Expats Digging In for Long Haul

Although Russia has found itself among the countries worst-hit by the global financial mayhem, expatriates living here seem to be casting their lots with their adopted country, hunkering down through the economic malaise in hopes of brighter times ahead.

Hurt by salary cuts, the weakening ruble and looming dismissals but equipped with the experience of the 1998 default, expats say they are here to stay.

Many foreigners are paid in rubles, a currency that has lost almost 26 percent of its value against the dollar since July. And with debts and other obligations back home calculated in dollars and euros, some are feeling the pinch.

"I am paid in rubles, so I have to permanently watch the currency rates to hedge my risks," said the UralSib chief strategist Chris Weafer. "We are now facing triple risk of salary cuts, dismissals and currency-rate related losses."

Russian law requires Russian companies to pay salaries only in rubles. And although foreign-owned businesses are exempt, many working in Russia have switched to a ruble payroll over the last two years, said Yevgeny Reizman, a partner at Baker & McKenzie, which advises foreign companies in Russia.

"Now, when the ruble is getting weaker, with every passing day it --becomes harder for foreigners to pay their taxes, mortgages and kids' school fees in their domestic currency," said Neil Cooper, head of the Russian-British Chamber of Commerce.

Adding to the sob story, foreign professionals are witnessing the loss of the sometimes extravagant perks they had grown accustomed to before the financial turmoil.

Gone are the days of $200 restaurant bills charged to the company tab and limitless calls on the corporate cell phone.

Now employees of both domestic and foreign companies are finding their receipts scrutinized and their airline tickets decidedly economy class.

But the most painful problem, foreign employees say, is the reduction of their salaries and bonuses.

"My salary was cut by 15 percent in December," said a foreign specialist working at a Russian investment bank, who asked not to be identified, citing the privacy of the matter. "And I think there will be further cuts in spring as business conditions deteriorate."

Florian Hoser, Lufthansa's director for finance and administration in Russia, has seen similar cuts. "In some foreign companies, bonuses are not being paid, as the budgets of 2008 have not been met," he said.

"The attraction of an overseas posting is either job experience or the possibility of getting paid more than at home," the specialist said. "Under these conditions the only experience many are getting is a crash course in how to make ends meet."

While many firms are forced to reduce wages just to balance the budget, experts say some companies are overreacting, cutting wages first and asking questions later.

"Sometimes the impression is that some of the foreign employers overreact on the crisis because of the market's psychological pressure," Reizman said.

"For example, in December many foreign employers were planning around a 10 percent salary cut. But now they are cutting 20 percent or even more despite the decrease in the economic standing of the company was generally not worse than expected," he said.

But if the economy has been maligned in many respects, foreigners can at least take advantage of the now-affordable housing market. The economic downturn has caused rental prices in Moscow to drop, and tenants and prospective renters are now able to get a better deal than before.

"On the positive side rents are more easily negotiable," Hoser said.

Rental prices have fallen off, with apartments plummeting in cost from 20 percent to 30 percent since July, depending on the class of apartment, according to Penny Lane Realty. Business premium apartments that the firm used to sell for $12,000 a month now go for $8,000.

Yet every silver lining has a dark cloud. Some expats invested in the real estate market while it was booming, hoping to cash in on what seemed like Moscow's most lucrative sector.

Real estate prices have plunged in recent months, sending the average Moscow apartment price down to $5,186 per square meter from $6,122 per square meter since November, according to the real-estate analytical center IRN.ru.

"I bought an apartment in the center of Moscow late in 2007 and considered it a very good investment at the time," said Luca Gandino, who was recently laid off by Jones Lang La Salle.

Sberbank analysts expect apartment prices to drop by 50 percent in dollar terms by the end of this year.

"I know a lot of foreigners who came to work here and bought an apartment when the Russian real estate market was a never-ending upward spiral," Cooper said. "It is not that rosy now."

Other foreign professionals, while safe in their own jobs, look upon the current situation with a twinge of guilt.

"All of us here live with a thought saying 'I'm a very expensive guy,'" said the head of the Moscow office of a U.S. machinery-building company, who requested anonymity due to the sensitivity of the issue.

"They rent an apartment and a car for us, pay for our kids' kindergarten," he said. "I recognize that it all costs my company a lot of money."

Despite the challenges, many expats say they aren't going anywhere.

Although Gandino was laid off by Jones Lang La Salle in December, he never doubted that he would stay in Russia.

"Moscow is the place to be, especially now," Gandino, a former associated partner at the development consultant said.

Hundreds of expats who have been given pink slips over the last few months think the same way.

The Russian-British Chamber of Commerce has been inundated by the resumes of laid-off professionals, mainly from the real estate, construction and banking sectors.

"The prospects here are way better than at home," Cooper said. "Russia is way more developed than 10 years ago when the default struck, so we believe in a quick recovery."

Until then, expats will stick around and think about brighter days — or try to.

"When the crisis broke out in 1998, you could hide from it, just leaving your office," Weafer of UralSib said. "Now, with your BlackBerry on, the crisis is always with you, 24 hours a day, 7 days a week."