Russia's middle class feels the pinch as boom times end

26th March 2009, Comments 0 comments

Millions from Russia's nascent middle class have found themselves struggling economically, with many unable to pay off loans taken out during the country’s economic boom.

Moscow -- Russia's economic boom could not have ended at a worse time for Vyacheslav Aksyonov, whose wife is about to give birth as the couple is struggling to pay off a mortgage they took out last summer.

Their monthly payments have soared since last fall as the Russian ruble has lost over half its value against the dollar. Like many middle-class Russians, Aksyonov's mortgage was taken out in dollars but he is paid in rubles.

On top of that, Aksyonov's bonuses have shrunk because the sector in which he works, metals, has been hit especially hard by the global economic crisis.

"Before I used to pay 40 percent of my salary to pay off the loan, and now I pay more than 80 percent. It is impossible to live in these conditions," the 35-year-old milling machine operator complained. "The 20 percent left over is not enough to support my family and pay bills."

Millions of others from Russia's nascent middle class have found themselves in a similar plight after taking out loans during the country's economic boom, which was driven by high prices for oil, metals and other commodities.

But the devaluation of the ruble and a drastic plunge in the price of oil has left them high and dry. Russia's central bank says that unpaid mortgages increased tenfold in the country in 2008.

Aksyonov has been more active than most: he set up a website that urges the government to bail out indebted citizens rather than large companies. Its name,, translates roughly to "No to theft."

The fall of the ruble means that day-to-day expenses have risen sharply for Russian consumers, who became accustomed to buying imported goods from Europe during the boom years.

"In our supermarkets, 45 percent of food items are imported and the prices of these goods have risen 20 to 25 percent," said Yelena Kalashnikova, head of the Viktoria supermarket chain.

"The bulk of the increase is due to the change of exchange rates," she told AFP in an interview.

"Our flow of customers is changing. People who used to come to our stores go to discount stores, and people who used to go to the most expensive supermarkets come to us," Kalashnikova added.

In the second half of 2008, Russians spent 75 percent of their income on food, the highest rate since the 1998 financial crisis that devastated Russia's economy, according to Renaissance Capital, a Moscow investment bank.

Some have been unable to cut back their consumption sufficiently and have turned to pawnshops for quick loans.

The number of visitors to Mosgorlombard, a pawnshop chain run by the Moscow city government, has risen 50 percent since the start of this year, from 200 per day to more than 300, according to its management.

A man in his fifties complained of getting a raw deal after coming to one of the chain's pawnshops in central Moscow to reclaim his wife's rabbit-fur coat, which he had pawned at the end of October after losing his job.

"If it had been a mink coat, they would have given more money. Instead we got just 550 rubles (15 dollars or 12 euros) and needed to pay 80 rubles of interest per month," said the man, who declined to give his name.

As she showed off a diamond necklace that someone had pawned, the director of the pawnshop, Irina Palmova, said that people who had been well-off were increasingly willing to pawn their belongings.

"Business owners have started coming. They need to find ways to keep their businesses going, they need emergency cash," Palmova said.

Mosgorlombard deputy director Svetlana Limberova agreed, saying: "The pawnshop is the barometer of the economy."

Antoine Lambroschini/AFP/Expatica

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