Global Economics

Russia: Divided Economy in Election Runup


Amid Russia's boom, homelessness and poverty are widespread, but inflation worries will prevent politicians from helping the needy

In the weeks before the State Duma elections on 2 December, Russia appears to have split in half.

One Russia is stable: inflation is under control, people's incomes are up, and taxes are down. The government is getting to work on the crucial issues of Russian life, such as health, education, and poverty.

But that country, portrayed by television stations friendly to the government from St. Petersburg to Vladivostok, is not the one where many Russians live.

Elena, a Muscovite who asked that her last name not be used, knows a different Russia. A former kindergarten instructor, she has been without a home of her own for 16 years. She begs during the day, giving her takings to a woman who provides her with a bed to sleep in. Elena is hunched over from the effects of osteoporosis and her eyesight is going. She said no one in contemporary Russian politics can help people like her.

"Things are only going to get worse," she said. "Just look around -- the streets are crowded with homeless people, drug addicts, alcoholics. Prices keep going up. When they raise the pensions, it doesn't help us much. We still have to count every kopek."

Elena's case is extreme, but while politicians busily try to convince people that life is getting better, many in Russia continue to live without the most basic necessities, such as food, shelter, health care, and heat.

The government estimates that as many as 5 million Russians are homeless. And according to the National Center for Living Standards, about 23 million people, or 16 percent of the population, live below the poverty line.

A recent independent poll showed that inflation and poverty were the problems most on people's minds in the run-up to the elections. That could be bad news for the poor because Russia's oil wealth and spiraling food prices have officials predicting that inflation will surge past the projection of 8 percent this year. Instead, inflation will likely climb to 10 percent, officials said recently. Faced with growing public anger, the government has been reluctant to further fuel inflation by pouring more money into health care and other social programs.

"The poor are not on the agenda in the upcoming elections to the State Duma. It's a remote issue. Today talk is all about raising the incomes of the economically active part of the country's population," said Mikhail Vinogradov, director of the Center for Current Politics in Russia, an independent think tank in Moscow.

Many of the country's poorest are elderly. In recent months the government has increased their basic pension to 1,260 rubles ($51) and plans another increase, to 1,560 rubles, in December. But that doesn't come close to the country's estimated minimum living wage of 4,414 rubles ($179) per month.

"I haven't been to a shop for years," Elena said. "My landlady said the prices are outrageous. Cheese went up to 500 rubles. Meat and milk, which I haven't eaten for months, are also expensive. We're going through hard times, but what else can we do? We have to live with God's help."

The government plans to cut the poverty rate to 10 percent by 2010, but in the meantime, many do not get their daily bread. Steep price increases in the fall surpassed even the most dire predictions. The cost of a market basket of groceries, used by economists to gauge inflation in food prices, rose by nearly 4 percent, to 1,824 rubles ($74). The price of dairy products has gone up by 9.6 percent, which the government attributes to a decision by the European Union, the world's largest producer of dairy products, to end export subsidies, which in turn spurred EU farmers to hike prices.

The Russian government has stepped in, forcing key market players to trim their margins on a few products, such as bread, sunflower-seed oil, eggs and yogurt.

A WORLD AWAY

Many of those who cannot afford the basics live in the country's rural areas.

In Lyubuchany, a village 45 kilometers north of Moscow, Larisa, who also asked to remain anonymous, said the concerns of people like her don't factor into the political debate, though she still plans to vote in the 2 December election.

"I don't think [voting] can change anything," Larisa said after picking up some groceries in a village shop. "The powerful minority who are ruling over the State Duma aren't interested in people's concerns and wishes. None of them has ever been ground down by poverty, and they judge how we live by those few meetings they arrange ahead of the elections."

Larisa, 67, said she spent 20 years working as a nurse but can barely get a proper health checkup now. Although health care in Russia is theoretically provided free by the state, the system is so underfunded that much care is available only to those who can afford to pay for it privately. Roughly 33 percent of the country's population could not afford necessary medical care in 2007, according to the government-controlled Center for the Study of Public Opinion.

Numbers like that might help explain why Russia ranks 127th on the World Health Organization's list of "healthiest nations." The country spends about 2.8 percent of its annual GDP on health care, less than the 5 or 6 percent recommended by the WHO. As a result, Russia continues to grapple with health issues that might seem more easily contained in such a wealthy country. The number of those with HIV has grown by 8 percent, to about 403,100, just since last year, according to the Federal HIV Center. And the spokeswoman for the Russian Oncology Center recently said that nearly one-third of children who die of cancer each year in Russia do so because of some type of privation.

During his tightly choreographed, public call-in session in October, President Vladimir Putin talked about creating state-of-the-art medical centers with new equipment and highly trained professionals across the country. The initiative, part of a project to improve the quality of Russia's medical care, would include regular evaluations of doctors. Absent from the discussion was any mention of funding these improvements.

COLD REALITY

Better health care is, of course, crucial, but it is only one part of a major social development project that the government will have to undertake if it is to lift the country's villages out of poverty that sometimes approaches medieval standards.

For instance, although Russia controls more than a quarter of the world's natural gas reserves, many people here still use firewood to heat their homes. "We spend up to 60 percent of our pensions to cover the cost of utilities, which often doesn't include gas," Larisa said, estimating she spends about 5,000 rubles ($203) each winter on firewood. She said more than half the villagers are not hooked up to gas mains, as getting a gas meter can cost as much as 70,000 rubles ($2,840). The average monthly wage in Russia was $372 in May 2006, according to the latest World Bank statistics.

"I think we've worked a lot for the government and we have the right to have these simple facilities free."

The government has launched a development program for the country's villages, expected to run until 2010. Officials say the program has already helped thousands of families, but Lyubuchany, once a major agricultural supplier for the capital, has seen few of these improvements.

"Those social programs they talk about on their censored TV channels haven't touched us yet. We used to have plastics factories here and a huge immunology institute, both of which are shut down. They've opened a Danone milk plant two kilometers away, and lots of people found jobs there. But most of the residents are still looking for opportunities in Moscow. Most young people are unemployed here. They drink, and only a few go to university in [the nearby cities of] Podolsk, Serpukhov, and Moscow," Larisa said.

The emptying-out of the country's rural areas has only gathered steam recently. In 2006, about 100,000 people left the villages and countryside, and so far in 2007, another 300,000 have gone, according to the State Statistics Service. The rural population is now about 38.4 million, or 27 percent of the country's total.

Meanwhile, the population of Moscow continues to grow, with more than 21,000 people drawn there by a booming economy so far this year. With its blockbuster real estate market and vast job opportunities, Moscow has been ranked the world's most expensive city by the Mercer HR Consulting Group. Unemployment there is at 0.26 percent, while it has hovered around 7 percent nationwide for much of this year.

Even though more than half of the respondents in a recent survey by the Public Opinion Foundation, a Kremlin-aligned polling agency, said they intend to vote in the upcoming Duma elections, a similar percentage said they doubt the election results would reflect the true will of the country's people. Judging by the current political and economic climate, they will almost certainly not reflect the concerns of people like Elena.


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