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Under the white walls and blue-and-gold cupolas of the Sergiyev Posad monastery, the row of vendors selling nesting dolls and other traditional Russian handicrafts is noticeably shorter this summer. Usually the cheap folding tables, set up in a double row outside the spiritual center of the Russian Orthodox Church, are surrounded by tourists snapping up the iconic egg-shaped souvenirs, made of smaller and smaller wooden dolls hidden one within the other. But on a recent Thursday afternoon, there were only about a dozen people looking to buy. At one table, Olga Isakova waited on her first customers of the day, a man and his son who examined a bright blue-and-white nesting doll with curly blond hair and a heart-shaped mouth before putting it down and walking away. "My sales have fallen 10% to 20% since the fall," says Isakova. "I'm only selling the cheap stuff these days."

As the financial crisis continues to take its toll and travelers decide to stay closer to home this summer, Russia's small local industries suddenly find themselves struggling. Now the government is stepping in to try to keep Russia's artisanal traditions alive. Earlier this year the Russian government announced that it would buy $28.4 million worth of nesting dolls (called matryoshka in Russian), lacquered dishes, crocheted shawls, felt caps and other quintessentially Russian knickknacks to bolster the industry and try to protect the livelihoods of some 30,000 workers at around 240 companies.

"It is necessary to understand the place and role of folk crafts in the general construction [of the market]," said Viktor Khristenko, head of the Industry and Trade Ministry, in March. As orders have started to dry up, the production of handicrafts by registered companies in the period between January and May fell 19% compared with the same period last year, dropping from $35.2 million worth of goods to $28.5 million, according to the Federal State Statistics Service. Meanwhile, the number of tourists, who make up the bulk of buyers of Russian handicrafts, has dipped drastically, with 25% fewer visitors arriving in the first quarter of 2009 than in the same period in 2008.

"There are significantly fewer tourists coming to Russia right now, and this is negatively affecting our sales," says Oleg Korotkov, director of Semyonovskaya Painting, a top Russian handicraft maker. Korotkov's company, which is based in the Nizhny Novgorod region of central Russia, seemed to be weathering the storm until the financial crisis finally struck him and his 70 employees around the end of January. Orders from within Russia have fallen fivefold, he says, while combined foreign and domestic sales have fallen 30% to 40% this year. "Our sales were supported through the end of the year just on inertia," he says, adding that he doesn't believe that the government's attempt to bail out Russia's handicrafts industry will work. "I just think we will have to be patient for at least two years before we see a recovery. Nothing will help."

Alexei Polikarpov, head of the Dyuna Nesting Doll Co., also based in the Nizhny Novgorod region, shares Korotkov's dim view of the government plan. "Realistically, I'm not sure that the funds will reach all of the factories," he says. But even if they do, not all of the country's handicrafts are produced in the small factories that dot rural Russia. In Sergiyev Posad, the historic home of the nesting doll, many people still paint dolls in their living rooms and kitchens. While the government says it aims to save a traditional Russian art form, the artisans who still do the work in the most traditional way may be the ones who suffer most: they won't see a ruble of the government's stimulus package, which is directed only at large-scale factories.

Marina Krytikova sits at her kitchen table, the smoke from her cigarette mixing with the smell of lacquer as two doll sets dry on the tablecloth. The bellies of the roly-poly dolls depict stylized Russian scenes of dashing horses, young lovers and soaring eagles that Krytikova has copied over the years out of books of fairy tales, from greeting cards and even off the tops of cake boxes. "When I'm working, I forget about everything," she says as she peers over her glasses to paint intricate curlicues on the body of a large doll. "I forget about family problems. I forget about the crisis."

But the crisis has become harder and harder to ignore, even as Krytikova is surrounded by more than 30 dolls that, when completed, will represent about $190 worth of merchandise for three days of work. "In 1999, we were able to buy a car, a garage, send one son to university and renovate our apartment on the money my husband and I made from making matryoshki," she says. "But today, you make such a small amount of money for such devilishly complicated work." She notes that since October, she's had to cut her prices by about $4 per doll. Factor in the 30% drop in the value of the ruble, and Krytikova now makes only half of what she used to on each doll. "I love my work," she says. "When I die, I've told my sons that they should put up a matryoshka instead of a headstone. But if prices continue to fall, it will be useless for me to continue working."

Outside the Sergiyev Posad monastery, the women selling nesting dolls are also skeptical about the industry's future. "The government's plans rarely help," says Yelena (who declined to give her last name), a handicrafts vendor along the souvenir strip. As the women sitting in their lawn chairs nearby nod their heads in agreement, she adds, "If they really want to help, they should increase our pensions." If Russia's handicrafts industry collapses, a 120-year-old tradition could begin to fade and pensions could be all that these women — and thousands of dollmakers — have left.

• John Wendle / Sergiyev Posad
• As the financial crisis rolls on, Russia's handicrafts industry is struggling because of a drop in exports and a dip in tourism. The government is planning a $28.4 million bailout, but will that be enough to save Russia's iconic nesting dolls?