- Russia has been preparing to impose sanctions since 2014, after it annexed Crimea.
- Moscow was already hit by a series of Western-led sanctions after the annexation.
- Since then, Russia has been protecting itself through a variety of measures.
Economists were expecting internal explosion The economic system of President Vladimir Putin since the West hit Russia with sweeping sanctions for its invasion of Ukraine. But after three-and-a-half months of war, Russia has been resilient – Putin announced on June 7 that inflation had slowed and unemployment had stabilized.
It helps that Russia is an energy power that continues to deploy Abundant sale proceeds Thanks to high oil prices. Even in the absence of windfall energy gains, in the short term Russia could be isolated from sanctions. That’s because the country has been banning sanctions since 2014 when it was also hit by a host of trade restrictions after Illegally annexed the Crimea from Ukraine.
Veronica Carrion, an economist at American Bankers Association (ABA) in the June 13 publication of the ABA Banking Journal.
Some experts questioned reliability of Russian statistics since the beginning of the war. “It is clear that the Russian government has an incentive to try to hide the economic impact of Western sanctions,” said Andrew Lohsen, fellow in the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies.
Even if the economy is as holding up as it seems, time in Russia could still eventually run out when the rally in commodities stalls, and with the tightening of Western sanctions making their way through the system. But for now, the country is showing unexpected resilience from a host of measures, such as increasing its reserves and getting rid of foreign capital.
Here’s what Russia is doing in its attempts to impose sanctions on its economy.
Moscow is amassing reserves and hoarding gold
Before the invasion, Russia held the world’s fifth-largest reserves of foreign currency and gold worth about $630 billion, according to Bank of Finland Institute for Emerging Economies. “This stock could cover the government’s balance sheet and support the ruble,” Carrion wrote.
Russia lost access to about half of that amount due to sanctions, The country’s finance minister He said in March. But there is still plenty of gold hidden in the country – which is also the world’s second largest producer of the precious metal.
Russia gold collectibles It has tripled since 2014, and it’s all stored in cupboards at home, according to central bank. Carrion wrote that the United States imposed sanctions on Russian transactions using gold, but this would not prevent “opportunistic countries” from doing business with Moscow.
Russia also continues to mobilize some reserves in the form of emergency funds – thanks to windfall gains from oil and gas sales. in April And the June, It added $12.7 billion to its contingency reserves. These funds will be used to ensure stable economic development amid the sanctions, Reuters Reported on June 9, citing the Russian government’s statement.
Russia is weaning itself off foreign capital and paying off debts
Besides saving, Russia has been distancing itself from foreign capital by aggressively repaying its debts for the past eight years, Gian Maria Melici Ferretti wrote, He is a senior fellow in economics studies at the Hutchins Center for Fiscal and Monetary Policy on March 3. He added that the country is now a net creditor in international markets.
“Vladimir Putin is allergic to borrowing money,” said Andrew Weiss, a Russia expert at the Carnegie Endowment for International Peace. NPR’s “Money Planet” in February. “He is not looking to use Russia’s banking system or access Western capital to make Russia great.”
Russia’s foreign debt is very low. The government owed about $39 billion in foreign currency bonds by the end of 2021, JP Morgan estimated. in comparison, Greece It defaulted on 205.6 billion euros ($277.5 billion) of sovereign debt in 2012.
As for Russia’s gross national debt, it does not exceed 17% of GDP – well below the three-digit figures of many developed countries and most of them are denominated in rubles. Anton Cook, chief economist at Expert RA, wrote about Carnegie Endowment for International Peace Website on June 15. The national debt of the United States is about 130% of GDP per capita Statista.
The biggest problem Russia is facing now is paying off its foreign debt due to restrictions Tabakh added that the sanctions were caused by it. He added that once this is resolved, Russia and its companies will be able to repay their debts, and the country’s own resources will be “sufficient to cover the needs of the budget, banks and companies.”
Russia is heading inward toward economic self-sufficiency
Russia’s inward turn as it has become an international pariah – but as a massive producer of commodities, its economy will not collapse entirely – said Hasan Malik, chief sovereign analyst at the Boston-based investment firm, said although growth would be slow and low. Loomis Sales Management Consulting Company.
“Russia is one of the few countries in the world that can engage in self-sufficiency,” Hassan told Insider. He was referring to the idea of economic self-sufficiency. The country is a major producer of crude oil, natural gas, wheat, and minerals such as nickel and palladium.
To face Global corporate immigration Which moved their goods and services with them, Russian entities acquired companies and replaced their products with domestic ones.
For example, the city of Moscow and a group supported by the Russian state captured the city Renault’s French automaker operations in the country for a symbolic amount of 2 rubles (3.5 cents). They plan to revive a Soviet-era car brand with manufacturing facilities, the city’s mayor, Sergei Sobyanin, said at Blog post.
But the economic situation of Russia will remain very difficult. Putin himself said on June 9 that replacing imports with domestically produced goods was “not a panacea.” France Press agency mentioned. He said Russia would look for new trading partners and continue to develop its own industries for “extremely important technologies”.
The breadth and scope of the current sanctions far exceed those imposed in 2014, so “they will impose very high costs on the Russian economy.” Melici Ferretti Books In his letter on March 3.
Russian economy Expected to shrink 8.5% in 2022, with a further 2.3% decrease in 2023 International Monetary Fund expected in the April report. This would be the biggest downturn for the economy since the years after the fall of the Soviet Union in 1991.