Sunday, October 19, 2008

Iceland and Russia: Two Glimpses of the Future

Here are a couple of ominous stories:

Icelandic Shoppers Splurge as Currency Woes Reduce Food Imports

By Chad Thomas

Oct. 13 (Bloomberg) -- After a four-year spending spree, Icelanders are flooding the supermarkets one last time, stocking up on food as the collapse of the banking system threatens to cut the island off from imports.

``We have had crazy days for a week now,'' said Johannes Smari Oluffsson, manager of the Bonus discount grocery store in Reykjavik's main shopping center. ``Sales have doubled.''

Bonus, a nationwide chain, has stock at its warehouse for about two weeks. After that, the shelves will start emptying unless it can get access to foreign currency, the 22-year-old manager said, standing in a walk-in fridge filled with meat products, among the few goods on sale produced locally.

Iceland's foreign currency market has seized up after the three largest banks collapsed and the government abandoned an attempt to peg the exchange rate. Many banks won't trade the krona and suppliers from abroad are demanding payment in advance. The government has asked banks to prioritize foreign currency transactions for essentials such as food, drugs and oil.

[. . .]

I've read that one of Iceland's desparate hopes is that Russia will help bail them out. Then I see this:

Financial crisis: Moscow supermarket shelves increasingly empty in Soviet era reminder

Russian shoppers have been served an uncomfortable reminder of the Soviet era after finding shelves in some Moscow supermarkets empty, a further sign that the woes of the financial markets have begun to affect the mainstream economy.

For a generation of Russians who queued daily in the snow for the most basic of staples, the symbolism of a bare supermarket shelf is so powerful that it could potentially destroy the reputation of Vladimir Putin, the prime minister, as saviour of the world's largest country.

The shortages are not yet widespread. Even so, goods have begun to vanish from dozens of Moscow supermarkets over the past fortnight.

At a branch of the supermarket chain Samokhval in southwestern Moscow, a handful of shoppers pushed their trolleys through empty rows of shelves that once groaned under the weight of imported wares.

The deep freezes hummed, although there was nothing to freeze. Only a row of baked beans, a few jars of olives and sealed cupboards filled with vodka and cheap wine interrupted the void.

Unlike in the dying days of the Soviet Union, when the madcap policies of a bankrupt ideology inflicted deprivation across the country, today's shortages are very much rooted in modern Russia's enthusiastic embrace of capitalism.

Samokhval, which has 60 outlets across the capital, is the victim of a credit crunch whose tentacles have spread to virtually all sectors of the Russian economy. With trust a commodity in short supply, distributors have been unwilling to refinance the chain's debts and have stopped supplying.

Similar problems have affected Mosmart, which has 58 outlets and is also suffering from empty shelves.

The breadlines are unlikely to reform any time soon -- most supermarkets seem to be operating almost as normal -- yet such shortages seem extraordinary in a city that revels in its reputation as the world's most expensive.

A consumer boom, built on runaway oil prices, has turned Russians into some of the world's most aggressive spenders.

Yet the global financial crisis and investor jitters over Russia's increasingly aggressive foreign policy and its propensity to intervene in the private sector at the whim of the Kremlin have led to share prices tumbling.

The Moscow stock exchange's main indices lost over nine percent yesterday, and have fallen over two-thirds since touching all-time highs in May.

So rapidly have events moved that many Russians are almost unaware of the meltdown. A government-ordered news blackout of the market's woes has helped perpetuate the ignorance, convincing many that it was only the West that was affected. Tabloids have run stories claiming that Britons are so short of cash they can no longer bury their dead.

Despite the shortages, shoppers at Samokhval seemed either unconcerned or fatalistic.

"Life gets better, it gets worse," said Yevgenia Krasovskaya, a doctor. "Difficult times are followed by good times. Even if there is a little less now, what difference does it make so long as the basics are there? We've been through much worse than in the past." But Samokhval's checkout girls were more pessimistic.

"We're worried," said Svetlana, who would not give her surname as her supervisor was lurking nearby. "The management tells us everything will be ok, but I don't believe it."

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