Russians trudge ahead as economy tanks once again

With oil wealth evaporating and international investments fleeing following the war with Georgia, Russia braces for more hard times.

As financial turmoil spreads and storm clouds gather over the entire world, many middle-aged Russians are feeling a familiar chill. Unlike most Americans, any Russian over 40 has vivid memories of two previous national economic crashes that brought personal ruin to millions of people.

Recent conversations with Russians offer glimpses of a middle class that's worried, but not yet afraid. They say their past brushes with disaster put iron into their souls and changed their values.

"I think I can overcome anything; I've already been through every stage of hell," says Mikhail Sadskykh, a successful Moscow massage therapist who, like many of his compatriots, has been through three different professions in as many decades. "I'm not going to be stressed anymore over anything. I've changed. The most important thing for me now is my family, who stood by me through the hardest times. We'll get through whatever may be coming."

As the US was pulling out of a mild recession in the early '90s, post-Soviet Russia was plunging into a decade-long depression that saw the country's gross domestic product slump by over half.

It began in 1992 with a hurricane of hyperinflation – in the course of a year 1,000 rubles went from paying for a two-week vacation on the Black Sea to barely covering the cost of a candy bar. The aftermath of the breakup of the USSR also brought widespread industrial closures, and a nearly total collapse of the social safety net.

As Russia's fledgling middle class was just starting to find its feet, the financial system crashed in 1998, vaporizing the savings of millions – including Sadskykh – and sent the ruble into another free-fall.

A decade on, most Russians have recovered from the crisis of '98. They've acquired new careers, purchased cars, and built family homes. Some experts have even suggested that the first stable Western-style middle class in all of Russian history has arrived.

Despite stringent official media filters on economic news, many people say they are now noticing signs of downturn, including a freeze in urban construction, tightening credit, widespread layoffs, and a steady slide in the value of the ruble.

Economists say Russia is indeed slowing – oil prices are in the basement and nearly $200 billion in foreign investment has left the country following the recent war with Georgia. This week, for the first time since the 1998 crisis, Russia's long-term debt rating was lowered. For Russians, it's all more of the same.

"As a society, Russians have been traumatized repeatedly," says Martin Gilman, a former Russia-based official of the International Monetary Fund who now teaches at Moscow's Higher School of Economics. "There's a psychological component here, unlike with most people in the West, which has inured them to what's happening now. But there certainly is a lot of confusion out there."

Sadskykh, a sturdily built construction worker with steel-blue eyes, was among the first Russians to start a private business when former Soviet leader Mikhail Gorbachev created the possibility in the late '80s. At the time of the USSR's collapse he had 30 employees in his small firm, which produced cinder blocks and was expanding rapidly. As the economy suddenly contracted and orders for cinder blocks plunged, he desperately borrowed large sums of money – in dollars, because the ruble had become worthless.

"In 1993 we finally went bankrupt, and I lost everything," he says. "It wasn't just me. Everyone around was going under; those were awfully hard times for most people. A few people managed to get rich, but not many of them were honest workers, if you know what I mean. I found myself owing a lot of money to people like that, with no way of paying it back."

Sadskykh gradually pulled himself out of that hole. By the mid-'90s, he had a small shop in his native Volga city of Yelabuga, selling mainly foodstuffs and alcoholic drinks. "You could always sell vodka," he recalls. He had managed to buy a small flat and was paying down his debts when the 1998 crisis struck.

"In a few days, my income in rubles became nothing, while my dollar debts ballooned," he says. "I closed down and went into hiding from my creditors. It all happened again: I'd been well off one day, a pauper the next."

The 1998 financial collapse derailed Maria Strizhevskaya's middle-class dream in a few dreadful days. Fresh out of university, she had gone to work as a marketing expert for the giant oil company Yukos, and thought she'd found her life's work. But the crisis hit, she lost her job as the company downsized, and her entire savings, around $1,000, evaporated along with the private bank she'd kept them in.

Ms. Strizhevskaya has since built a new career as a successful freelance journalist, but she knows it's precarious. "Lots of people I know are losing their jobs, and it's all the people in middle-class professions, like publicity, insurance, and consulting," she says. "I'm very concerned, but I think as long as I'm healthy, I'll find what to do. You have to go forward."

Roza Primbretova, an energetic woman with a perpetual smile, was educated as an engineer but went to work in late Soviet times for the Ministry of the Interior, which oversees the police. Thanks to her official job, she escaped the worst effects of the first crisis, but left the police force, with the rank of major, just as the 1998 crash was hitting.

"I'd had very high hopes that, with my education and experience, I'd land a great job [in the private sector]," she recalls. Instead, as the economy tanked, she wound up living with her sister in a crowded flat and taking on a series of menial jobs, including cleaner, dog-sitter, and vegetable packer in an agricultural depot. She became active in her church, a small Protestant group in Moscow, and says that gave her strength as she continued searching for a career.

"One day my pastor said to me, 'Roza, if you don't know what to do, why don't you do what you like?' " she remembers. "Well, what I like to do is travel, though I never had any money for it."

About eight years ago, Ms. Primbretova went to work for a Moscow travel agency, booking tours for up-and-coming middle-class Russians to exotic destinations, like Thailand, Egypt, and Spain. "Because we lived behind closed borders in the Soviet Union for so long, Russians have this huge hunger to see the outside world," she says. "As life began improving in recent years for average Russians, one of the first things people wanted to spend cash on was travel."

Last year, having saved up money and won many loyal customers, she started her own travel agency with a prestigious office in downtown Moscow. "Things were going very well, and we had a good summer this year," she says. "But it's suddenly fallen off, people just aren't booking all of a sudden. A lot of tour operators are on the brink of bankruptcy." But she adds: "I think the real crisis is in our heads. We just have to grow. I have faith that things will get better."

Life has also taken many twists since the last crisis for Sadskykh. Nearly a decade ago, he sold his flat, sent his family to live with relatives in the countryside, and set out to pay off his debts. He worked as a construction boss and a cleaner of oil storage tanks, and a couple years ago came to Moscow where he found work in a fitness club teaching a type of Tibetan yoga that he'd learned from books.

He's been so successful that he's set up his own business teaching yoga, and has reunited with his family. "Finally I've been able to pull my head above the water; I feel well now," he says.

But a shock-free life would have been preferable, he adds. "If only the country had been calm, and I'd been able to work normally since 1991, and build my business, that would have been the best," he says. "I'll bet I'd be a millionaire by now."