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. Last Updated: 07/27/2016

Ruble crunch hits abroad

BUDAPEST-Something perplexing is happening within the already troubled Russian ex-pat community of Budapest. Its cars are disappearing.


Thirteen were reported stolen last year. It's expected that record will be beaten this year, even though the official Russian community is shrinking by the week.


There is little mystery about it. It is an open secret that the cause of these "disappearances" is poverty. One of the "stolen" cars of last year subsequently showed up in Kiev. Another surfaced in Lvov. The former banner-carriers of Soviet imperialism, the diplomats and consular officials scattered across Eastern Europe, are being reduced to insurance fraud.


Across the length and breadth of the former client states of the East, the turmoil of Moscow has ripped through its former outposts. Hundreds, possibly thousands, are being laid off. Sometimes it is because business, quite simply, has dried up with the disappearance of Comecon and the clearing ruble.


Frequently, it is because faraway head offices, preoccupied with their own problems, have virtually forgotten they even have foreign postings. Frantic local managers report that they get no news, no orders and, critically, no money from Moscow at all now. A Russian banker in Budapest, formerly with the more-or-less defunct Vnesheconombank, now says he is not sure who his employer is. Luckily for him, Vnesh opened a Hungarian-registered affiliate just before the Soviet Union's demise. and substantial funds still on deposit in Hungarian banks produce enough interest, at high Hungarian rates, to meet the Budapest office's payroll.


In Prague, Russian diplomats have Just been placed on a new salary system.


They used to be paid rather handsomely in local currency, plus a small dollar stipend. They lived like kings.


But now the Russian Embassy, its sources of local funds limited, has switched to a dollars-only system. Senior diplomats, for instance, are being paid $500 per month, barely a subsistence-level salary.


None of this would hold much more than passing historical interest, except that the ex-pat's problems are symptomatic of a graver ailment. An entire trading system, a system which almost certainly must be brought back to life if the Eastern economies are to thrive, is now on its last legs. It was not mere ideology which made Stalin and his successors hanker for Eastern European territory. Nor was it simple political and strategic security. Like any empire, this one drew on the complementary components among its parts. Clearly, Russia needed both Eastern European markets for its products and Eastern European inputs for its industries. and vice versa.


For the moment, Russia is not buying much from Hungary, for


instance. As much as anything, this is because of the absence of a mutual payments system, or a clearing currency, outside of the dollar.


Indeed, anecdotal but quite authoritative evidence suggests that a considerable amount of Hungarian produce is getting to Russia, but via Germany and Austria. One theory is that the Russians prefer Western brands. More likely, the Hungarians prefer Western intermediaries, to ensure payment by what they view as a bankrupt country.


This will be the next stage of the former Communist bloc's re-entry into the modern world. Paradoxically, it will be a reconciliation among its parts, between the ex-imperialists and their ex-colonies. There is some mutuality to this need, but the tough nut for the Russians to crack is that it is they, not the colonies, who need this most. The longer it takes, the farther behind the Russian industrial system is likely to fall.


Fred Harrison is editor in chief of the weekly newsletter Russian Business Reports.