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Crisis spares Russia's 'average Joe'

But the 25 richest Russians listed by Forbes have lost a combined $230 billion – a possible opportunity for the Kremlin to bolster conservative business allies.

By Correspondent of The Christian Science Monitor / October 21, 2008

Ruble rising: Two key stock indexes have lost two-thirds of their value since May, but the ruble rebounded on Monday.

alexander zemlianichenko/ap

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Moscow

While many Americans are watching as their pensions crash with the markets, across Russia it's a different story. Though their stock market crash has been longer and deeper than in almost any other country, most Russians remain relatively unaffected. Meanwhile, Russia's wealthiest man, aluminum king Oleg Deripaska, has reportedly lost $16 billion over the past month.

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As Russia's economy struggles under the weight of the global economic crisis, the effects on the country vary drastically among different segments of society. While Russian industrial barons are falling like kingpins, the government has maintained a budget surplus thanks to oil revenues and sovereign debts paid off by former President Vladimir Putin. Additionally, the general population has also been largely protected due to outmoded financial practices and social beliefs that kept pensions separate from the stock market. The varied effects of the market crisis are likely to alter the underpinnings of Russian society, say many Russian economic analysts.

"The Russian economy will survive this crisis, but will emerge greatly changed," says Olga Kryshtanovskaya, director of the independent Institute of Applied Politics.

Plunging oil prices, fallout from Russia's August war with Georgia, and ongoing uncertainties about the Kremlin's intentions toward private business have taken a toll on the Russian markets. Since their peak last May, Moscow's two key stock indexes have lost over two-thirds of their value, while big Russian corporations are sagging under total debts reported at over half a trillion dollars, mostly owed to international financial institutions.

The Russian government, on the other hand, remains largely debt free, and its oil-fed foreign reserves are the world's third largest at $600 billion as of August. About 10 percent of those reserves have melted away in the past two months as the Kremlin has moved to prop up the ruble, inject liquidity into troubled banks, and support selected companies.

Many financial analysts say the crisis has greatly accelerated the growth of "Kremlin capitalism," which involves direct state ownership over strategic economic sectors as well as indirect control over larger swaths of the economy through backing for businesses run by Kremlin cronies.

"A huge redistribution of property is taking place due to the crisis," says Nikolai Petrov, an expert with the Carnegie Center in Moscow. "The political elites in the Kremlin are sure now that they've been right all along about the need for greater state control, and believe that even the West is now coming around to their point of view."

A special $50 billion line of credit to support distressed companies, approved by the Russian government last week, will go largely to state-connected firms. The state oil firm Rosneft will receive $4.5 billion and the gas monopoly Gazprom about $1 billion. Other state firms producing arms, aircraft, and other "strategic goods" will be given priority, according to Russian media reports.

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