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Cablegate: Tighter Credit, Currency Shortfall May Slow Economy In

VZCZCXRO7073
RR RUEHAG RUEHAST RUEHCHI RUEHDA RUEHDF RUEHFK RUEHFL RUEHHM RUEHIK
RUEHKSO RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNAG RUEHPB RUEHPOD RUEHROV
RUEHSR RUEHYG
DE RUEHVK #0127/01 3150649
ZNR UUUUU ZZH
R 100649Z NOV 08
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1041
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1138

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000127

SIPDIS

E.O. 12958: N/A
TAGS: ECON RS
SUBJECT: TIGHTER CREDIT, CURRENCY SHORTFALL MAY SLOW ECONOMY IN
RUSSIAN FAR EAST

VLADIVOSTO 00000127 001.2 OF 002


Summary
-------

1. Although Russian politicians generally refuse to acknowledge
the possibility of financial crisis in here, signs of financial
distress have emerged in the Russian Far East. Banks have
significantly tightened credit terms, many areas are
experiencing a shortage of hard currencies, and companies are
beginning to consider layoffs. Despite the indications, many
Far East residents consider the financial problems in the U.S.
to be far off, and assume Russia is insulated from global
financial problems.

Higher Interest Rates and Fees for Loans
----------------------------------------

2. Banks throughout the Russian Far East have been increasing
interest rates and introducing or raising service charges for
all types of loans. Primsotsbank charges 15 percent to new
clients for one-year loans up to 150 thousand rubles, and has
added a 1.4 percent service charge. Only customers who have
already repaid loans to the bank are granted a two-year
repayment option. Vostokbiznesbank, partially owned by the
Ministry of Railroads, has halted all personal loans except for
railroad employees. Vostochniy Ekspress Bank in Vladivostok
reduced the repayment period for personal loans from five years
to three and increased interest from 28.85 to 30.8 percent.
Khabarovsk's Dalkombank increased rates by four percentage
points and Kreditniy Ostrov Credit hiked rates by five points.
Primorye banks have raised interest on small business loans from
an average of 15 percent to 26 percent.

3. Banks have also made mortgage terms stricter. In addition
to raising interest rates -- now ranging around 16 percent --
they have increased the minimum down payment from 15 to 30
percent, and decreased the repayment period from 15 years to 10
or 12. Analysts Congen consulted with expect further increases
in interest rates and possibly a 50 percent down payment
requirement. Aleksandr Ivashkin, Chairman of the Primorye
League of Credit Brokers, confirmed that Primorye residents had
a difficult time procuring credit in September, noting that
banks' loan approval rate has declined from 50 percent to 10
percent in the past few months. The Primorye Kray
Administration has refrained from commenting on the financial
crisis and its consequences for the region.

4. Other regions in the Russian Far East have also felt the
crisis. Acting Head of the Amurskaya Oblast Financial
Department Tatyana Farafontova stated in the media that oblast
revenues declined by 516 million rubles (USD 20.6 million) so
far this quarter, leaving the oblast budget with a 2.5 billion
ruble (USD 100 million) shortfall. Farafontova admitted that
Oblast financial analysts did not expect the world financial
crisis to affect the region's budget so deeply.

5. A Congen contact in Khabarovsk expressed worry to poloff
that the crisis may affect his hotel business. According to the
terms of a ten million dollar loan he received, his crediting
bank has the right to demand full repayment for the outstanding
balance at any time. This would leave him with significant cash
flow problems, and has forced him to postpone expansion plans.

Hard Currency Shortage
----------------------

6. Residents in Sakhalin and Primorye are facing a shortage of
U.S. dollars and euros at banks and exchange points as rumors
spread quickly about further weakening of the ruble, possible
devaluation of the currency, and sudden inflation. Vladimir
Apanasenko, Head of the Russian Central Bank's Sakhalin branch,
offered to step in and supply reserve hard currency to consumers
who submit written requests. Vladivostok banks are also
experiencing a shortage of U.S. dollars as demand for hard
currency has increased in 5-6 times in the past few weeks.
According one industry source, 60 percent of Vladivostok banks
cannot meet consumer demand for dollars and euros.

Media Coverage Skewed
---------------------

7. Russian mass media tends to present the world financial
crisis as a situation dire to the U.S., but largely irrelevant
to Russia. Many Congen interlocutors seem to believe that the
U.S. is on the verge of economic collapse while Russia is an
island of stability. Several contacts have asked Pol/Econ FSNs
how Americans are handling the massive unemployment, lack of
disposable income, and high inflation. Most are surprised when
told by FSNs and poloff that the situation is not nearly as bad
as that portrayed in the Russian media.

Comment

VLADIVOSTO 00000127 002.2 OF 002


-------

8. So far, the global financial crisis in the Russian Far East
has been limited to a significant tightening of credit terms and
a shortage hard currency. The implications of these problems
are not far off. Fishing companies preparing for Pollack season
will likely suffer significantly, as fishermen usually take
loans to purchase fuel for their Okhotsk Sea runs. Primorye
construction companies will also likely be impacted and
financing for the 2012 APEC summit may become more difficult to
find. So far, employment levels have remained steady, though
several Congen business contacts have stated that they may need
to reduce staff in the near future. Despite the official
media's portrayal of Russia as a bastion of stability, the
shortage of hard currency indicates the population's lack of
faith the government's ability to keep inflation under control
and to support the ruble. Despite all the bad news, one
positive side effect for Far East residents is that real estate
may become more affordable.
GERSTEN

© Scoop Media

 
 
 
 
 
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