Publication: Eurasia Daily Monitor Volume: 5 Issue: 200

The world financial crisis, which has hit Russia’s stock market harder than those of most other countries, is starting to trickle down to the average Russian. As Nezavisimaya gazeta reported on October 20, repeated crashes of Russia’s main stock market indices in recent weeks and a crisis of faith on the inter-bank credit market have been followed by an industrial contraction and a rush of citizens to withdraw their money from banks, which in turn have been doing everything possible to prevent the withdrawal of deposits.

According to the newspaper, some banks have simply stopped giving out money. “Everyone understands that these measures are illegal; any court will demand that all money be returned [to depositors] in full,” Nezavisimaya gazeta wrote.

“It is just that the situation is such that many banks have nothing to give: the money collected from depositors has been dispersed in the form of credits, and there is nowhere to refinance. Therefore they are not worrying at the moment about observing the law. Those that at present have [enough] money to distribute to clients are not sure whether they will [have enough] tomorrow. Therefore … they are also trying to slow down the flow of money from deposits” (Nezavisimaya gazeta, October 20).

At the same time, the federal and regional authorities, fearing that the outflow of deposits are pushing banks to the edge of ruin, are trying to save at least the “system-forming” banks, Nezavisimaya gazeta wrote. The newspaper quoted an unnamed high-level government source as saying that only 122 banks will be allowed to participate in credit auctions at which up to 1.5 trillion rubles (around $57 billion) will be distributed. It was noted that this will possibly agitate depositors even further, given that those 122 banks represent only a small fraction of the 1,126 banks that were operating in Russia as of the beginning of October.

And while the authorities may try to calm down depositors by pointing to the fact that the government recently increased the amount of 100 percent-guaranteed private bank deposits from 100,000 rubles (around $3,800) to 700,000 rubles (around $26,600), Nezavisimaya gazeta noted that the deposit-insurance system has only 80 billion rubles (around $3 billion) in reserves, while the bank deposits of Russian citizens total 5 trillion rubles (around $190 billion). In addition, it is unclear how soon citizens will receive their money stuck in insolvent banks, given that this can only be done after a bank is officially declared bankrupt and its banking license is withdrawn—a procedure that can take many months.

Meanwhile, the ruble is losing its value against the dollar: the Russian Central Bank’s official exchange rate was 23.12 rubles to the dollar in mid-July and is now 26.25 rubles to the dollar. What is more, according to Nezavisimaya gazeta, dollars were being sold at a rate 2-3 rubles higher than the official one at some exchange points over the past weekend. “In the government they aren’t hiding the fact that the ruble will undergo a further weakening [and that] its purchasing power will fall at correspondingly rapid rates,” the newspaper wrote. “So citizens will rush urgently to withdraw ruble deposits and exchange them for dollars so that they will not be burned in a bank crisis and [their funds] don’t depreciate owing to devaluation” (Nezavisimaya gazeta, October 20).

Meanwhile, Novye izvestia wrote that Russia’s state-controlled television channels have been using the word “crisis” mainly in reference to the situation in the United States and Europe, not in Russia. According to the newspaper, this explains the results of a poll conducted in mid-October by the Levada Center, in which 42 percent of the respondents said that the financial crisis in Russia was a temporary phenomenon that would be limited to certain sectors of the economy and that the situation would soon stabilize. In addition, 14 percent of those polled said they had heard nothing about problems in Russia’s financial sector. Still, more than 30 percent of the respondents said they thought the financial crisis might wind up being larger and lasting longer than conventional wisdom would have it. According to Novye izvestia, this number corresponds to the percentage of Russians who read newspapers and use the Internet.

Likewise, while 54 percent of those polled by the Levada Center said they thought the financial crisis in Russia was completely or significantly due to the world financial crisis, 34 percent said they thought it was a result of the Russian government’s economic policies. Interestingly, residents of mid-sized cities were more likely to blame the Russian authorities than Muscovites, who were more “loyal” to the official policy, Novye izvestia reported. Some 10 percent of those polled indicated that they had felt the crisis personally, with their families having been affected either by reduced or delayed salaries or by a loss of jobs due to staff reductions or the closure of businesses. “However, nearly two-thirds of the citizens are convinced that nothing like this will happen to them,” Novye izvestia wrote. “In order to recharge their optimism, they will probably be watching the evening news today.”