[Salon] War spending has Russians partying like it’s 2021



https://www.economist.com/1843/2024/01/10/gucci-is-cheap-and-eggs-are-pricey-in-russias-surreal-economy?etear=nl_today_1&utm_id=1843351

Gucci is cheap and eggs are pricey in Russia’s surreal economy

War spending has Russians partying like it’s 2021. But some are also stockpiling dollars

Jan 10th 2024

By Kate de Pury

Winter in Moscow is a time for parties. A friend told me recently about a particularly lavish one he went to in a nightclub. DJs played hypnotic psychedelic trance, champagne flowed and red lights strobed across the heaving dancefloor. Nearly two years into the war in Ukraine, Muscovites seem to be recovering their capacity for hedonism.

Straining to make themselves heard over the thumping beats, revellers at my friend’s party swapped stories of profit-making in the new Russian economy. Difficulties in accessing dollars had created fresh opportunities in rouble-denominated transactions. Construction projects were under way. Western partners were keen to keep business flowing. And new customers were being found in China and India.

My friend, a European business consultant, was struck by the elation of the moneyed Russians, the kind of people who would normally have been skiing in Courchevel at this time of year. “They know they won’t be allowed back to the French Alps for 25 years,” he said. “Until then they can go to Dubai or party here – it’s pretty wild.”

As Russia enters 2024, and the campaign for President Vladimir Putin’s inevitable re-election heats up, the regime is keen to tell a good story about the country’s ability to withstand the war. It can muster a surprising amount of evidence to support this case.

“They know they won’t be allowed back to the French Alps for 25 years. Until then they can go to Dubai or party here – it’s pretty wild”

The Russian economy has not collapsed under the unprecedented sanctions of 2022, as some predicted. Oil and gas sales to the West plummeted, but higher energy prices eased the pain and the government found new buyers in Asia. The rouble depreciated sharply in 2023, but has stabilised since. Vast public spending on the war has meanwhile created jobs. Inflation remains stubborn, and a slowdown is expected in 2024 as the central bank keeps interest rates high to fight it, but Putin was able to boast last year, not implausibly, that the economy had grown by more than 3%.

Russia still has to import many products, which a weakened rouble makes more expensive. But those who aren’t poor seem able to absorb the price increases, at least for now. There were initial supply hiccups when Russian banks were first cut off from international transfer systems. But middle-class Muscovites found workarounds, and can now buy Western brands over the internet with little difficulty. USmall, an online marketplace, lists iPhones and Ralph Lauren children’s clothes priced in roubles, which can be bought from third-party suppliers with Russian bank cards.

Moscow shops are well stocked with designer goods. Most Western luxury brands stopped shipping to Russian stores in 2022, but when I visited TSUM, the Russian equivalent of Harrods, just before Christmas, a sales assistant was proudly showing customers the newest handbags from Gucci, Chanel and Louis Vuitton. Bought in Europe and carried back to Russia in the luggage of a “personal shopper”, there weren’t many of these new-season items on the shelves, but just enough to justify the sign “2023-24 Collection”.

Some of the items on display were second-hand. The sales assistant showed off an app the store has developed to make it easy for Russian clients to re-sell unwanted luxury goods. Even a used Gucci bag isn’t exactly cheap, but because it’s priced in roubles, fluctuations in exchange rates can make it become, by the tortuous logic Muscovites follow, a bargain in euro terms. “A good deal for the Russian shopper,” the assistant said snippily.

There is something brittle and a touch performative about the exuberant consumption going on in Moscow at the moment. Though the Kremlin likes to suggest that Russia is a nation bound by common values, struggling collectively through adversity, the mood in the capital seems to be less about resilience and more about denial.

The mood in the capital seems to be less about resilience and more about denial

One louche winter party recently held at another nightclub exhibited such a lack of wartime spirit – the hostess was photographed wearing a diamond body-chain – that the authorities deemed it a violation of public order. The “Z” logo, a symbol of support for the invasion of Ukraine, used to be prominently displayed across the city. Now it has all but vanished. Recruitment posters at bus stops showing airbrushed soldiers in new combat gear are the only visual reminders of the war. “Everyone’s tired of it now,” a young professional told me. “We’ve moved on.”

Elsewhere there are signs that the invasion of Ukraine may have disrupted the Russian economy more severely than the frothy party scene suggests. The Olivier salad, a mayonnaise-drenched confection of root vegetables, sausage and boiled eggs, is a staple at every table during the holidays. This winter the price of eggs suddenly rocketed (no one is quite sure why, but it may have been because farms were short of labour since so many workers have been conscripted or left the country). In some regions people cannot afford a box of six eggs and have to buy them individually. One pensioner even raised this with Putin during the president’s annual end-of-year call-in with the public. Putin promised to look into it.

Towards the end of last year the central bank released figures that confirmed the sceptics’ suspicions: Russians had been changing their roubles into hard-currency cash, at a volume not seen since the first, panicked months of war in 2022. Not all of this activity is a sign of worry – anecdotal evidence suggests some people want to convert their roubles to dollars so they’re in a position to pounce on assets when the local currency takes one of its short-term plunges (watching exchange rates is a Russian pastime). But many also appear to want to keep their savings in euros or dollars.

On the face of it, this is a risky thing to do: Russians are theoretically cut off from the Western banking system and a stash under the mattress is vulnerable to theft. But there’s a hack for this too: a business contact tells me that Russians have begun to transfer hard-currency savings to newly opened bank accounts in Armenia and Kazakhstan. Some Western sites block access to Russian browsers, but middle-class professionals in Moscow can use a virtual private network (VPN) to cloak their identity and move dollars freely on the internet.

Since the start of the war the Russian authorities have blocked many foreign sites such as Facebook and Instagram; VPNs have become a lifeline for Russians wanting to consume information outside the officially sanctioned narrative. The authorities have clamped down on VPN providers, making such connections increasingly unstable. A friend tells me that rather than consuming news they don’t trust, many middle-class Russians have bought their own server space in western Europe to keep their internet traffic flowing securely.

If they use a VPN to cloak their identity, middle-class professionals in Moscow can now use and move dollars freely on the internet

Through such elaborate manoeuvres, Moscow elites have succeeded in keeping life reasonably comfortable for themselves. Not long ago I went to a party in a penthouse. It was a picture-postcard Russian scene: a blizzard swirled outside huge windows and Prokofiev swelled through the speakers. The guests sipped French and Italian wine, filling their plates with Russian caviar from the buffet.

The atmosphere among this posh group could be characterised as patriotic-lite. Some of them were old enough to remember Soviet times and instinctively avoided any talk of politics. Those who didn’t used a tacit code. They wouldn’t criticise the government but, unlike some of the crowd in the nightclubs, they didn’t speak in jingoistic slogans either. No one mentioned the war, though it was implicit every time one of them referred to the arduous flight connections they have to make these days to visit grown-up children in Italy and Britain.

This is a constituency Putin has to keep on side for the long haul, and not all of the guests were happy with his vision of Russia’s future. “I am trying to decide if my kids will be educated in the UK or the US,” said one executive. “It definitely won’t be China or Russia.”

Kate de Pury is a journalist in Moscow. You can read her previous dispatch for 1843 here

ILLUSTRATIONS EWELINA KARPOWIAK

IMAGES: GETTY



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