Millionaire's Crisis Plan: Return to Bartering

The Moscow Times, 27 January 2009
By Nadia Popova / Staff Writer

To help pull the world out of economic crisis, German Sterligov, one of Russia's first multimillionaires, has swapped his valenki for polished office boots.

After spending four years in a wooden hut in a forest outside Moscow, Sterligov has leased out almost an entire floor atop a skyscraper in the Moskva-City business district to launch a global barter system.

Sterligov, who doesn't watch television and rarely uses the Internet because of his Orthodox religious principles, plans to start facilitating the barter of debt and goods with his company, the Anti-Crisis Settlement and Accounting Center, by early March.

While the global economic crisis didn't sweep into Russia until September, Sterligov said he sensed that trouble was looming in August and got to work.

"I decided that barter trade would be the right choice for the world in times of liquidity problems and payment delays," he said in a recent interview.

So from August to November, computer programmers hired by Sterligov created an interactive database allowing the barter of debt and goods worldwide.

Sterligov illustrated a possible barter deal with a real-life example: Magnitogorsk Iron & Steel Works' estimated debt of 1 billion rubles ($30.4 million) to Mechel for coal supplies.

"Mechel could put information about MMK's nonpayment in our system and then add which products it needs itself," Sterligov said.

MMK, in turn, would put 1 billion rubles of steel into the system, he said. At some point, a company would surface that wanted steel and had a product needed by Mechel, and the deal would be completed.

"For this to work, you have to have thousands of bids in the system," Sterligov said, adding that debt would probably become the most popular item for barter.

Mechel and MMK declined to comment about their possible participation in such a system.

Barter trade was widespread in Russia in the 1990s, when economic turmoil following the Soviet collapse prompted companies to pay employees and creditors with the products they produced — anything from bricks to vegetable oil.

Sterligov built his fortune through one of Russia's first mercantile exchanges, which he launched in 1990, and subsequently got involved in businesses, "ranging from fish processing to metals trade," he said.

Sterligov said he had invested "several million euros" into the Anti-Crisis Settlement and Accounting Center. "I have no business plan — it's my money — and I spend as much as I want and is reasonable," he said.

Sterligov said he has opened offices through joint ventures in New York, London, Brussels, Hong Kong, Paris and Sydney and plans to open three more soon — in Istanbul, Berlin and Milan. He said his company owns 51 percent in each joint venture.

He declined to disclose the firms' names before an official presentation of his company in late February.

The company currently has 13 regional offices across Russia and plans to boost the number to 1,000 — mostly small offices in towns and villages — by March, when the whole system is to be launched.

Sterligov plans to hire around 15,000 people in Russia, mainly workers who have been laid off in recent months as companies scaled back production and axed investment plans.

Sitting in his office on the 26th floor of the Moskva-City skyscraper, Sterligov said it takes him two hours to get to work from his hut in a forest of the Mozhaisky district of the Moscow region, 100 kilometers northwest of Moscow, where he lives with his wife and five children.

"I still have sheep, chickens, goats and cows, but now they are mainly my wife and children's responsibility," said Sterligov, 42.

He said he would return to the woods as soon as the world gets out of the economic crisis.

Sterligov moved to the forest in 2004 after selling all of his holdings, including "several luxurious houses" in the prestigious neighborhood along the Rublyovo-Uspenskoye Shosse and some property abroad. "I had to pay back huge debts from my election campaigns," Sterligov said.

Sterligov unsuccessfully ran for Krasnoyarsk governor and Moscow mayor before then-President Vladimir Putin ended popular elections for the positions. He also tried to run for president in 2004 but was denied registration because of his failure to get notary certification for the signatures of support that he had submitted. Sterligov says he followed all the proper legal procedures.

He refused to say how he had earned the money for the Anti-Crisis Settlement and Accounting Center.

Several companies contacted by The Moscow Times expressed an interest in using barter trade during the crisis. "We could use barter trade to pay our contractors with the square meters that we build," said Yevgeny Plaksenkov, chief executive of Miel, a leading real estate company. "We know how it all works through our experience in the 1990s."

The crisis of liquidity logically leads to barter trade, he said. "However, barter is like a drug for the economy," he said. "It may give a temporary effect, but if you continue playing with barter it throws the economy backward."

Sergei Ryabov, head of regional and strategy development at Titan-Agro, an agro-business holding, said Sterligov's plans had potential. "In times of crisis, all means are good," he said.

Economists and legal experts, however, were highly skeptical about Sterligov's initiative. "The price of money is not high enough yet to return to the underdeveloped economy of the 1990s," said Natalya Orlova, chief economist at Alfa Bank. "The state was weak then, and taxes were barely paid. It is all different now."

Sergei Voitishkin, a corporate partner at Baker & McKenzie, said barter would not work because of hassles involving taxes and property rights. "The crisis is an opportunity to make economies more efficient, whereas barter schemes throw us back into the Dark Ages, which is definitely not what modern economy needs," he said.