Have Car, Need Briefs? In Russia, Barter Is Back
“Now managers are really trying to reduce costs and inefficiency”, - said Andrei Yakovlev of the Higher School of Economics.
MOSCOW - Does the Taganrog Automobile Factory have a deal for you! Rows of freshly minted Hyundai Santa Fe sport utility vehicles are available right now. In exchange - well, do you have any circuit boards? Or sheet metal? Or sneakers?
Here is a sign of the financial times in Russia: Barter is back on the table.
Advertisements are beginning to appear in newspapers and online, like one that offered "2,500,000 rubles' worth of premium underwear for any automobile," and another promising "lumber in Krasnoyarsk for food or medicine." A crane manufacturer in Yekaterinburg is paying its debtors with excavators.
And one of Russia's original commodities traders, German L. Sterligov, has rolled out a splashy "anti-crisis" initiative that he says will link long chains of enterprises in a worldwide barter system.
All this evokes a bit of deja vu. In the mid-1990s, barter transactions in Russia accounted for an astonishing 50 percent of sales for midsize enterprises and 75 percent for large ones.
The practice kept businesses afloat for years but also allowed them to defer some fundamental changes needed to make them more competitive, like layoffs and price reductions. It also hurt tax revenues.
The comeback is on a small scale so far. The most recent statistics available, from November, showed that barter deals made up about 3 to 4 percent of total sales, according to the Russian Economic Barometer, an independent bulletin. Nevertheless, economists are taking note.
"Russians are so arrogant that they never cut prices," said Vladimir Popov, a professor at Moscow's New Economic School. By turning to barter systems during an economic downturn, he said, "you are hiding your head in the sand."
It would be hard, however, to dissuade business owners who see barter as a point of light on a bleak financial horizon.
Among the most upbeat of them is Mr. Sterligov, who, just as the credit crunch brought most business deals to a halt, shoveled $13 million into the Anti-Crisis Settlement and Commodity Center.
Mr. Sterligov, 42, is one of the great characters of Russian capitalism. In his mid-20s, on the eve of the Soviet Union's collapse, he was a freewheeling, chain-smoking commodities trader surrounded by leggy assistants.
But Mr. Sterligov sat out the oil-fueled prosperity of recent years. After a failed run against Vladimir V. Putin in the 2004 presidential election, he retreated to a log house outside Moscow, opting for the beard and boots of a Russian shepherd. In August, intimations of the financial crash lured him out of the woods.
He plans to use a computer database to create chains of six or seven enterprises having difficulty selling their products for cash, in which the last firm on the chain would pay the first in a single cash transaction.
It is the kind of multiparty barter that rose to prominence in the 1990s, when managers of factories across Russia devised complex barter chains to keep the maximum number of enterprises in business when none had cash to pay their bills. A computer, he said, can do the same job faster and more efficiently.
"What was in the past will remain in the past," Mr. Sterligov said in an interview last month, from the 26th-floor suite he has rented in a Moscow high-rise. "We are making a step into the future."
So far, economists doubt that barter will grow to the level it reached in the 1990s. Earlier in the transition to a market economy, industrialists still had little monetary stake in their businesses but were dependent on the prestige that went with executive positions, said Andrei Yakovlev of the Higher School of Economics here. They had little incentive to cut costs, and barter deals kept them going for five years, he said.
Now, business owners and managers "are really trying to reduce costs and reduce inefficiency," Mr. Yakovlev said. Interest in barter, he said, is more likely to come from regional governments, which have the most to lose from high unemployment.
Barter is a side effect of tight monetary policy, said Mr. Popov, who is teaching at Carleton University in Ottawa. Russia is in the grip of a liquidity crisis. As in the mid-1990s, the government has made it a priority to shore up the economy by buying up rubles, hoping to avoid the panicky sell-off that comes with rapid devaluation. The ruble has gradually slid from 23.4 to the dollar in early August, before Russia's war in Georgia, to 36.2 to the dollar last week.
As a result, the money supply continues to contract, and some enterprises turn to barter to survive. "We are stepping for the second time on the same rake," Mr. Popov said. "The second time is a greater sin."
Long-term macroeconomic trends, however, are the last thing manufacturers were thinking about in recent weeks.
The Hyundai factory in Taganrog, the southern seaport where Chekhov was born, rolled out a barter promotion on its Web site, offering to trade vehicles for "raw materials," "high-tech equipment" or "other liquid goods, including finished products of various branches of industry." Gleb Korotkov, a spokesman for the factory, said he could not be specific about what goods were meant, saying it was a "commercial secret."
Barter deals seem to be spreading fastest in construction industries. Dmitri Smorodin, who runs a large St. Petersburg building firm, said he thought for two months before announcing in late January that he was willing to accept barter items - including food products - as payment for construction work.
He said he hoped that adopting the strategy early in the crisis would give him an edge over his competitors.
"Food we would happily accept, because it's easy to sell," he said. "Of course, money is always preferable."
In contrast, Uralchem, a fertilizer producer, refused payment in grain and beef, because the company conforms to international financial reporting standards in its reports to shareholders, said Andrei Kocherov, a spokesman for Uralchem, which was founded in 2007. The modern accounting system would preclude barter, he said.
Meanwhile, in Bashkortostan, a republic in southwestern Russia, local development officials publicly encouraged businesses to develop barter chains.
Sergei Ryazanov, 30, a businessman from the Siberian city of Surgut, took out an advertisement a month ago offering to barter excess metal piping. So far, he has not been impressed by the offers he has received; he said people were not desperate enough to drop prices. He is looking for a truly liquid commodity, something universal, like gasoline. Even underwear, which, he said, "is much more liquid than automobiles."
He was intrigued by Mr. Sterligov's idea, though he questioned the wisdom of planning a career in barter. "It will take him a couple years to get it right," Mr. Ryazanov said. "And then, in two years, liquidity will be back."