Russians stocking up, fear a worse crisis than 1998 rouble crash

Pedestrians walk past a board listing foreign currency rates against the Russian rouble outside an exchange office in central Moscow on Dec 16, 2014. The Russian rouble set a new all-time record low on Tuesday after bouncing back briefly despite an e
Pedestrians walk past a board listing foreign currency rates against the Russian rouble outside an exchange office in central Moscow on Dec 16, 2014. The Russian rouble set a new all-time record low on Tuesday after bouncing back briefly despite an emergency move by Russia's central bank to raise interest rates to 17 per cent. -- PHOTO: AFP

MOSCOW (AFP) - Elena remembers the 1998 crisis when the rouble crashed and wiped out the savings of millions of Russians, but she fears that the turmoil engulfing the currency today is even worse.

"My colleagues and I spent the evening at the supermarket, stocking up our reserves. We are terrified that inflation will keep soaring," said the accountant.

"I remember the 1998 crisis but this time, this is going to be worse because the whole world is against us," she said, alluding to Western sanctions imposed on Russia over the Ukraine crisis, which have weighed on the country's economy.

The embargo coupled with plunging oil prices in recent weeks have dealt a body blow to confidence in the Russian economy, and has revived memories of the 1998 crisis, when the rouble collapsed and the government defaulted on its domestic debt.

Oil prices have almost halved since June, which will pull the rug out from under the government's finances as as energy exports make up 50 per cent of the country's revenues.

The central bank warned Monday that the Russian economy could contract by nearly 5 per cent next year if global oil prices remain at their current levels.

The rouble has been dragged down as the price of oil slides and Russia's central bank took drastic action late Monday to stem the haemorrhage, with a massive interest rate hike of 6.5 percentage points to 17 per cent.

But the markets derided the move and sent the rouble plunging by 20 per cent on Tuesday.

The Russian currency has now lost nearly 60 per cent of its value since the beginning of the year.

Yulia, who runs a beauty salon at Saint Petersburg, said she is now on the brink of bankruptcy as her business relies on Italian products.

"I couldn't sleep all night, I was thinking about what I can do," said the 43-year-old businesswoman.

In Moscow, Igor said: "I'm afraid that prices will rise, the price of cars, of food. We know very well that we can't replace imports. That's a myth."

Russia has banned food imports from the EU and the United States in a tit-for-tat measure against Western sanctions, worsening the situation as products from other countries have often been more expensive.

The central bank has predicted that the inflation rate will reach 11.5 per cent in the first quarter of 2015.

'PUTIN WILL FIX EVERYTHING'

Despite the turmoil that is also sending shockwaves around the world and raising questions over the health of other emerging markets' economies, Russians still believe that their President Vladimir Putin will sort out the crisis.

"Yes there is inflation, but we know that Putin has no choice. His popularity will not suffer," said Dmitry Briliyev, an osteopath, 35, who lives in Moscow.

"I'm not worried," said 24-year-old Olga. "We have Putin, he will fix everything." The crisis "will not change anything in the support enjoyed by Putin" said Irina Istomina.

"We have no other leaders and Russians are used to living under his iron fist," she added.

Alexei, 27, meanwhile has decided to cash in on the crisis by producing T-shirts bearing ironic slogans about the Russian currency.

"We survived the fall of the USSR, the crisis of 1998. We are used to things going badly, and we know we will survive even the worst," said the businessman, who is selling his T-shirts in euros.