollars (fearing the devaluation of the ruble), the term "optimization of one's currency basket" is preferable to any other.

Don't worry, be happy

In his annual, three-hour call-in session on Russian radio and TV, Prime Minister Vladimir Putin answered dozens of questions from citizens around country. Most of them were about the economy.

Don't worry, he assured them. Russia might be facing some tough times right now, but we should get away with "minimal losses," he insisted.

Earlier, this year, Putin called Russia an "island of stability" in the midst of this international financial crisis. (Since the meltdown started in late summer, authorities have been blaming the United States for the turmoil.)

But Russia has clearly been hit by the double whammy of much lower oil prices (it is a huge international producer) and the cheap loans that the government and Russian businesses had grown dependent on, using the country's oil wealth as collateral.

The Russian stock market has lost 80 per cent of its value since May. Putin insists "it's absolutely unfair" to focus on that fact because the market "has very little connection with the actual state of our economy or with the value of Russian companies." But  the ruble continues to depreciate — 20 per cent since August. Foreign currency reserves have also shrunk noticeably and the recent spate of layoffs can't be ignored any longer.

Concealing reality

Russian authorities are having hard time concealing reality. In a recent Ernst & Young survey, a third of Russia's larger companies said they are planning job cuts, while 11 per cent already have.

In October, official sources reported almost five million Russians were unemployed. In addition, hundreds of thousands have not been paid their full salaries for the last two or three months. Meanwhile, inflation for 2008 is officially exceeding 12 per cent.

In the face of this turmoil, public opinion seems divided.

"Our leaders are right in calming down the population" says Willi Tokarev, a popular singer I met at the annual Millionaire Fair at the outskirts of Moscow. "Otherwise people will rush to rob the banks," he adds, laughing

On the other hand, "I don't agree at all," says Yulia Shatova, a frail, 35-year-old mother of two, while we stroll between the stands of this extravagant event.

Here, Hummers, diamonds, oversized yachts and fur coats were on display while Russian sparkling wine was being served free of charge. Breguet watches, like the one sported by Russia's first lady, were not in short supply.

"I think Russians should know how bad the situation is right now," Shatova says. "All we have been hearing in news broadcasts is that there is stability and there will be stability. But it's not what we see all around." 

She, in fact, has just lost her job with one of Russia's largest information websites. Half of the 200 journalists working there were laid off a few weeks ago. None was paid his or her full salary.

The company owes Shatova in excess of $4,000. She decided to register a complaint, but none of her former co-workers joined her. They were all too scared of reprisals.

Indeed, when Shatova went to her boss to get all the documents required to register a complaint, he told her she will never get another job if she does so.

She says she isn’t  afraid. "We were not ready for such a crisis and we didn’t expect to be kicked out into the street just like that," she says, this time with some anger in her voice.

Fear of fiction

In the article in the business daily Vedomosti that brought down the wrath of the authorities, Yevgeny Gontmakher described a fictional industrial town, which he called Novocherkassk 2009, where huge protests break out following massive layoffs.

In his story, the authorities eventually quash the riots by brute force. Nevertheless, the unrest spreads and reaches Moscow.

Novocherkassk, a city of 125,000, does exist. In 1962, the Soviet Army brutally suppressed food riots there, killing 90 people. For years, the massacre was a well-hidden state secret

Concealing the truth is a die-hard Soviet habit that is appears to be still practised in today's Russia. But using this technique to avoid panic may not be enough to prevent the Gontmakher scenario from becoming reality.