Informal Credit, Money and Time in the Romanian Countryside
Paper presented at the Fourth Nordic Conference on the Anthropology of
Post-Socialism, April 2002
By Liviu Chelcea, Ph.D. candidate in Cultural Anthropology, University of Michigan, Ann Arbor
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Informal Credit: From Scarcity of Goods to Scarcity of Money
Temporality and Political Economy: Economic Time and Moral Time
Conclusions: Credit as a Form of Adaptation
He who drinks on credit gets drunk twice
[Cine bea pe datorie se imbata de doua ori.](2)
In this paper I will describe a phenomenon quite widespread in Romania and in several other former socialist countries. Informal credit is used by an important number of retail traders (shopkeepers and barkeepers) in rural communities and the urban neighborhoods where it is easy to long term customers. Although it had antecedents both before and during the state-socialist period, the scale and the spread of this practice reached unprecedented levels during the last few years. The data gathered for this research indicate that in 75% of the villages from Southwest Romania, the region where this research was carried out, informal credit is practiced.
What exactly is informal credit? Although shopkeepers and barkeepers would prefer to sell their products for cash, the pressure of low-income customers determines them to accept the opening of informal lines of credit. As one shopkeeper put it "people now think it is their right to buy on credit, and that you as a shopkeeper have an obligation to accept this". Selling on credit might resemble a normal credit policy in a market economy. However, the current situation of retail traders presents a few differences. Firstly, the relations between shopkeepers/barkeepers (creditors) and customers (debtors) are not formalized. Secondly, the credit is not registered on the balance sheet, consequently the payment of the taxes is delayed or evaded. Thirdly, acting like informal creditors, the shopkeepers/barkeepers have to shoulder additional risks: on one hand, they do not have the legal means to recover unpaid debts; on the other hand, they have to cope with the danger of having their illegal practices exposed during any fiscal control. Finally, the nature of the relation between creditors and debtors opens up an important field of interaction within the community. The informal creditor acts like a credit analyst preoccupied to clear up the financial identity of the potential debtors, only that he uses unofficial local knowledge instead of the standardized credit histories.
In the first part of the presentation I will address the issues of why did informal credit emerge and what position it has in the functioning of the Romanian economy in present day Romania. In the second part of the paper, I will present only one domain that is constitutive for the functioning of informal credit relations. Analyzing the temporalities of credit relations, I suggest that the shopkeepers have to reconcile the new tensions, household disaccumulation and social relations that develop at the local level and the macro-level transformations in the monetized official national and international economy. Shopkeepers have to act and to keep a balance between what could be called the "moral time" forced on them by their communities and the "economic time" of the larger society.
One could frame that the spread of informal credit as a part of larger economic transformations characterizes the departure from state socialism. I argue that informal credit represents a facet of the transformation from shortage economy -- characteristic of state-socialist systems -- to what could be regarded as delayed payment economy. To put it simply, whereas before 1989 people faced scarcity of goods, now they have to find solutions for the scarcity of money. Informal credit is such a solution.
We use the expression "delayed payment" to refer to a wide range of practices starting from the economically and socially acceptable formulas of short-time delay, up to the extreme forms of endlessly delayed payment or non-payment. We include here illegal, legal and legalised delayed payment among firms (arrears), between firms and banks (non-performing credits), between firms and the state (taxes and duties, AVT reimbursement, debt rescheduling). It does also refer to payment lags between firms and employers (salaries), between citizens and the state (taxes and duties, salaries) or among the agencies of the state (budgetary allocation). From our perspective, citizens, firms, banks, as well as the various state agencies can be placed either in the "winner" or the "looser" position of relations characterized by delayed payment. As an extreme example, we note that the approval of state budget is usually completed in the months of April or May, even though the Romanian "fiscal year" coincides with the calendar year. As a consequence, in the first half of the year government agencies plan their expenses according to the past year's expenses, and the resulting anomalies are rectified in the second half of the calendar year.
Several researchers have emphasized the centrality of shortage in the dynamic of state-socialist societies (Kornai 1992; Verdery 1991). The strategies that accompanied the horizontal shortage, i.e. the acquiring of scarce consumer goods, have been extensively analyzed by anthropologists working in socialist societies. The main concept used to understand social relations created by scarcity has been that of "secondary economy." Authors like Steven Sampson (1986) or Daphne Berdahl (1999), for instance, have emphasized the use of extensive social relations and networks needed for learning about, finding and acquiring scarce consumer goods.
After the end of socialism the scarcity of consumer goods has been replaced by scarcity of money or, more precisely, by a grossly unequal distribution not only of wealth, but also of access to money throughout society. Due either to unemployment and poverty, or to the delay of payment of state wages, pensions and welfare benefits, monies circulate only to certain parts of the population. As Caroline Humphrey (1998:20) put it in an article on Russia,
"money flows do not penetrate far […] and great numbers of people have irregular access to money, and in the countryside, virtually no access".
Thus, at one end, there are the "new rich" - financially affluent classes that can afford to indulge in the conspicuous consumption of brand name Western goods that flooded the former socialist markets. At the opposite end, there are the poor and destitute post-socialist classes: villagers, pensioners, the unemployed youth, the recently laid-off workers, etc. The scarcity of money that marks their condition is directly relevant to the emergence of informal credit as an adaptive strategy. The consumption patterns of these last classes are primarily influenced by the availability of money: their purchases are small in amount and value, and also frequent. Especially for those with irregular incomes, but also for those with stable but low incomes, the possibility of consumption credit is a "blessing of the transition" as one newspaper columnist put it.(3)
This is to a large extent the situation of the region we studied. The pre-1989 dual pattern of peasant-worker household has been replaced by something that in some respects resembles natural economy. Most rural households of the area we studied had members that worked both in collective farms and in the industrial plants from Caracal before 1989. This provided access to both agricultural goods and to wages. At the same time, the urban population, although working in industry, maintained extensive ties with friends and relatives from the countryside, a key asset in obtaining food items.
Throughout the 1990s, large-scale transformations of the national and regional economy have altered the organization of household economic organization. The first to be laid off from industrial plants were usually the commuters from countryside. Along with unemployment, rural population's relation to agriculture changed too. Collective farms have been replaced by a large number of small agricultural holdings, lacking access both to machinery and to production credit. Whereas before 1989 labor relations involved mobility and links with Caracal and with the national economy and society, after 1989, industrial unemployment and the emergence of agriculture as the main source of income and subsistence led to the breakdown of extra-local ties.
The majority of the population, however, is pushed toward subsistence and household disaccumulation, being to a large extent excluded from participation in the larger economy through the lack of access to money. What could one do when faced with the lack of money? Barter represents a solution, but only for certain goods. Wheat is often exchanged for fruits (plums, watermelons, wood for winter heating). Nonetheless, other goods such as coffee, cigarettes or industrially processed food (e.g. sugar or cooking oil) cannot be exchanged for what is produced locally. This is where the role of shopkeepers becomes crucial. They act as intermediaries between the monetised national economy and the money-poor rural economy. Attracting the few cash resources that enter the countryside, they bring in highly demanded goods, produced elsewhere, and that can only be exchanged for money. In Oltenia region, the monthly amounts of money that a customer owes to the shopkeeper or barkeeper do not exceed 35$. This debt represents especially the cost of ordinary alimentary products (sugar, cooking oil, vinegar, sweets), alcoholic drinks, cigarettes, and coffee. The "ordinary" debtor (who respects his credit terms) accumulates debts during the month, then he repays them toward the end of the month and the cycle starts all over again.
Obviously, this is not an unique situation, as it has many equivalents in different historical situations and contemporary societies. In various cultural and economic contexts, credit emerges at the contact of non-monetary economy and urban/metropolitan economy. Informal credit relations, either for consumption or for trade, has been documented in peasant communities from Switzerland (Pfister 1994), Russia (Burds 1991), France (Fontaine 1994), Haiti (Mintz 1967); in the exchange relations between pastoralists and peasants from Iran (Barth 1968); in the relations between Eskimo communities and the Canadian Government (Riches 1975); or among Hausa landlord and various traders in Nigeria (Cohen 1977). Just like in the case of several accounts I have run across (Hausa landlords, Basseri or the European peasants), informal credit in Romania takes place outside any formal bound in the form of a written contract. As in the case most such cases, in Romania such links involve social, but especially geographical, proximity of the parts. Unlike most cases outlined above, we did not find, however, deep feelings of trust, friendship or cooperation between retailers and their customers. The image we have of their link is closer the one of negotiation, mutual testing of each other's limits and of "weapons of weak". Finally we would like to emphasize that this case differs significantly from the credit situations where an interest is asked by the creditor (such as is the case of Basseri outlined above). Not only that there is no interest or inflation adjustment of the amount credited; sometimes there is no profit involved in some transactions, due to the social pressure of population. The extreme case in this category is represented by bread, sold by most retailers at the production cost of the bakeries.
There are many interesting aspects associated with the spread of informal credit. Some have to do with the construction of local criteria of credibility. Women and elders score higher on the prestige hierarchy. Alcoholics, the youth and those that speculate the access to several retail stores occupy the bottom layers. Others have to do with the transfer of the burdens of the household consumption costs to the retailers. During the three main moments of high consumption of the year - Easter, St. Mary and finally December the credited amounts become enormous by local standards. Finally other interesting changes have to do with the emergence of patron-client relations between the retail store owners and the clients they credit. I will refer more in depth, however, to how credit relations mediate between different temporal regimes of the Romanian society.
Retail traders are part of a longer chain of credit that follows the itinerary of commodities from suppliers and wholesalers to consumers and includes also the state as arbiter and chief player on the credit market. Retailers are the first actors in this chain who offer consumption credit and also the only ones whose credit practices are not formalized. In contrast, the credit offered by wholesalers and producers is more or less carefully circumscribed by legal and commercial norms, implying thus fewer risks than the informal credit practices. The state - the ultimate creditor - also extends credit in a legally sanctioned manner, but not wholly devoid of ambiguities and discrimination.
The retailer's credit relations with wholesalers are to a great extent formalized. Usually, he has to comply with precise and fixed credit periods (most often a week). Indeed, he has the possibility to negotiate with the wholesaler (or the wholesaler's middleman), but can rarely "buy" more than other six or seven days. The faster pace of credit between retailer and wholesaler is determined by the time constraints that the wholesaler has to shoulder. Retailers buy "on credit" from the producer and have to make payments within 25 days. That is why the wholesalers usually extends credit to retailers only on a period of seven days. They need a sufficient bandwidth of error in case payments are delayed.
In contrast, the retailer has no legal norms to constrain or support his creditor claims when dealing with customers. The credit terms he practices, the amounts offered as credit, the possibilities of payment - these are all opened to negotiation and backed only by the fragile and slowly crafted relations with customers. Customers often delay the payment of debts twice or more than the initially agreed credit period; sometimes, they extend indeterminately this state of indebtedness, without taking into account the losses thereby incurred by the retailer. Due to the serious problem of inflation, the delayed payment of debts reduces considerably the profit of the retailer.
Retailers cannot impose very stiff requirements to their customers: rural customers can make their payments only when they receive their state allowances (wages, pensions, unemployment benefits, etc.). All their other sources of income are uncertain, temporary and varying in amounts (day laboring, for instance). In order to keep his customers, the retailer will continue to sell them goods on credit even if they do not repay their debts. If he ended the relationship, customers would never pay back their old debts. Thus, by continuing to sell on credit, the retailer wants to keep the customers "hooked up" (agai), dependent on him for their consumer needs. Both retailer and customers are stuck in the credit relationship: customers succeed in buying some time, but by doing this they also condition and reduce the scope of future actions. In the same way, retailers limit the range of business decisions by giving away a great part of their liquid capital into debts.
Given his position, the retailer always works in-between two different time regimes: the rapid and changing one of wholesalers and producers, and the slower, static one of rural customers. Placed between those to whom he owes money (wholesalers) and those who owe him money (customers), the retailer trader has to survive a "vicarious equilibrium" (Fernand Braudel). He is the victim of delay - and in this sense he needs to operate with two different time orders and maybe help to connect them. Different temporalities entail different languages. When discussing credit periods, wholesalers and retailers employ the language of an intelligible market space: price, discount, invoice, bank account, inflation, profit, etc. In contrast, when negotiating with their customers, retailers use a language replete with ethical meanings: need, poverty, trust, compassion, friendship, kinship, fictive kinship, etc. Thus, the retailer converts/translates the static and "moral" vision of time and money of his peasant customers into the dynamic and "rational" order of his suppliers and thus of the wider national/world market.
"Hooked up" in the credit relationship, both retailers and their customers inhabit a monotonous, creeping temporality. People's time horizons get shorter, and the consumption joys of an over-dilated present gain in significance. In the words of a young man from Dobrosolveni,
"here, it seems like it's Sunday all the time. People hang in bars throughout the whole week as if they were on a vacation."
The institution of informal credit started to function as a tolerated illegality. Local membership becomes a key asset in the access to goods, because informal credit is accessible to any person capable to put to use their social relations. Extra-community consumption opportunities and sites require money, a burden difficult to overcome but most rural inhabitants.
At a different level, informal credit represents a key site for the investigation of the dynamic relation between state and market and of the ways in which different levels of the economy are integrated. Given the reduction of the state's social functions, in many Romanian localities, but especially in the rural ones, the recourse to informal credit is one of the main survival strategies of poor people. Placed at the intersection of two distinct time-orders, retail traders have the possibility to gain profit only to the extent that they manage to maintain an equilibrium between the growing demand for credit at the local level and the suppliers' desire to control regional consumption markets. Informal credit is the final sequence of a long cycle of delayed payments, in which almost everyone is a creditor and a debtor at the same time.
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1. This research was carried out by Puiu Lea and myself between September 2000 and August 2001. It was made possible by a Research Support Scheme grant offered by Central European University. This paper is a condensed version of the longer research report written together. The data come from Southwest Romania and more precisely from one town (Caracal) and the seven rural settlements that surround it. Besides the fact that we had easy access to these communities, the reason why we chose this region had to do with the fact that the occurrence of informal credit seems to be very high there. The data come from two sources. On the one hand there were about four month of fieldwork. This included countless informal conversations, about 40 interviews and also spent from the time spent in circa 75 commercial spaces, observing and interacting with shopkeepers, barkeepers and their customers. On the other hand there was also a quantitative investigation of the phenomenon based on a representative sample of this region (four counties).
2. Joke in the area studied.
3. Carmen Valica, "A Bottle of Canola Oil Until I Get my Pension", Monitorul de Cluj, 26 June 2001.