Debt is thus seen as the only way out of economic shortfalls, and even a last-ditch effort to avoid a more precarious fate. Some Russians are taking out loans both to pay bribes that allow them to avoid mobilization
, as well as to pay for protective equipment in the event they are sent to war. The result is that already economically disadvantaged groups fall deeper into financial misery through the onboarding of additional loans.
In the meantime, the regime temporarily avoids public condemnation for falling living standards that are artificially propped by personal loans. Much of this policy dates all the way back to the 2008 financial crisis which hit incomes hard, helping spawn a new industry of high-risk lenders with dodgy payday lenders and loansharks
masquerading as “microfinance” organizations. In the 2010s, analysts were already warning about an unsustainable expansion in consumer debt and rapidly declining loan portfolio quality
Russia’s all-out invasion of Ukraine has significantly accelerated loan uptake, and the government appears reluctant to address the underlying issues. Indeed, some of the government’s most recent moves make this policy of shifting burdens especially evident. First, the latest three-year budget currently under consideration by the Russian State Duma slashes social spending by roughly one-quarter
by 2025 and will for the first time be surpassed in volume by defense spending. These deep budget cuts not only inflict significant harm on the quality of education, health care and housing, but also the social assistance necessarily to support incomes.
Similarly, the Russian government has leaned heavily on preferential mortgage programs to stimulate demand in the residential construction sector. This lifeline to the housing industry
displaces risk squarely onto buyers, while helping to offset the impact of higher interest rates. Though such programs do employ state subsidies, individual borrowers are still on the hook for loan repayment, rather than being passive recipients of other types of subsidized housing.
Besides saving on budget resources, encouraging growth in private debt enables governments to limit citizens’ economic autonomy
, and as a result their ability to exercise their democratic rights. Just as state employees are less likely to strike oppositionist stances for fear of jeopardizing their employment, debtors may be wary of any shocks to the status quo that could further imperil their ability to pay back their loans. Officials such as Economy Minister Maxim Oreshkin may warn of people falling into a “debt trap, in some cases worse than gambling
”, but: stripping people of capacity for economic maneuver can also breed political compliance.
In the short term, this dependency can lead to people taking desperate steps to relieve their debt burden. Workers take on extra shifts in more precarious forms of employment in order to earn additional income. In more extreme cases, fighting on the frontlines also brings with it considerable monetary compensation and debt relief, and even escape from notoriously aggressive Russian debt collectors
. Debt pushes people to back up against the wall and make unpleasant decisions.Debt as a political trap
But in the long run, debt can be a powerful political catalyst and a real source of liability for governments. Debt arouses intense levels of popular anger and resentment at one’s governments for having nudged people into these financial traps. Just think of the tens of thousands of people who took to the streets of New York in 2011 under the Occupy Wall Street partially as a response to perceived anger about oppressive medical debts and student loan payments. In the UK context, austerity-induced indebtedness contributed to feelings of political neglect
, with voters turning against the incumbent Conservative party that was seen responsible for jeopardizing their economic security. Russia is no stranger to protests fueled by anger over loans. A falling ruble put severe pressure on dollar- and euro-denominated mortgages, sparking loud demonstrations
in 2016. Riot police had to be called in to quell the situation.
Such salient grievances open up opportunities for savvy political entrepreneurs who can frame personal debt as a part of their indictment of the regime.