Moscow crash signals end of party for expats

As Russia's economy nosedives, a special correspondent reports on how the foreign bankers who once lived it up are now longing for home

PRESIDENT BORIS YELTSIN, who has now been on holiday for more than a month, insists there is no need to interrupt his break to deal with the economy, and will not say when he intends to return to the Kremlin.

Yesterday, though, he did at least move to a country home in the Moscow region, a day after making his first public appearance for a month. The Kremlin's chief debt negotiator, Anatoly Chubais, returned to Moscow, saying he had been told to break off his holiday to hold a series of meetings on how to stop the economic slide.

Some foreign exchange booths shut down in central Moscow on Friday, blaming a lack of hard currency, and some banks refused to allow depositors to withdraw dollars from savings accounts - a first sign of currency trouble for ordinary Russians. Mr Yeltsin, however, said Russia would not devalue: "That's firm and definite."

On Thursday, Russian shares fell to their lowest levels in more than two years, sending markets plunging around the world after the renowned international speculator, George Soros, wrote a letter to the Financial Times in London, urging Russia to devalue. Although Russian share prices recovered on Friday, confidence is at rock bottom.

The deepening financial crisis has turned the spotlight on players in the country's boom and bust capital markets. For the army of British investment bankers now working in Moscow, it is attention they would like to have avoided: 1998 is turning into their annus horribilis.

For the past two years, the Moscow equity market has been the world's best performer. This year, it will be the worst. During the good times, financial rewards for living in a country with eight months of winter and horrific crime statistics were considerable. Now, the talk among Moscow expatriates is of redundancies and returning home.

Since Mr Yeltsin's re-election in 1996, the labour market for bankers in Moscow has been buoyant. Even this summer, as markets began to waver, investment banks such as Goldman Sachs and JP Morgan opened offices in the city. With each new arrival, the pressure on the limited pool of talent increased. This was exacerbated by active hiring of top Western investment bankers by the more aggressive Russian financial institutions, such as Alfa Bank. Salary levels rocketed upwards, with English-speaking Russian bankers now earning more than equivalent professionals in London and New York. Top Western investment bankers, such as Boris Jordan, former head of Credit Suisse First Boston in Moscow, are rumoured to command annual remuneration packages of more than pounds 1m.

Such wealth has facilitated grand lifestyles, even in Europe's most expensive city. Moscow apartments formerly housing multiple Russian families have been refurbished as bachelor pads for foreign bankers. At weekends, they retreat to dachas in the Russian countryside. For the more adventurous, there is salmon fishing in Murmansk or duck shooting in the Caucasus. One successful British stockbroker, an Arsenal fan, flies back to London for every home game. Another leading British banker has sent invitations to his friends for his birthday bash next month, promising the greatest party since Catherine the Great visited her stables.

Life in the future for Moscow expatriates looks as if it will be more spartan. They are more likely to be shopping at British Home Stores on Novy Arbat than at the Christian Dior shop on Tverskaya.

Falling equity prices and dwindling volumes have shattered the profitability of the country's foreign-owned stockbroking firms. Those lured to work for Russian banks by promises of great riches are now realising that their bonus guarantees will only be honoured if their employers survive the current crisis. The rumour mill is whirring with reports of Russian banks unable to meet their obligations.

Outside the financial sector, business has been no better for Western companies who have invested in Russia. Most of the investment to date has been in the oil sector, where the oil majors have sought to position themselves in the world's third largest oil producing nation. For most, it has been a gamble that is yet to pay off. Tumbling oil prices, combined with high taxation and the rising costs of operating in the tough Siberian environment, have led to large losses. For many, these problems have been exacerbated by conflict with Russian partners.

At the restaurants favoured by Western businessmen in Moscow, the talk last week was not just of financial losses. Doing business in Russia is about being part of the creation of a modern democratic capitalist system. People have bet their careers on the belief that Russia will succeed, and that they will be able to contribute to this as well as to benefit from it.

Now, even the most stalwart optimists are having their faith tested. While Russia may make it through the current financial crisis, there will inevitably be further economic and social pains to be endured. With a presidential election due in 2000, the reformers in government need to begin to offer real improvement to the Russian population. However hard they try, this goal looks more and more elusive.

For Muscovites, one dream was fulfilled last week: the Rolling Stones finally played in their city. But for most expatriates in their audiences, it was a week with very little satisfaction.