Sanctions

Another article in Vedomosti arguing that sanctions (and counter-sanctions) are not having the desired impact on Russia’s policy toward Ukraine.*

Western sanctions and Russian countermeasures are negatively impacting the economy, but not achieving political changes.  Rate hikes on both sides turns new losses and increases mutual distrust.  Yesterday, US President Barack Obama extended sanctions against Russia for one year (the first sanctions were introduced in March 2014).  The plan of the initiators of the US and European sanctions were to force Russia to abandon Crimea and then to stop supporting the rebels in the Donbas.

Russia rejected imported food by entering into anti-sanctions.  They broke up inflation, without providing any import substitution, but Russian authorities were able to shift the responsibility for the price hikes on the treacherous actions of the West.  Food inflation, according to Rosstat (the Russian Bureau of Statistics), from January 2014 to January 2015 was 23.3%.  The cost of fruit rose by 40%, vegetable by 37%, fish by 24.7%, meat by 23.7%.  By March prices compared to January increased by another 6%.

Western sanctions have imposed on the old problems of the Russian economy and falling oil prices have led to serious negative consequences.  The ruble was devalued over the course of the year of sanctions by 41.3% against the dollar and 27.7% against the euro.  Capital flight from Russia in 2014 set a record of $152 billion.  The Ministry of Economic Development in February predicted in 2015 a decline in GDP of 3%, capital outflows of $115 billion, and inflation of 15.8%.

But the Kremlin has demonstrated to its citizens that sanctions have no impact on its policies.  In February VTsIOM [a state-funded polling agency], 57% of respondents noted the negative impact of sanctions (in August 2014 – it was just 15%).  The proportion of those who saw their influence on their families’ lives has grown from 5% to 45%.  The most popular answer to the question, what is the West’s goal, is “economic crisis”.  The decline in living standards is unlikely to affect political attitudes and weaken support for the authorities, said Alexei Levinson of “Levada Center” [an independent polling agency].  According to Levada, 69% of respondents believe that Russia should continue its current policy, regardless of the reaction of the West….

The current sanctions policy stimulates the growth of anti-Western sentiment in Russia and strengthens the current government, but also the softening of the West’s position will be seen by the Kremlin as a victory.  For Moscow, the continuation of the current line is beneficial from the domestic standpoint, but is fraught with the deepening economic problems and the growing technological gap between advanced countries.  Who will dare to take the first step back, and to abandon the current zero-sum game, is unclear.

 

Though it may not seem like it, the Putin regime is still trying to play the middle ground on the sanctions.  However, in doing so they have made nobody happy.  A certain sector of the elite are not happy with the rate hikes and the sanctions, while another sector of the elite feel that Putin has not reacted harshly enough in countering them.

Sergei Markov (who is still getting invited to the US Embassy in Moscow and to speak to CNN) posted a note on his Facebook page yesterday insisting that Putin’s weak response to the sanctions had encouraged the US to extend the ones already in place.  Instead of import bans, Markov suggested violating copyright law.

The sanctions need to be answered asymmetrically, not in the economy where we are weak, this is stupid.

 

It is unclear what will happen next, and if the Russian government will retaliate for the extension of the sanctions, but clearly the sanctions currently in place are not working, as the Vedomosti article points out.

*This story was brought to my attention by Alexander Lebedev.

 

 

 

 

 

 

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