I remember going to a movie with a friend of mine in the financial industry a few weeks ago, right after the government widened the ruble corridor to 9.5 rubles to the dollar. He had spent the past few months working with a firm putting together a $200 million Russia investment fund, and he was as likely to answer his phone from his temporary office suite in a posh Moscow hotel as he was from the St. Petersburg airport, awaiting the private plane arrival of a big investor from Europe. Although they only had $75 million in guaranteed investment, the prospects seemed good and the fund's road show featured young companies who had made a terrific start in the Russian market and who could really hit the big time with additional funding. All the graphs in the slide show swooped upward optimistically.
Now Jeff was not amused. That is, he still sort of was, but only because that's the way he always is. No one knew what was going on. There were three facts available: the government had put a freeze on government ruble-denominated debt, known as GKOs; the ruble/dollar exchange rate corridor had been widened to 9.5 to the dollar from a little over six; and all money transfers from Russia abroad had been halted. Other than these three facts, everything was innuendo, rumor, and outrage. "No one in the history of finance has ever done this. No one even knows where to start dealing," Jeff said on the way out to the car. "We basically have to start recasting our investment fund from a growth opportunity fund to a disaster-zone distressed equity fund, and at least attract those investors who come out when there's blood in the streets."
Deutsche Bank and Morgan Grenfell or some other set of high-priced bankers from Europe were all on their way to Moscow, in an attempt to meet with the government to see if they could figure out what happened, give some advice, or at least protect their investments. And just the previous Friday, a doddering Yeltsin had announced that devaluation was out of the question and that he saw no reason to cut short his vacation of five (!) weeks.
Suddenly all that was left was a few foreigners standing around making jokes about how their company was putting the 'broke' back into 'brokerage.'
That was the original financial neutron bomb to hit Moscow. Everything in the just two weeks since has been a ripple effect of that initial abandonment of any sort of financial policy. Once a country just pulls the plug on its currency, its solvency, and its standing in the internation debt markets simultaneously, and then starts firing everyone even vaguely capable of doing anything about and leaving those jobs unfilled, well, things are bound to start happening.
The first thing that happened was absolutely nothing. The government cancelled the daily interbank ruble/dollar trading, so there was officially no rate to the ruble for a few days. Everything stopped. Import companies immediately stopped shipments already en route to Russia. My friend who owns the Apple distributorship to Russia closed his doors until the dust settled. Kodak stopped selling. After all, when the government decrees that you can only sell in a currency that has no defined value, when you're sitting on goods you know the cost of, and when there's no guarantee that you can either convert that money or ship it offshore, then there's precious little reason to keep shovelling goods to market.
Being in a service business with fairly flexible margins, we kept our lab open and just made up a ruble rate based on what we were seeing on the streets. We traded at 7.63 for two days, simply because that was the last interbank rate posted; we jumped to 12.5 for three days because things seemed worse; we went back to 10 last Monday because things seemed a little better. Today we were at 10.5, but as I was leaving the office today I heard that some sort of semi-official trading took place that dropped the ruble to 15 or 17 rubles, I don't remember which. Everyone walks around checking their pagers for the latest posted rates, so opinions on what the ruble is at aren't hard to come by. Tomorrow at 9:00AM, I'll have to decide what rate we're going to use for the day, and it's probably going to be somewhere near three times what it was just two weeks ago.
Of course, the lab business is in a fairly shielded economic backwater. Our client base works in the advertising industry, and there's definitely a lag effect. Jobs are already in the pipeline, weddings already scheduled, and there's certainly no shortage of news photographer shoots. Since almost everyone in the industry works for dollar denominated fees, there isn't so much difference to much of our client base what the ruble price is. Still, sales are down substantially and there have been quite a few hostile words from clients surprised by a jump in ruble prices between the day they dropped off their work and the day they picked it up.
business, school photography, is caught in fairly serious crossfire.
Here you're talking about a strictly ruble-based market. We want
a large share of the Russian children school photography market, and so
we're selling to those large schools out in the outskirts of town, where
parents work at the car factory, or somewhere down in a municipal government
structure, or in the state bread store. They care about the number
of rubles and won't be earning any more in ruble terms just because the
dollar gained. Even if we were able to raise rates, the several week
time lag between making arrangements with a school to photograph there
and actually collecting money from the children is enough to make a mockery
of whatever cash flow you expected from there, in dollar terms.
Looking on the bright side, the cost of a can of Coke from the Coke machine in our store has dropped from 60 cents to about 33 cents, although I've noticed that the Coke guy keeps showing up to adjust the machine so it will require more coins before it spits out a soda.
The phone bill waiting game has started again as well. This is the game where you make a lot of international phone calls and then wait until just before they turn your phone off to pay, which yields even greater discounts than any AT&T Family and Friends program ever has. It's sort of a KG&B Financial Fiasco discount plan.
In fact, what has happened is that we are back in 1992. The main difference is that at the end of the day of hearing horror stories about empty stores and rising prices you can go out for delicious Italian food.
It reminds me of Pakistan a few years back. While in Karachi, I remember being surprised that I could be out covering street fighting one minute, crouched in the back of a car careening down the street as bullets flew, or photographing the evacuees outside the stock exchange due to a bomb threat, and then a few minutes later be reclining in the tropical lounge chairs of the Sheraton Hotel & Towers atrium, sipping a freshly squeezed orange juice and deciding between a dip in the pool and the sauna.
Moscow didn't used to have the amenities of your basic third world disaster area. It was its own special disaster area, a place where you could savor some absurdly cheap state-subsidized goods but largely had to go without. Real Western goods cost a fortune and were only available at a few stores.
Now everything has come full circle, except that you can now sip a freshly squeezed orange juice in the lobby of a world-class hotel while surveying the wreckage.
In some way the whole crisis is comforting. There was something disconcerting, out of whack, with a normalizing Russia. These are the people with an almost boundless capacity for incompetence. These are the people that can't put together a normal traffic pattern for their capital city. These are the people whose economy is kept afloat by oil and yet can hardly get the stuff out of the ground for anything less than a cost of ten times more more than a Western company could. These are the people who can't even cut through the bribe-rotted aviation bureaucracy to put up a new airport for Moscow. These are the people who randomly voice-over their CNN transmission with a droning Russian while not cutting out the English, so you end up with a mess no one understands.
At the core of the Russian identity is a belief that for them, the rules somehow don't apply. Things are explained with a shrug and a smile, whether it's the need to pay a quick bribe to a traffic cop or the story of a government minister who had to run home for more cash after losing $80,000 in a bad stretch one night in a casino. The Russian language is not strong on shades of meaning. It's very all-or-nothing, Everything is possible and at the same time very little adds up to anything. You see it in everything from the Russian dining experience (the table better be covered with plates of food) to rent prices (people blithely demanding $5,000 a month and more for apartments that cost them a few hundred rubles for tens of years), to the nightlife (the "party all night and straight to work" ethic is prevalent).
On the other hand, people are very ready to dismiss as worthless anything less than outrageous. The guy who does some odd fix-it-up work for at my apartment once calculated for me that he'd probably need at least $750,000 in the bank to live comfortably in the States, and an employee of mine who was making under $1000/month scoffed when he heard the Princess Diana was killed in a Mercedes 230--in his country any real person wouldn't be caught dead in anything less than a 600SEL, preferably black with tinted windows. This is a country that strains against the concept of the middle class with an almost primal aversion.
This country was, lest we forget, also the mothership of an ideology that promised to be so fundamentally new and strong that it would sweep the earth with its unstoppable force. Only a plan that would provide the biggest, strongest, the most unbelievable was good enough. Monstrous skyscrapers were built and the people were promised that they would all have gold faucets in their bathrooms, there would be so much wealth. Of course, it ended with cutting up the state newspaper for toilet paper. Out of need, not political commentary.
So there's something reassuring in seeing this latest the-rules-don't-apply capitalist period fall apart. Why did it seem normal that Russia should have been Mercedes' fastest growing export market when the economy was in a tailspin? How could the stockmarket outperform every other in the world last year without any tangible signs of growth? And why did it sort of make sense to us in a twisted Russian way?
The stores are emptier now. Large sections of goods are roped off, not for sale. They are 'na uchet' (being inventoried). Whole stores are closed for the dreaded 'sanitarni dyen' (cleaning day), or are simply shuttered due to 'tekhnicheski prichini' (technical reasons), all of which, in their own way, are sort of true. The rumor mill talks about a "three day supply of meat left in the capital," or "only one week of salt left in the warehouses." (I've always wondered about statistics like that, which I heard back when I first got here in January 1992. Who else would measure their economy like that?) I'm told that stores on the outskirts are once again empty save a few sullen salesladies, just like the good old days. I'm hearing stories about the five-store hunt for butter again. And I've had several people give me long detailed descriptions about the washing machines they're buying with their quickly evaporating rubles, because some merchants are lagging slightly in raising their prices (like my Coke machine).
Lena is my lab marketing manager and a perfect example of the new upwardly mobile Russian. She is young, speaks good English, has a good job with a large firm, and has travelled abroad many times in the past few years. She sold her apartment in Saratov when she moved to Moscow, and against the advice of her English boyfriend, put the money in a Russian bank account, in rubles. She was proud that she was getting better interest rates than she could be abroad; she saw no reason to leave this country for another where her skills wouldn't set her apart from the bulk of the applicant pool. Now she's full of stories of her friend who works at the Central Bank who calls with daily updates of which banks were bankrupted that day (I think Kodak's just went under yesterday). Or her friend who works at a travel agency who was given some veiled instruction to process all travel visas for Russians quickly, because in two weeks travel restrictions might be put into place again. This is when she's not wondering how to get her money out, but certainly all when she could be out marketing the lab. But what are you going to do when you watch the people on whose shoulders this country was supposed to go somewhere crumble?
And then there's the foreign investors, both equity and direct investors. The entire I-invested-in-Russia-and-all-I-got-was-this-lousy-t-shirt crowd, as a local paper termed them, are walking around like zombies talking about layoffs and hard times and contingency plans and how the international debt market will never forgive Russia for this one. As one trader put it to me over a beer the other day: "I've got the whole world to choose from. Why would I invest in Russia? Hell, I'd go with Brazil over Russia. At least they haven't defaulted since 1983!"
Of course, without international lending support, all of Russia will have to make do with whatever it can scrape out of its central bank, which is something along the lines of a quarter of Bill Gates' net worth.
It does seem a weird time. On the web I follow the U.S. stock market gyrations, and Hong Kong's and basically everyone else's too. Then I escape to the office to go to the U.S. embassy for a workout, only to undergo long security checks, due to the embassy bombings recently. All cars looking to go in get the full mirror-under-the-chassis and under-hood manual inspection treatment, and every bag is emptied and pawed through. I had a guy spend a good minute on my gym shoes. Even the large contruction paper and crayon drawings welcoming "Mr. And Mrs. Prasidint Clinton" to Moscow, still hanging in the embassy school hallway from Clinton's visit there yesterday, have an odd ring to them.
Last weekend I decided to go out to an air training academy and fly a jet. Half joking, a friend of mine told me to call him if I saw tanks amassed at the outskirts of town. As I was strapped into the cockpit, given helmet and oxygen mask, and had the cockpit canopy snapped into place around me, I wondered whether maybe I wasn't taking this push-the-edge Moscow feeling too far. But after my pilot gunned the L-39 jet to 600 km/hour and buzzed a forest at 20 meters, then shot us 3 kilometers straight up into the sky for some flips, spins, barrel rolls, and then straight back down only to bank out at over 4 g forces, I realized that this was the perfect way to experience this country: ridiculous and once-in-a-lifetime, something you wouldn't do anywhere else, with a good appreciation of speed and craziness.
Because the thing
is, I did see tanks on the outskirts of town.
Otto Pohl moved to Russia in January
1992 after receiving his bachelor's at Cornell University (political science),
and worked at the Moscow bureau of the New York Times as contract photographer
until September 1995. He quit photojournalism to devote his full-time
attention to the growing business opportunities in the field of photography,
the biggest to date being the creation of Russia's first full-service professional
photography lab, financed by Kodak.
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