Economists have predicted an implosion of the president’s economic regime Vladimir Putin since the West struck Russia with drastic sanctions for his invasion in Ukraine. But after three and a half months of war, Russia resisted, with Putin announcing on June 7 that inflation had slowed and unemployment remained steady.
It helps a lot that Russia is a power plant that still has extraordinary sales revenue due to rising oil prices. Even without a gain in energy, Russia could be protected in the short term from sanctions. This is due to the fact that the country has been protected from sanctions since 2014, when it was the target of a series of trade restrictions, after it was illegally annexed. Crimea.
Putin “remodeled Russia’s economy into a fortress” to withstand external shocks, Veronica Carrion, an economic researcher at the American Bankers Association (ABA), said in a June 13 ABA Banking Journal post.
Some experts have questioned the reliability of Russian statistics since the beginning of the war. “The Russian government obviously has an incentive to try to hide the economic impact of Western sanctions,” said Andrew Lohsen, a member of the Europe, Russia and Eurasia Program at the Center for Strategic and International Studies.
Even if the economy resists as it seems, Russia could eventually run out of time when the commodity rally stops and as the Western sanctions intensify, eroding its system. But for now, the country is showing unexpected resilience as a result of a series of measures, such as replenishing national reserves and removing foreign capital.
Moscow he filled the reserves and gathered gold
Prior to the invasion, Russia had the fifth largest foreign exchange and gold reserves in the world worth about $ 630 billion, according to the Bank of Finland’s Institute for Emerging Economics. “This stock can cover the government’s balance sheet and support the ruble,” Carrion wrote.
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 collected in the country – which is also the second largest producer of this precious metal in the world.
Russia’s gold has tripled since 2014 and is still stored in safes in the country, according to the Central Bank. YOUR they sanctioned Russian transactions using gold, but that would not stop “opportunistic countries” from doing business with Moscow, Carrion wrote.
Russia is also continuing to increase some reserves in the form of its emergency funds – thanks to the extraordinary gains in its oil and gas sales. In April and June, it added $ 12.7 billion to its emergency reserves. These funds will be used to ensure stable economic development amid sanctions, he wrote Reuters on June 9, citing a statement from the Russian government.
Russia has moved away from foreign capital and paid its debt
Beyond saving, Russia has shifted away from foreign capital by aggressively paying off debt over the past eight years, wrote Gian Maria Milesi-Ferretti, a senior researcher in economics 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, a Russian expert at the Carnegie Endowment for International Peace, said in February. “He is not trying to use the Russian banking system or access to Western capital to make Russia great.”
Russia’s foreign debt is quite small. The government owed about $ 39 billion in foreign currency bonds by the end of 2021, JPMorgan estimated. By comparison, Greece went into default with a sovereign debt of € 205.6 billion in 2012.
As for Russia’s overall national debt, it is only 17% of GDP – well below the three-digit values for many developed countries. The country “doesn’t really need to borrow,” Anton Tabakh, chief economist at Russia’s Expert RA rating agency, wrote on the June 15 Carnegie Endowment for International Peace website. The US national debt is about 130% of GDP, according to Statista.
Russia’s biggest problem now is paying its foreign debt due to sanctions restrictions, Tabakh added. Once this is resolved, Russia and its companies will be able to pay off their debt, and the country’s own resources “should be sufficient to meet the needs of the budget, banks and corporations,” he added.
Russia is moving towards economic self-sufficiency
Russia is moving inward as it has become an international pariah – but as a major commodity maker, its economy will not collapse completely – even if growth will be slow and sluggish, said Hassan Malik, senior investment analyst. from Boston.
“Russia is one of the few countries in the world that can engage in autarky,” Hassan told Insider. He was referring to the notion 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 an exodus of international companies that took their goods and services with them, Russian entities took over the companies and replaced the products with domestic offers.
For example, the capital Moscow and a group backed by the Russian state have taken over the operations of the French carmaker Renault from the country for a nominal amount of 2 rubles (3.5 cents). They intend to revive a Soviet-era car brand with production units, said the city’s mayor, Sergei Sobyanin.
But Russia’s economic situation will still be very difficult. Putin himself said on June 9 that replacing imports with locally produced goods “is not a panacea.” He said Russia would look for new trading partners and continue to develop its own industries for “critical technologies”.
The magnitude of the current sanctions far exceeds that of 2014, so “they will impose very severe costs on the Russian economy,” Milesi-Ferretti explained.
Russia’s economy is expected to decline by 8.5% in 2022, with an additional 2.3% decline in 2023, the International Monetary Fund estimated in an April report. This would be the largest economic downturn in the years since the fall of the Soviet Union in 1991.
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