Article
The Moscow Times, 13 Ôåâðàëÿ 2004
Learning to cope with a falling buck
As the dollar fell steadily throughout the summer and fall of 2003, Patrick's employees began to clamor for a change.
«Their salaries were pegged to the dollar, and people were upset,» said Patrick, who heads the Moscow branch of a European company he requested not be identified. «The dollar was falling very quickly, and peopled lifestyles were getting more expensive very fast.»
Patrick's company ultimately dumped the dollar for the euro.
«My employees are definitely happy about it», he said. «And anyway, we're a European company, so it's a little easier for us. There's no going back.»
Patrick found himself among a growing number of people in Russia forced to cope with the depreciating dollar, which lost more than 10 percent of its value against the ruble over the last year and about 25 percent against the euro.
A year ago a dollar would get you 31.85 rubles or 1 euro. Now it will get you only 28.5 rubles or 78 euro cents.
For most Russians, the firming of the ruble against the dollar isn't such a bad thing. In a recent nationwide survey by polling agency VTsIOM-A, 49 percent of respondents said they owned no dollars at all. Thirty-five percent said the U.S. currency decline had had no effect whatsoever on their lives. Eleven percent of those polled said they had been adversely affected, and only 2 percent badly so.
But in economic centers like Moscow and St. Petersburg, many salaries are pegged to the dollar, especially in large and foreign companies. Indeed, as much as three-fifths of the total value of all salaries paid in Russia are calculated in dollars, according to Natalya Orlova, an economist at Alfa Bank.
«About 30 percent of the value of salaries in Russia are in the gray market, and those are paid in dollars,» Orlova said. «Of the remaining economy, maybe 40 percent is pegged to the dollar. So the rate of the dollar is very important in Russia.» And as the dollar falls, employers are looking at ways to guard the value of their employees’ paychecks, and those with dollars are increasingly looking for ways to ensure the value of their earnings and savings. Companies paying in dollars have three basic options for coping with the change, according to analysts and business leaders: switch to euros or rubles, raise wages or set an internal exchange rate above the official one.
«These three methods are the most common that we’ve heard of,» said Piotr Zimowski, a consultant at Ernst & Young, which is currently preparing a study on how companies in Russia are dealing with a weakening buck. «But it may be a fully logical choice for some employers to just do nothing at the moment and carefully monitor the situation in the market.»
Zimowski said that while switching to euros may be a natural step for European-based companies, the move is not without risks, as there are no guarantees that the euro will not reverse course. Partly for that reason, many firms have chosen to stick with the dollar and make adjustments as warranted.
Michael Langes, European director at real estate dealer Jones Lang LaSalle, said Ms company continues to value its employee’s salaries in dollars — but makes regular revisions to adjust for factors like inflation and fluctuations in the exchange rate.
«Every year we review in order to make up for any potential shortfalls,» Langes;sajd.
This may turn out to be the preferred method. In a recent salary survey, the Moscow-based employment agency ANCOR found that 93 percent of foreign firms are planning to raise wages — up from 76 percent last summer.
Yekaterina Varga, a project manager at ANCOR, was quick to point out that the falling dollar was not the only reason companies are paying their employees more. Other factors include inflation, a shortage of qualified specialists and increasing competition.
«A lot of companies still have salaries fixed in dollars,» Varga said. «And their employees are still losing money.»
Setting an arbitrary internal exchange rate — such as paying 30 rubles to the dollar — can serve as a short-term fix that is easily reversible. But it’s a tough choice for companies whose revenues are mainly dollars.
«The idea is to set an internal policy for a certain period of time, or make it dependent on the situation in the currency market,» Zimowski said. «You review once every six months or once a year, or you include in your policy that certain changes in the currency market would also trigger review. It’s not fixed in stone forever.»
Meanwhile, those with savings in dollars have been making a push for the exits.
In 2004, according to, official estimates, Russians converted $5.5 billion of their dollar savings into rubles, a significant chunk of the estimated $30 billion to $60 billion total.
«When the dollar weakened, the opportunity cost of holding dollars increased,» said Peter Westin, chief economist at investment bank Aton «People are exchanging mattress dollars. There are still banks in Russia that don’t ask where the money is coming from, and that’s key to getting the mattress dollars in.»
Central Bank statistics also show that individual Russians have been saving more in banks over the last year — which means saving more in rubles — up from 649 billion rubles last February to 984 billion in December.
But in the long run, the dollar’s tail-spin may have more widespread ripple effects than simple currency-swapping, It might make Russians think more creatively about their savings, said Alexander Ivlev, an Ernst & Young partner.
«People have to protect their money now,» Ivlev said. «In the past, people with dollar savings — which is not the majority of Russians — have been OK with keeping their money in the bank for very little interest.»
But Ivlev said that the dollar’s deflation may spawn new trends.
«Now, people start looking at thing: like stocks, investment companies banks — all the options,» Ivlev said «They talk to their friends, they start getting advice. You could say it’s changing people’s mentality about their finances.»