Austerity begins to bite for Moscow's money-making elite

Waiting to be selected and boiled, pincers bound for the safety of the maitre d', a school of plump lobsters jostled each other…

Waiting to be selected and boiled, pincers bound for the safety of the maitre d', a school of plump lobsters jostled each other as usual yesterday along the floor of their tank in the lobby of Le Gastronome, favourite mealtime haunt of Moscow's expense account class.

It's not the most expensive restaurant in the city. The priciest wine, a 1988 Chateau Haut Brion, is only £400 sterling.

"I'm kind of surprised myself, but people do buy it," said Le Gastronome's director, Mr Demetri Yanovsky. "Not every day."

There'll be even fewer Haut Brions quaffed in the restaurant now that Russia's financial bubble has burst. Le Gastronome, housed in a palatial former Soviet sausage shop at the base of a Stalin skyscraper opposite Moscow Zoo, opened in 1996, as the country's stock market began to boom and foreign investors grew wise to the fantastic yields being offered by Russian government bonds.

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The big Moscow brokerage houses would throw lavish parties under its vaulting gilt and marble roof, and its tables would be packed with troughing suits just off the plane from London or New York, wondering whether they were in Moscow or Manhattan.

According to Mr Yanovsky, little has changed, yet. August is always a quiet month. But the eerie emptiness of the dining room at lunchtime yesterday, where a man at a white grand piano serenaded just two groups of diners, matched the shocked hush which has fallen over the city's once boisterous foreign and Russian financial community with the end to the good times.

On Friday, one of the biggest Moscow investment houses, Brunswick Warburg, sacked scores of staff. One broker said between 80 and 90 people had been laid off - a third of its employees. Most were Russians, although about 10 per cent were foreigners. Many other firms which expanded rapidly in the fat months of 1996 and 1997 have also slashed staff.

"The party's been over for a year," said Briton Mr Martin Diggle, of Brunswick. "The bear market began in September. Now it's a contracting market, not the sort of crazy expansion we saw in '96 and the first half of '97, then it was euphoria, it was let the good times roll, everyone was getting good bonuses."

In the space of less than two years, the Russian stock market went from the world's best performing to the world's worst. Now it has virtually ceased to function. When it peaked, some brokers were earning bonuses in seven figures.

Investors' insistence that they are in for the long haul is being tested across Russia. On the main highway between Moscow and St Petersburg, the economy of the little town of Chudovo has just been transformed by the construction of a £75 million Cadbury's chocolate factory.

The company employs 400 local people at the plant to produce 40,000 tons of Whispas, Picnics and Fruit & Nut a year. For the time being, staff are secure - their rouble salaries are automatically raised to match the currency's falling value against the dollar - but operations manager Mr Johan Strydom said the company was taking a wait and see position on the future.

The construction of the plant is a reminder that Russia is not as obscure, remote and irrelevant to the global economy as many western analysts have argued in recent days. The country of 146 million has become a major consumer of European, Asian and US goods.

"Russia is the third largest confectionery market in the world," said Mr Strydom. "We have to be a player here."

Although the Russian people, weaker Russian banks and sacked brokerage staff, are clear losers from the sharp worsening of the financial crisis in recent days, it is still hard to identify which foreign-based investors, if any, got burned in the crash.

Ms Maria Nikolakaki, of Renaissance Capital brokerage - another firm which has shed workers - said there would be shattered lives on Wall Street and the City among those who specialised in Russia.

She said she believed US hedge funds, fronts for billionaires who, trying to emulate Mr George Soros, played Moscow like a blackjack game, might still have large holdings of Russian bonds of extremely doubtful value.

"The people who are going to be screwed are the aggressive buyers who refused to sell when the shit hit the fan," she said.