Russia's Big Chill

OUT IN THE COLD: In the town of Lyudinovo, hundreds of factory workers have lost their jobs, had their work hours reduced or seen their wages cut

Photograph for TIME by Justin Jin

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The Trouble with Putinomics
It's difficult to get an accurate picture of the economic disruption in Russia, where reliable information and open public discussion remain rare. This is the other side of Putinomics: TV and many major press outlets are firmly under state control, and media outlets that aren't have become nervous about printing the truth. As a result, the very word crisis is only now starting to enter the official vocabulary, and even then in a relatively muted way.

For weeks, as the stock market cratered and some private Russian banks wobbled, the official Kremlin line was: "This is primarily an American issue." Finally, on Nov. 20, Putin admitted that Russia, too, was in trouble. Announcing a $20 billion economic-stimulus package and an increase in unemployment benefits, he said Russians were asking "a fair question" when they wondered about what was happening. His answer: "We will do everything, everything in our power ... so that the collapses of the past years should never be repeated in our country." Says Alexander Kliment, a Russia analyst at the Eurasia Group in New York City: "The Russian leadership turned a blind eye to this crisis until it ended up staring them in the face." (See pictures of Vladimir Putin.)

Since that speech, Putin has begun talking a little more openly about the issue. In his Dec. 4 television appearance, the first question to him came from Dmitry Salnikov from the village of Tirlyansky, near the Urals region of central Russia. "We are a young and currently jobless family," said Salnikov. "Most locals are also unemployed because they used to work for the metallurgical sector. What are we supposed to do in this situation?" Putin's vague answer: "Private and public authorities will have to draft an entire range of measures in an effort to preserve jobs."

Challenging the official line is still hazardous. On Nov. 6, the Moscow business newspaper Vedomosti carried an opinion piece by the Academy of Sciences' Gontmakher titled NOVOCHERKASSK — 2009. The headline was a reference to spontaneous strikes by workers in a Russian town in 1962 that ended in bloodshed when troops were called in and opened fire: at least 20 people were killed and three dozen wounded. In his article, Gontmakher drew some parallels between the social tensions back then and the deteriorating economy today. Within days, the newspaper received an official warning from the Kremlin's media watchdog: Run any more such pieces, Vedomosti was told, and you face criminal charges under a law against inciting extremism.

Yet even if it has to remain buried, anger is not far from the surface. A young woman standing outside the Lyudinovo emporium rocks her infant son's stroller and, looking around nervously, gives vent to her worries. She's still on maternity leave, but had hoped to return to work soon. That's now looking impossible. What's more, prices keep going up, including her rent, she complains, and she's had to pay a $200 bribe to get her son into a local nursery. "You tell that to Putin and Medvedev," she says angrily, and then worries that she'll get into trouble for talking to foreigners.

Don't Dream It's Over
It wasn't meant to turn out this way. The new Russia was supposed to replace poverty and money worries and grumbling mothers with places like Rusfinance, a Moscow call center that transports you from the gritty streets and auto-parts stores outside into a world of cheery beige furnishings, swirling red-and-gold patterns on the walls and easy credit. Here, 450 people — mainly women in their 20s — sit side by side in booths and field calls from Russians wanting to borrow money. Most of the time the answer they give is a resounding yes. Owned by the French bank Société Générale, Rusfinance is aiming to build a massive presence in Russia. Back in Paris, SocGen's chief executive Frédéric Oudéa even talks about Russia becoming the bank's second biggest market after France.

By 10:30 a.m. on a recent Wednesday, 432 people have called in. Nadezhda Kumyiny is one of them. She's phoning from a small village in the Kursk region, southeast of Lyudinovo. She wants to borrow 30,000 rubles — just over $1,000. The woman taking her call fills in the details on a screen. Experienced call-center workers can process a request and grant pre-approval in under six minutes, but Kumyiny can't remember her zip code, which slows everything down. Watching over the process is deputy operations director Viktoriya Selezneva, who says the economic crisis has yet to arrive. "The volume of calls hasn't decreased for us," she says. But then, the Christmas season — the busiest time for consumer loans — is approaching fast. And should callers have worries, staff have been given a reassuring script to deal with them.

Rusfinance and Société Générale officials say they are working the crisis to their advantage and have increased the company's share of the auto-loan market. "We see this as an opportunity," says Lyudmila Bogushevskaya, director of Rusfinance's regional network department.

Such optimism can be found elsewhere. The Kaluga region to which Lyudinovo belongs continues to draw in foreign investors, including automakers. VW has to date invested about $350 million in an assembly plant, and is producing about 320 cars per day. Peugeot is not far behind. Dietmar Korzekwa, VW's group representative for Russia, says the automaker is continuing with its current growth plans. In part, it's betting that if the Kremlin raises import taxes on autos, as it has suggested it might, it will become more advantageous to manufacture in Russia.

Russia needs foreign companies to plug a huge hole in Putin's economic policies. In his first term as President, Putin introduced modern tax and corporation laws. But he failed to spur the development of a business infrastructure that would enable Russia to diversify away from its over-reliance on energy and metals. Now, as the crisis starts to bite, the Kremlin is reacting by increasing its control over broad swathes of the economy. Through the state-controlled banks, it is bailing out selected business executives who are having trouble paying their debts — including Oleg Deripaska, a metals tycoon who until recently was Russia's richest man. It is also playing an increasingly intrusive role in the private sector. At a meeting in Moscow on Nov. 25, for example, Igor Shuvalov, Putin's First Deputy Prime Minister, told the nation's major retailers that the Kremlin would ensure they gained access to credit on condition that they demonstrated "social responsibility" by not raising prices.

Back in Lyudinovo, snow is falling heavily. Andrei Petrov, the biggest retailer in town, owns many of the stores, including the new emporium, and also runs a wholesale distribution business to supply them. Getting in to see him is hard. A security guard wants to know whether we are American spies. Petrov's deputy, Viktor Denisov, nervously locks his office door when he crosses the corridor to see his boss. Petrov is deliberately cagey about business prospects. Yes, an economic crisis is now raging, "but this is not the first time we've had one," he says. Indeed, back in 1998, Denisov adds mysteriously, "it was a crisis that helped us move a step ahead." Business, both insist, has not been affected. But press Petrov on prospects for next year and he shifts uneasily in his seat. "We will be making some correction," he finally concedes. Putin himself couldn't have put it better. The question is: Just how much pain will Russians have to endure before the government makes the corrections that are so desperately needed?

With reporting by Yuri Zarakhovich / Moscow

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