MOSCOW – Desperate business owners in Russia have been pleading with the Kremlin for help in the pandemic shutdown. The response, however, has been slow and largely focused on big industries, leaving most smaller companies to fend for themselves and raising the prospect of massive unemployment and social unrest.
The Kremlin’s anti-crisis measures reflect both its long-held emphasis on state-controlled companies and a fear of opening state coffers at a time when government revenue is drying up due to a plunge in oil prices and economic slump.
When President Vladimir Putin ordered most Russians to stay home through April 30 to contain the coronavirus, he said employees must continue to be paid. A joke soon went viral online: “Putin walks into a bar and declares, to the owner's surprise: ‘Beer for everyone. It’s on the house!’”
Weeks later, the president promised subsidies and loans for private-sector companies to help them pay wages. But businesses paralyzed by the lockdowns imposed by the majority of Russia’s 85 regions see the Kremlin’s support as sorely insufficient.
“The situation is catastrophic,” said Dmitry Nesvetov, the owner of a dry cleaning chain and a leading member at the Opora Russia business association. “The measures that have been announced are not enough to deal with it.”
Nesvetov said the state subsidies - about $160 per employee per month, the equivalent of minimum wage - are too small and deferments on taxes and social security payments don’t address the underlying problems. “It’s a ‘die another day’ logic,” he said, adding that the inefficient state bureaucracy can’t properly manage even those limited support measures.
Retail shops, restaurants and cafes, gyms, beauty parlors and other small and medium-sized companies in the services sector, which employs about a third of the nation’s workforce, have been shut, and a great number of them may not outlive the pandemic. According to one forecast, over 40% of restaurants won't reopen.
Experts say the number of unemployed could rise from about 3.5 million in 2019 to 9 million, or a 12% jobless rate.
“It looks like helping small and medium-sized business isn’t a top priority,” Nesvetov said.
While the non-food retail and services sector ground to a halt, big state-controlled companies and industrial plants have kept operating. Putin has promised subsidies to airlines, car and aircraft plants, and defense manufacturers, among others.
The Kremlin’s approach contrasts with that of the United States and many EU nations, which provided more generous subsidies to workers and businesses.
With tears in her eyes, cafe chain owner Anastasia Tatulova told Putin during a recent meeting with business managers that more support is needed quickly. She urged the Kremlin to temporarily waive taxes instead of offering tax deferments and to provide more subsidies.
Putin promised help, but Tatulova said authorities have since stonewalled most of her proposals.
“We don’t count on anyone. We are struggling to survive on our own,” Tatulova told the AP. “What’s happening is very sad.”
She says authorities failed to consult businesses when drafting rescue measures, meaning many ended up being useless. In one example, businesses will have to pay taxes on bank loans intended to help pay wages.
“It’s a duty of the state to ensure normal operations in a time of crisis, and it just didn’t work,” she said.
Tatulova noted that Moscow authorities offered some real help, waiving rental payments on city property and automatically extending licenses. Governors in some regions slashed taxes, offered subsidies and allowed some businesses to reopen.
Oleg Zinov, who co-owns a chain of dental clinics, said some of the relief measures have been put into action and he was able to get loans to help pay wages. “We can’t say that the steps that have been taken are sufficient,” he added.
As the pandemic swept through Russia, Putin refrained from declaring a nationwide state of emergency, noting that the situation varied widely across the vast country. He has given regional governors the authority to manage their lockdowns and decide what industries can continue working - a strategy seen by Kremlin critics as an attempt to shift blame for the spread of contagion and the economic fallout.
Alexei Navalny, a leading opposition figure, has launched an online campaign to urge the Kremlin to pay at least 20,000 rubles (about $260) to every worker and launch a bailout program that would cover all types of business. He pointed to the billions of dollars in Russia’s rainy-day funds.
“We have accumulated those reserves for use during the hard times,” Navalny said. “No one has any doubt that those times have come. The question is if we use those reserves to ease the burden for the people and the business or stupidly hand them out to state companies and the oligarchs.”
Putin’s spokesman, Dmitry Peskov, dismissed Navalny’s proposals as incompetent and populist.
Amid a ban on public gatherings, many Russians have taken to the internet to vent their frustration. In several big cities, people used a popular navigation app allowing drivers to post comments about traffic to criticize the Kremlin in what became a string of virtual rallies.
And in the province of North Ossetia in the North Caucasus mountains, hundreds took to the streets demanding to end the lockdown and scuffling with police. Several dozen were arrested for up to 15 days.
Putin has insisted that the nation’s hard currency reserves, worth $563 billion, and other funds accumulated from oil and gas revenue would allow the country to survive the crisis.
His top economic advisers have warned against big cash infusions now, arguing they could fuel inflation and because the situation's uncertainty requires a careful use of reserves.
But a group of leading Russian economic experts has criticized the government’s response as too rigid, calling for bigger subsidies to businesses and consumers, a hike in pensions and a decrease in utility bills. They warned in a recent report that the failure to offer cash to consumers and businesses would drive up poverty and ruin any hope for a quick economic recovery.
“Restrictions of economic activity are compulsory and the state must take responsibility for its costs, otherwise the already limited trust in the government will be increasingly undermined,” they said.