New York (AP)-Nearly two months after the Russia-Ukraine war the Kremlin has taken extraordinary steps to prevent economic attacks by the West. While Russia may claim a symbolic victory, the full impact of sanctions on the West feels real.
After the West moved to cut access to Russia for its foreign exchange reserves, limit the import of key technologies and other restrictive measures, the Kremlin took action. Violent measures to protect the economy. These include raising interest rates to 20%, imposing capital controls and forcing Russian companies to turn profits into rubles.
“The government wants to paint a picture where everything isn’t as bad as it really is,” said Michael Alekseev, an economics professor at Indiana University who studied Russia’s economy during its transition following collapse of the Union. Soviet.
A closer look, however, shows that the sanctions are hampering Russia’s economy:
– The country is experiencing the worst period of inflation in the past two decades. According to Rosstat, the state’s economic statistics agency, inflation reached 17.3% last month, the highest since 2002. In comparison, the International Monetary Fund expects consumer prices to rise by 8.7%. developing countries, compared to 5.9% last year.
– Some Russian companies have been forced to close. According to some reports, the manufacturer of the tanks had to stop production due to lack of parts. U.S. officials point to the closure of Lada’s car plants – a brand made by Russian company Avtovaz and mostly owned by French carmaker Renault – as a sign of the effectiveness of the sanctions.
– The mayor of Moscow said that the city expects to lose 200,000 jobs foreign companies will lose business. More than 300 companies have stopped their jobs, and international supply chains have largely closed after container companies Maersk, UPS, DHL and other transportation companies left Russia.
Meanwhile, Treasury officials and most economists are asking for patience so that the sanctions could take several months to take full effect. If Russia fails to receive sufficient capital, parts or supplies over time, it will result in more factories and businesses being closed, leading to higher unemployment.
It took almost a full year after Russia imposed sanctions on Ukraine’s occupation of the Crimean peninsula in 2014, as its economic data showed signs of disasters such as inflation, declining industrial production and slowing growth. of the economy.
“What we need to look for to see if sanctions work, honestly, is still not easy to see,” said David Feldman, professor of economics at William & Mary in Virginia. “We research the price of goods, the quantity of products they make and the quality of the goods. The latter is the hardest to see and probably the latter.
Transparency on how sanctions affect Russia’s economy is limited, especially as the Kremlin has taken extraordinary time to strengthen it and its largest sector – oil and gas – has been further relieved by European, Chinese and Indian energy dependence. Russian.
Benjamin Hilgenstock and Elina Rybakova, economists at the International Finance Institute, assessed in a report released last month that if the EU, Britain and the US ban Russia’s oil and natural gas, Russia’s economy could shrink by more than 20% this year. . Current forecasts predict a 15% decrease.
The United States and its allies argued that it was trying to adjust sanctions to affect Russia’s ability to wage war and financially overthrow the highest level of power, while day-to-day Russians remained largely unchanged. .
But the Russians noticed rising prices. Residents of one of Moscow’s suburbs say the 19-liter jugs of drinking water they always write on have risen nearly 35 percent more than before. The price of 1 kilogram (2.2 pounds) of sugar in supermarkets and local stores rose 77%; Some vegetables cost 30% to 50% more.
The Kremlin and its allies have repeatedly indicated on social media the recovery of the Russian ruble as a sign that Western sanctions are not working. In the early days of the war the ruble dropped to about $ 150, but returned to about $ 80, almost where it was before the invasion. Weekly Inflation Analysis Rosstat showed a slowdown in inflation, but this is not surprising since the central bank raised interest rates as fast as it did.
Russia’s central bank has doubled its benchmark interest rate to support the ruble’s depreciation and stop issuing banks. He lowered the rate from 17% to 20% this month and indicated it could still go down.
This is not the first time Russia has defended the value of the ruble with full force as a symbol of resistance to the West. In the 1970s and 1980s, the Soviet Union had an official exchange rate of approximately $ 1.35 per ruble, while the black market exchange rate was closer to four rubles per dollar. Russia’s debt crisis in the late 1990s was also partly triggered by the Kremlin’s active protection of monetary values.
US Treasury officials have denied the importance of recovering the ruble.
“Russia’s economy is really suffering from the sanctions we’ve imposed,” said Janet Yellen, secretary of the Treasury Department.
Whether and how Russia won the economic war depends on whether the Kremlin will be able to divide the West, making sanctions one-sided and less effective. At the same time, Russia will have time to develop alternatives to goods it can no longer access, a concept known as import substitution.
If you look at the sanctions in 2014, the Congressional Research Service said in January that the impact on Russia was only moderate because the United States was actually acting alone. This time there are many international players.
But Alexeev, a professor at Indiana University, saw a clear flaw.
“As long as Russia continues to sell oil and gas, it will stop,” he said.
Reported by Hussein from Washington. White House reporter Joshua Boak contributed from Washington.
Source: Huffpost
