Russian President Vladimir Putin has been preparing for Western-led sanctions since the country was hit by a number of trade restrictions in 2014 over the annexation of Crimea. Getty Images
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Russia has been preparing for sanctions since 2014 after annexing Crimea.
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Moscow has already been affected by a number of Western-led sanctions since annexation.
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Russia has since defended itself through various measures.
Economists predict a collapse of President Vladimir Putin’s economic regime since the West hit Russia hard with sanctions over its invasion of Ukraine. But three and a half months after the war, Russia has been holding back, with Putin announcing on June 7 that inflation has slowed and unemployment is stable.
It helps that Russia is an energy plant that still has high sales revenues due to rising oil prices. Even without unexpected energy revenues, Russia could be buffered in the short term. This is because the country has been defending itself against sanctions since 2014, when it was also affected by a number of trade restrictions after illegally annexing Crimea from Ukraine.
Putin “turned the Russian economy into a fortress” to withstand external shocks, wrote Veronica Carion, an economic researcher at the American Bankers Association (ABA), in a June 13 issue of the ABA Banking Journal.
Some experts question the reliability of Russian statistics since the beginning of the war. “The Russian government clearly has an incentive to try to hide the economic impact of Western sanctions,” said Andrew Losen, a contributor to the Europe, Russia and Eurasia Program at the Center for Strategic and International Studies.
Even if the economy holds up as well as it seems, Russia’s time may still run out when raw materials rise and when intensifying Western sanctions cut through the system. But so far, the country has shown unexpected resilience to a number of measures, such as replenishing its reserves and diverting foreign capital.
This is what Russia is doing in its attempts to protect its economy with sanctions.
Moscow has full reserves and is hiding gold
Prior to the invasion, Russia held the world’s fifth-largest foreign currency and gold reserves, worth about $ 630 billion, according to the Bank of Finland’s Emerging Economy Institute. “This stock can cover the government’s balance sheet and support the ruble,” Carion wrote.
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Russia has lost access to about half of that amount due to sanctions, the country’s finance minister said in March. But there is still a lot of physical gold hidden in the country – which is also the second largest producer of the precious metal in the world.
Russia’s gold reserves have tripled since 2014, and they are all stored in vaults at home, according to the central bank. The United States has sanctioned Russian gold transactions, but that will not stop “opportunistic countries” from doing business with Moscow, Carion writes.
Russia also continues to build up some reserves in the form of its emergency funds – thanks to unforeseen revenues from oil and gas sales. In April and June, it added $ 12.7 billion to its emergency reserves. The funds will be used to ensure stable economic development amid sanctions, Reuters reported on June 9, citing a statement from the Russian government.
Russia is unlearning foreign capital and paying off debt
In addition to savings, Russia has been alienated from foreign capital by aggressively paying off debt over the past eight years, wrote Jan Maria Milesi-Ferretti, a senior economist at the Hutchins Center for Fiscal and Monetary Policy, on March 3. The country is now a net creditor in international markets, he added.
“Vladimir Putin is allergic to borrowing money,” Andrew Weiss, an expert on Russia at the Carnegie Endowment for International Peace, told NPR’s Money Planet in February. “He doesn’t want to use Russia’s banking system or access to Western capital to make Russia great.”
Russia’s foreign debt is quite low. The government owes about $ 39 billion in foreign currency bonds by the end of 2021, JPMorgan estimates. By comparison, Greece failed to repay 205.6 billion euros ($ 277.5 billion) in government debt in 2012.
As for Russia’s total national debt, it is only 17% of GDP – well below the three-digit figures for many developed countries and mostly denominated in rubles. So the country “does not need to borrow,” wrote Anton Tabah, chief economist at Russia’s Expert RA rating agency, on the Carnegie Endowment for International Peace’s website on June 15. The national debt of the United States is about 130% of GDP, according to Statista.
Russia’s biggest problem at the moment is paying off its foreign debts due to restrictions caused by sanctions, Tabah added. Once this is resolved, Russia and its companies will be able to pay off their debt, and the country’s own resources “must be sufficient to meet the needs of the budget, banks and corporations,” he added.
Russia is turning inward to economic self-sufficiency
Russia is turning inward as it has become an international pariah – but as a huge producer of goods, its economy will not collapse completely – although growth will be slow and low, said Hassan Malik, senior sovereign analyst at the Boston-based investment management consulting Loomis Sayles.
“Russia is one of the few countries in the world that can participate in autarky,” Hassan told Insider. He meant the concept of economic self-sufficiency. The country is a major producer of crude oil, natural gas, wheat and metals such as nickel and palladium.
To counter the eviction of international companies that have taken their goods and services with them, Russian entities have taken over the companies and replaced their products with local ones.
For example, the city of Moscow and a group backed by the Russian state took over the operations of the French carmaker Renault in the country for a nominal amount of 2 rubles (3.5 cents). They plan to revive a car brand from the Soviet era with production facilities, said Mayor Sergei Sobyanin in a blog post.
But Russia’s economic situation will still be very difficult. Putin himself said on June 9th that replacing imports with locally produced goods “is not a panacea”, AFP reported. He said Russia would look for new trading partners and continue to develop its own “critical technology” industries.
The breadth and scope of the current sanctions far exceed those imposed in 2014, so they “will impose very heavy costs on the Russian economy,” Milesi-Ferretti wrote in a March 3 publication.
The Russian economy is expected to shrink by 8.5% in 2022, with a further decline of 2.3% in 2023, the International Monetary Fund predicts in a report in April. This would be the largest economic downturn in the years since the fall of the Soviet Union in 1991.
Read the original article in Business Insider
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