Russian middle class watches relative prosperity fade away

Falling oil prices and Western sanctions have cut deeply into Russia's national budget

Andrei Miller's sallow skin and gaunt visage betray a serious affliction as he sits outside an X-ray unit of Tver Regional Hospital, the tattooed fingers of his slender hands gripping a flimsy onion-skin appointment slip like a lifeline.

The 42-year-old welder has been off work since just after New Year's Day, suffering from a lung disorder that impairs his breathing, clouds his eyesight and leaves him too weak to do more than limp from chair to chair.

In the time that he has been on disability leave, the buying power of his 20,000-ruble salary has continued to slip; it's now worth about $330 a month, half what it was a year ago. His wife is on maternity leave from a day-care job that will earn them an additional $100 a month when she returns to work this spring, but the needs of their four children haven't yet adjusted to Russia's sudden economic downturn.

"The girls are teenagers," he says of the two older children, a sense of panic rising as he contemplates his family's shaky financial status. "They need everything — coats, boots, money to go out with their friends. And now we are lucky if we can buy enough food."

Miller spent 12 hours on trains and buses to get to his fluoroscopy appointment from his home in Bologoye, 150 miles by road from Tver and about halfway between Moscow and St. Petersburg. The main hospital in his hometown lacks the equipment to diagnose his respiratory problem, he said, and cutbacks in rural transportation service have lengthened what was already an all-day undertaking to get to Tver into costly two-day journeys.

Like many Russians who climbed into an emerging middle class in recent years, Miller is watching his relative prosperity vanish. The plummet in global oil prices since last summer and Western sanctions imposed on Russia over its seizure of Ukrainian territory last year have cut deeply into the national budget, which depends on hydrocarbon exports for more than half of its revenue.

For Miller, his worsening and still undiagnosed illness amplifies the distress felt by all but the wealthiest Russians. Many in provincial cities like Tver appear ready to ride out the hard times in the short term, fueled by a nationalist euphoria over President Vladimir Putin's defiant posture toward old Cold War adversaries. But those like Miller who have been confronted with the unexpected costs of infirmity are haunted by the prospect of never recovering the modest economic stability to which they had become accustomed.

Fear for the future is rising in Russian provinces, though anger over declining living conditions seems to remain in check. Many Russians readily accept state-controlled media reports linking their hard times to a purported Saudi-U.S. conspiracy to suppress oil prices and bankrupt Russia.

Living standards in Moscow have been less affected because of the capital city's concentration of well-heeled government officials and industry captains; the decline in the provinces is more palpable.

Average income for Russian workers fell over the last year, as layoffs from bloated government payrolls have gradually boosted unemployment. Still low in comparison with most European countries at 5.5%, the jobless rate is nonetheless spreading misery among those who can least bear it.

Independent economists, Russian and foreign alike, have been warning since the 1991 collapse of the Soviet Union that the country needs to diversify its economy from its dependence on oil and gas sales. It is a lesson learned too little and too late in a country where private business growth is stunted by corruption, unpredictable property rights and access to financing dependent on political connections more than a borrower's ability to repay.

Calls for deep investment of commodity sales income in transportation, technology, manufacturing and support for small businesses have been ignored to the economy's detriment.

Kremlin budget drafters counted on an oil price of at least $70 a barrel for 2015, leaving the central coffers short of funds to be doled out to political allies in the provinces. Last year, regions got $70 billion more in subsidies from Moscow than they paid into the federal coffers. This year, local and regional governments and state-owned enterprises are struggling to comply with the Kremlin's order that they make across-the-board budget cuts of 10%, exempting only defense spending and some social services such as pensions and healthcare.

In March, Russian Finance Minister Anton Siluanov said that the crash in oil prices would deprive the treasury of at least $180 billion this year, forcing the government to continue tapping its sovereign wealth fund and hard currency reserves. Last year, the government spent $88 billion to keep the banks liquid and the ruble from losing even more of its value than it did, the Finance Ministry has reported.

Former Finance Minister Alexei Kudrin warned in late March that Russia would be mired in economic stagnation at least through 2018, and called on Putin to use his outsized popularity — he has a more than 80% approval rating according to Kremlin-allied pollsters — to carry out the costly and painful structural reforms.

Kudrin earned the respect of his international colleagues during an 11-year stint as the Kremlin's chief economic architect, a term that ended with his 2011 resignation in protest of a defense modernization plan forecast to boost military spending by 44% through 2016.

Withered by inflation that has doubled over the last year to 15%, the average Russian household income shrank to 31,200 rubles, or about $500, a month, according to statistics released by the Economic Development Ministry in March. That was an 8% drop in ruble income from the previous year, and a 50% plunge in the dollar value of the average salary.

Food costs are expected to account for at least half of Russians' household spending by the end of this year, the business journal Vedomosti forecast last month.

Miller, meanwhile, worries that his job will be cut at the military-industrial plant in Bologoye, despite reports that defense producers will be spared from the budget ax. Even if he continues to receive the Russian version of disability compensation, his family is already at the limit of what it can cut from the household budget.

At this point, the seemingly negligible cost of commuting from home to the hospital here every couple of weeks has to be borrowed, embarrassingly, he says, from relatives who are scarcely better off than he is.

On this visit, though, he counts himself lucky. Sympathetic nurses have found an empty hospital bed in which he can sleep for the night, after he missed by hours the last bus that would have begun his 12-hour journey home.

Copyright © 2016, Los Angeles Times
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