VZCZCXRO7116
RR RUEHAG RUEHAST RUEHCHI RUEHDA RUEHDBU RUEHDF RUEHFK RUEHFL RUEHHM
RUEHIK RUEHKSO RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNAG RUEHNP RUEHPB
RUEHPOD RUEHROV RUEHSK RUEHSR RUEHYG
DE RUEHVK #0034/01 0710554
ZNR UUUUU ZZH
R 120554Z MAR 09
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1102
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1204

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000034 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PGOV
SUBJECT: ECONOMIC CRISIS: WHAT'S WORSE, GLOBAL DOWNTURN OR OFFICIAL 
DECREES? 
 
VLADIVOSTO 00000034  001.2 OF 002 
 
 
¶1.  Though Primorye's government has reported 6 percent growth 
in gross regional product (GRP) in 2008, the economic situation 
in the past few months is showing signs of trouble.  Evaluating 
the situation is complicated by the fact that most official 
economic data is not publicly available, and meetings of 
regional anti-crisis committees are held behind closed doors. 
Authorities have suggested various ways to deal with the 
economic crisis, some are practical, while others, like 
establishing car assembly plants, aluminum production 
facilities, and other large-scale projects are more long-term 
plans that would have little ameliorative effect on the 
immediate crisis.  The upcoming 2012 APEC summit may provide a 
limited boost to the suffering construction sector. 
 
Decrease in Global Demand the Main Factor 
----------------------------------------- 
 
¶2.  The first sector to feel the economic crisis in Primorye was 
the mining and extracting industry in late 2008, which suffered 
from falling world prices for lead, zinc, and tungsten. 
Facilities in Dalnegorsk, Krasnoarneyskiy and Khorolskiy rayons 
north of Vladivostok have suspended production, with employees 
being laid off or put on unpaid leave.  By January 2009, the 
timber sector also felt the pinch of lower overall demand for 
wood products and recently increased export tariffs on raw wood 
products designed to help the domestic processing industry. 
 
¶3.  The slowdown in production has resulted in a significant 
decrease of cargo turnover at all Primorye ports.  The 
Commercial Port of Vladivostok reported a 35 percent decline in 
freight so far this year compared to the same period last year. 
Port Vostochny also saw a decrease total turnover of 8 percent, 
with container traffic down by 52 percent.   The Commercial Port 
of Nakhodka experienced a total turnover decrease of 9.5 per 
cent, with container traffic down 97 percent.  Over 100 vessels 
are currently moored and sitting idle in Vladivostok. 
 
And Unemployment is on the Rise 
------------------------------- 
 
¶4.  Official statistics state that there were 32,000 unemployed 
people in Primorye in January 2009, though the International 
Labor Organization (ILO) placed its estimate at over 90,000. 
The significantly higher ILO calculation includes workers who 
are underemployed, facing leave without pay, forced to take 
leave, part-time workers looking for full-time employment, and 
workers who have experienced significant wage cuts.  Over 150 
companies so far this year have informed Vladivostok city 
authorities of plans to lay off workers.  According to ILO, the 
number of unemployed in Primorye has increased by about 1,000 
people every month since fall of last year, and Consulate 
contacts forecast that over 1,700 employees will be laid off at 
wholesale and retail companies in the coming months.  The 
Rossisskaya Gazeta reports that the accumulated salary backlog 
at 22 local companies amounted to over 83 million rubles in 2008 
and local experts expect wage arrears to increase through the 
year. 
 
¶5.  Several local municipalities have announced that they are 
setting up special committees to supplement established regional 
employment agencies to help jobless people find work.  The 
committees envisage organizing public work, offering retraining, 
and providing support for those relocating to other regions. 
The cost of 100 million rubles (USD 3 million) will come from 
the federal and regional budgets. 
 
Official Decrees Hinder Instead of Help 
--------------------------------------- 
 
¶6.  In addition to the general economic downturn, local 
businesses have suffered as a result of changes in regulations. 
The timber industry has taken a hit from the abovementioned 
export tariff increase.  Businesses involved in importing and 
servicing used automobiles have collapsed due to the new tax law 
that came into effect on January 12 which raised import fees. 
As a result, hundreds of thousands of people stand to lose jobs 
as car dealers, drivers, mechanics, and various service 
providers.  Russia, by far, had been the world's largest 
customer for used Japanese vehicles.  In January 2008, Russia 
imported 28,300 vehicles from Japan, but since the increased 
import fee went into effect, that number has decreased to 2,400 
per month. 
 
¶7.  An order issued by the Federal Customs Service in January 
now prohibits the ports of Primorye from exporting scrap metal 
to the Asia-Pacific region, ruling that the only Russian Far 
East port authorized to do so is Kamchatka's 
Petropavlovsk-Kamchatskiy.  The move has affected business at 
the port of Vladivostok, which has been the region's main 
transfer point for ferrous scrap metal for over a decade. 
 
VLADIVOSTO 00000034  002.2 OF 002 
 
 
 
¶8.  Additionally, the Customs Service has begun to crack down on 
`pomogaikas' who receive subsidized trips to China from 
Russia-based retailers in return for carrying goods back for 
resale.  Customs asserted that these compensated traders 
violated rules that allow travelers to import goods duty-free 
for personal use, not for resale.  Though the practice does 
appear to be a way of skirting the regulations, being a 
pomogaika is often the only source of income for unemployed or 
low-income residents from Primorye's rural region. 
 
Government Revenue Suffering, Too 
--------------------------------- 
 
¶9.  The same fee increase that has hurt Primorye auto importers 
may also affect government revenues.  In 2008, the Vladivostok 
customs office transferred 62 billion rubles to the federal 
budget, and forty-five per cent of all customs collections were 
fees for foreign cars.  Deputy Head of the Vladivostok Customs 
Office Leonid Gurin expects a significant decline in customs 
fees this year and has reported he anticipates a 40 percent 
decline in revenue for the first quarter of 2009 compared to the 
previous quarter. 
 
An APEC Boost? 
-------------- 
 
¶10.  Primorye officials are hoping that infrastructure projects 
in preparation for the 2012 APEC Summit to be held in 
Vladivostok will provide a boost in employment opportunities for 
locals.  They expect APEC-related construction will create 
55,000 new jobs over the next several years if plans are fully 
realized.  However, local analysts point out that not all of 
those jobs are likely to go to unemployed Primoryans.  With a 
shortage of skilled laborers in the region, many vacancies may 
be filled with workers from other parts of Russia or with 
Chinese, Vietnamese, or North Korean gastarbeiters.  Two thirds 
of the workers currently constructing one bridge in Vladivostok 
are Chinese, and only half of the 400 workers on a separate 
bridge project were hired locally. 
 
Comment 
------- 
 
¶11.  The economic crisis is beginning to hit the Russian Far 
East.  Authorities are watching the politically-active Primorye 
region -- site of several recent protests -- for signs of 
further crisis-related discontent, and law enforcement agencies 
in the region have been conducting special training to prevent 
further public unrest.  For Vladivostok, at least, plans for 
APEC Summit-related construction projects offer some hope of 
adding stimulus to the slowly declining economy. 
ARMBRUSTER