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Today's paper. Last Updated: 02/17/2012

Overdue Wages Soar 33% in October

Overdue wages soared 33 percent in October, reaching more than 4 billion rubles ($146 million), as the cash-strapped manufacturing, transportation, construction and agriculture sectors have begun delaying payments, the State Statistics Service said Wednesday.

The data, compiled through Nov. 1, are among the first signs that the financial crisis may be creeping into real sectors of the economy, as companies are having trouble financing their day-to-day operations.

The news comes a day after President Dmitry Medvedev said for the first time that the crisis -- which has until recently caused casualties mainly in the financial sector -- was spreading into the heart of the economy.

"Salary delays are related primarily to the financial crisis, as the sectors dependent on bank financing are now facing a shortage of capital and it affects their ability to pay counterparties," said Yekaterina Malofeyeva, chief economist at Renaissance Capital.

Since September, the government has allocated billions of dollars in loans through state-owned banking giants Sberbank and VTB to revitalize the country's finance sector.

In response to a growing number of complaints that the money has not reached its intended targets, the state has undertaken a campaign to ensure that the allocated funds are being used to finance production rather than bolster banks' balance sheets, going as far as appointing Central Bank "commissars" to oversee the loans.

Although the total amount of overdue wages was less than 1 percent of all wages, data shows a 33 percent increase in overdue payments from Oct. 1, nearly all of it driven by firms' lack of working capital.

"Companies that have a long production cycle or sell products to the construction sector are especially sensitive. They are facing real issues with working capital and are therefore forced to delay salary expenses," Malofeyeva said.

Wage arrears in the construction sector, which have increased 240 percent from the month before, are likely caused by widespread halts in building projects because of a lack of financing, Malofeyeva said.

The manufacturing sector saw the highest level of wage delays -- over 1.5 billion rubles -- which was caused in part by metals producers, who are facing payment delays from their clients, she said.

On Nov. 10, Magnitogorsk Iron & Steel Works stopped deliveries to GAZ Group, the country's second-biggest carmaker, after it delayed payments.

Retailers have faced a similar problem, with large chains having problems meeting their obligations to producers.

Razgulyai Group, an agro-industrial holding that produces grain, sugar, corn and other agriculture products, has seen its accounts receivable growing, while revenues are slumping, the firm's spokesman Alexander Ushar said, adding that Razgulyai itself has not been forced to delay wages.

"It is a problem now everywhere in the country -- companies are negotiating extensions of payment contracts because counterparties cannot meet their obligations," said Alexander Ushar. "While renegotiations are in process, payments are delayed."

Razgulyai announced Friday that it was cutting 2,200 of its 18,000 employees and reducing salaries of top and middle managers by 15 percent, with other employees seeing salary cuts of 5 percent to 10 percent.

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