July 5, 2022

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Index – Abroad – Why can’t sanctions work against Russia?

While many expect Western sanctions to bring Russia to its knees, this has not yet happened and it looks like it will not happen anytime soon. Due to high interest rates and capital restrictions, the ruble has returned to pre-war levels and Russia appears to be gaining momentum in paying off its foreign currency.

On April 29, the Russian central bank rose three percentage points Reduced The base rate has risen from 17 percent to 14 percent, a sign that financial panic is beginning to cross in February. All this is happening despite the joint decision of several Western countries to freeze 60 percent of Russia’s central bank international reserves.

Although the benchmark index of Russian stocks fell by a third in March, it has stabilized, and customers of Russian banks have also recovered their money after withdrawing about 3,000 billion rubles (about $ 31 billion).

The main goal of Russian macroeconomic policy in recent years is not to accelerate economic growth, but rather to create an economic stronghold. BuildIt opposes the crisis caused by sanctions.

For example, in 2017, a financial rule was passed requiring a budget to balance the price of a barrel of oil above $ 40.

Russia is even poorer than it should be thanks to this policy. Since 2014, the average growth rate of the economy has been 0.6 percent, which is only one-fifth of the global average. Revenues of small and medium enterprises declined, but large companies close to the state increased.

In addition, welfare measures are very simple. The government raises the maternity allowance by 5,000 rubles ($ 63) a month, while unemployment benefits have risen by a third to 12,000 rubles ($ 184) a month. To offset the blow to the national budget, Vladimir Putin raised the tax on dividends from foreign stocks from 2 percent to 15 percent and imposed an almost new tax on the rich.

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So it is an exaggeration to say that everything will be fine with Russia’s economy and the living standards of its people. The new regulations provoked strong state control and war, forcing many Western companies to leave the country. The Reuters According to the package, the following large companies in each sector have left Russia:

Vehicle:

Banking Sector:

Electronic components and equipment:

Energy sector:

Food and Beverage:

  • AB Info
  • Phaser
  • Balik
  • Raisio
  • Valio

Mine:

  • Amur Minerals Corporation
  • Kinros

Restaurant:

Others:

  • Real brands team
  • Brunel International
  • Flugger Team
  • Imperial brands
  • Marsk
  • Stora Enzo
  • YIT Sverige AB

Although this cuts off the supply market for some services and products, barriers and weak currency make imports more expensive, but in many cases Does not affect the priceMainly for goods or services manufactured in Russia.

Vodka’s situation is similar, prices have been lower since the outbreak of war, but more importantly petrol and diesel prices are almost the same. According to a study by a think tank close to the OECD, for example, data from the week of March 26

Russia’s GDP was five percent higher than the previous year.

After the slump in March, Russians seem to be spending a little more on cafes, bars and restaurants, at least according to an expense monitor run by Russia’s largest bank, Sberbank.

How is all this possible in the shadow of war and sanctions?

As mentioned earlier, Russia has moved towards the annexation of Crimea in 2014 and is establishing a self-sufficient economy based on Western sanctions. Fossil fuels Meaning. They have made at least $ 65 billion in revenue since those wars.

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All these provide valuable foreign exchange resources to the Russians so that they can buy various goods from neutral and friendly countries. In addition

The weakness of the ruble also controlled the loss of revenue caused by the fall in oil prices, so in many cases Western sanctions made it irrelevant that foreign goods are now more expensive in rubles.

It is also necessary to point out that Russian companies have no choice but to cut off from foreign capital markets and use foreign exchange. Although Western companies use lower interest rates to borrow, Russia’s corporate debt portfolio has fallen below 50 percent of GDP, while the state’s rate is already below 20 percent.

Anti-Russian sanctions have mainly affected the EU food market, spurring growth in domestic agriculture. Over the past five years, Russia’s food imports have fallen by a third to 24 percent.

Truth must be added to these

Russia currently has one of the largest gold and foreign exchange reserves in the world, valued at nearly $ 570 billion.

This is mainly due to monetary policy measures. That is, it is not surprising that the Russian leadership claimed that everything was given to pacify To resist Western barriers.

(Cover image: McDonald’s restaurant closed in Moscow on March 18, 2022. Photo: Image Alliance / Getty Images)