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Cheap Oil May Spark Russian Budget Crisis


The Russian economy has been among the hardest hit of any country, during the current global economic crisis. Russia - a major energy exporter - has not only suffered banking and stock woes, as in the rest of the world, but also a precipitous drop in the price of oil. The decline is affecting the Russian people and their economy.

Pawnshops are among the few places in Russia where activity is up these days. Here the industry says the average customer is middle class, from 30 to 45 years old and pawns mostly gold or jewelry.

Mikhail Unksov, president of Russia's Pawnshop League, says the typical client is a person without an adequate regular salary who is seeking a quick and easy way to fulfill a desire.

Russia's economic boom is over for now, with its stock market down about 70 percent. The ruble is nearing a three-year low. The country's central bank has spent about $150 billion - nearly 25 percent of its reserves - propping up the currency and increasing market liquidity. Those reserves were accumulated when the price of oil was high.

About half of the Russian budget comes from sales of oil and gas. And more tax revenue is generated by energy industry suppliers. And so, the plummeting price of crude could soon create a budget deficit, directly impacting Russians employed by the government - more than half the national work force and their families.

Energy consultant Konstantin Simonov, director of the independent National Energy Security Fund in Moscow, says oil producers and suppliers represent two of three legs that support Russia's poorly diversified economy.

Simonov says the third leg is the one that helps consume oil and gas profits. It includes restaurant owners, developers, etc, because that oil money enters the economy and is used to buy such things as apartments, cars, and food.

And so, low oil prices and tight credit in Russia mean idle construction cranes, empty automobile showrooms, and slow business in restaurants.

Prime Minister Vladimir Putin recently warned of possible economic difficulties ahead, but also assured Russians their country has every chance to get through those difficulties with minimum loses. Mr. Putin says the big volume of Russian gold reserves will enable the country to get through current domestic and global economic difficulties smoothly and without any sharp fluctuations.

But the prime minister acknowledges rising unemployment, and economists say Russia will deplete its reserves if the price of oil stays low and the global economic crisis continues more than half a year.

At pawnshops, industry president Mikhail Unksov says 95 percent of clients are retrieving their items, which means they are still able to repay loans that average less than $400 [About 10,000 rubles]. He adds most Russians also understand that leaving their gold at a pawnshop is like throwing away a life preserver on a sinking ship.

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