MOSCOW: Newmachines popping up in Russian shopping centers seem innocuous enough-usersinsert their passport and receive a small loan in a matter of minutes. But thedevices, which dispense credit in Saint Petersburg malls at a sky-high annualrate of 365 percent, are another sign of a credit boom that has authoritiesworried.
Russians, whohave seen their purchasing power decline in recent years, are borrowing moreand more to buy goods or simply to make ends meet. The level of loans has grownso much in the last 18 months that the economy minister warned it couldcontribute to another recession. But it's a sensitive topic. Limiting creditwould deprive households of financing that is sometimes vital, and could hobblealready stagnant growth.
The Russianeconomy was badly hit in 2014 by falling oil prices and Western sanctions overMoscow's role in Ukraine, and it has yet to fully recover. "Tighteninglending conditions could immediately damage growth," Natalia Orlova, chiefeconomist at Alfa Bank, said. "Continuing retail loan growth is currentlythe main supporting factor," she noted. But "the situation could blowup in 2021," Economy Minister Maxim Oreshkin warned in a recent interviewwith the Ekho Moskvy radio station. He said measures were being prepared tohelp indebted Russians. According to Oreshkin, consumer credit's share ofhousehold debt increased by 25 percent last year and now represents 1.8trillion rubles, around $27.5 billion.
For a third ofindebted households, he said, credit reimbursement eats up 60 percent of theirmonthly income, pushing many to take out new loans to repay old ones. AlfaBank's Orlova said other countries in the region, for example in EasternEurope, had even higher levels of overall consumer debt as a percentage ofnational output or GDP. But Russian debt is "not spread equally, it ismainly held by lower income classes," which are less likely to repay, shesaid.
'People don'thave money'
The situation hasled to friction between the government and the central bank, with ministerslike Oreshkin criticizing it for not doing enough to restrict loans. Meanwhile, economic growth slowed sharplyearly this year following recoveries in 2017 and 2018, with an increase of just0.7 percent in the first half of 2019 from the same period a year earlier. Thatwas far from the 4.0 percent annual target set by President Vladimir Putin-adifficult objective while the country is subject to Western sanctions. With 19million people living below the poverty line, Russia is in dire need ofdevelopment.
"The problemis that people don't have money," Andrei Kolesnikov of the Carnegie Centrein Moscow wrote recently. "This is why we can physically feel thetrepidation of the financial and economic authorities," he added.
Kolesnikovdescribed the government's economic policy as something that "essentiallyboils down to collecting additional cash from the population and spending it ongoals indicated by the state." At the beginning of his fourth presidentialterm in 2018, Putin unveiled ambitious "national projects."
The cost of thoseprojects-which fall into 12 categories that range from health toinfrastructure-is estimated at $400 billion by 2024, of which $115 billion is tocome from private investment. A rise in value-added tax on January 1 that waspresented as crucial for the projects contributed to Putin's fall in popularityover the last year. "If the debt bubble suddenly bursts, how will peoplebehave?" Kolesnikov asked. "They will be left without money" while authorities continueto spend on grand but ultimately unprofitable projects, the analyst warned.
He citedgrandiose "patriotic" undertakings such as a bridge connectingSakhalin island to the mainland in far eastern Russia, and the creation of a"Russian Vatican" in the ancient monastery town of Sergiev Posadoutside Moscow. That will come at a "diabolical cost", hequipped. - AFP