Russia adapts to “sanctions from hell”

Russian President Vladimir Putin’s remarks during his meeting with government ministers on Thursday were his first comments on the West’s “hellish sanctions”. They focused almost entirely on “a set of measures aimed at minimizing the consequences of the sanctions on the Russian economy and the population of our country”.

Putin’s number one priority is to hold himself accountable to his people. Unlike his American counterpart, Joe Biden, Putin doesn’t feel the need to stand out, given his high approval rating of over 70%.

The paradox is that, while the Western countries that imposed the sanctions are going through paroxysms of anguish, tenacious worries and anxiety syndromes, the “victim”, Russia, seems nonchalant and is calmly adapting to the “new normality”. The contrast couldn’t be sharper.

Undoubtedly, the Kremlin prepared thoroughly for Western sanctions. Prime Minister Mikhail Mishustin told Putin that a “special headquarters” had come into action to coordinate the activities of all departments, including at the regional level. He said: “Measures to protect the most vulnerable areas are being developed sector by sector. The “main objectives” are:

“protecting the internal market”;

ensuring the uninterrupted operation of businesses by eliminating disruptions in supply and production chains;

helping people and businesses adapt quickly to changing circumstances; and,

maintaining employment.

More than 20 major pieces of legislation are in the works, which include specific proposals to stabilize financial markets, support industries, especially for the private sector, as well as for the “return of capital”.

A bill aims to prevent the closure of factories by foreign owners through “external management”. There is a vague hint of nationalization, if things come to fruition. Interestingly, most Western owners advertise a “temporary suspension of operations” while paying employee salaries.

The IT sector, the construction industry, transport companies and the travel and tourism sector will receive particular attention, as will agriculture, which concerns not only employment but also Food Safety. There is a general relaxation of regulatory measures, debt repayment schedules, bureaucratic procedure, etc.

Mishustin noted, “Maximum freedom of economic activity in the country, minimum regulation and supervision and, of course, labor market support will remain the basis of our economic response. The government will expand import substitution and help domestic producers replace foreign products in supply chains.

The highlight of yesterday’s event was Finance Minister Anton Siluanov’s presentation of measures to stabilize the domestic financial market, underlining how accurately the Kremlin has anticipated the West’s program to isolate Russia.

Siluanov said “Western countries have basically launched a financial and economic war” combining a default on their financial debts to Russia with a freeze on Russia’s gold and currency reserves. “They are doing everything they can to stop foreign trade and export,” he added, “trying to create a shortage of imported necessities… (and) forcing successful businesses with foreign capital to be closed”.

In these circumstances, the “priority of the government is to stabilize the situation of the financial system and to ensure the continuity of operations”. Siluanov explained that the measures taken in this direction include “precautions to control the outflow of capital abroad” and a special procedure for the servicing of foreign debt, including the national debt, according to which Russia will repay its debts. foreign exchanges in rubles and “will carry out the conversion by unfreezing our gold and foreign exchange reserves.

Other measures include mandatory return of foreign exchange earnings by enterprises, raising ruble interest rates, suspension of taxes on individual interest income for two years, suspension of VAT on purchase of gold and “a great project of amnesty of the capital”.

The central bank will fully guarantee the liquidity and uninterrupted operations of financial institutions. Siluanov said: “These measures have already produced results. The situation on the outflow of deposits is stabilizing and the amount of cash withdrawals has been reduced to almost zero… the balance of payments is also improving. Current account receipts balance capital flows.

Certainly, the sharp increase in oil and gas revenues will offset any decline in revenues in other sectors, thereby reducing public borrowing and debt, and providing funds for priority spending.

More importantly, Siluanov stressed that the government sees social commitments as the “top budgetary priority”. He said: “We will ensure the payment of pensions, benefits, salaries and other payments in a timely manner and in full. Medicines are also provided as planned, including for children with complex illnesses.

“In May, low-income families with children will start receiving new payments. We will allocate additional expenditures for these purposes in the budget system. The government has started to implement anti-crisis measures. Our top priority is to maintain employment and jobs, and to support those who need help in the current circumstances. »

Overall, the prognosis here belies Western predictions of “doomsday now.” The EU’s rejection of Washington’s proposal for sanctions on Russia’s oil exports virtually guarantees that there will be no revenue shortfall in Moscow. In 2021, the Kremlin balanced its budget with an oil price forecast of $45 a barrel. Prices are currently over $130 a barrel!

This conservative fiscal approach by the government largely insulates the economy from the effects of Western economic sanctions. Ironically, the pressure will be on European leaders who are worried about major disruptions to Russia’s energy supply and need to keep their economies fueled, while punishing Russia!

On the contrary, if Putin responds with gas cuts, it could drive up energy prices even further, spur inflation and undermine Europe’s economic recovery. Simply put, Russia is much larger than the contiguous United States, and has an educated population and far more natural wealth than Western Russophobes might expect!

Take the exclusion of Russia from SWIFT. The fact is that while seven Russian banks were removed from SWIFT, those targeted did not include Sberbank or Gazprombank, two of Russia’s largest banks by assets. Why? Mainly due to Europe’s continued dependence on Russia for energy!

The fact is that Russia is intimately linked to the global economy, holds vast amounts of critical resources, and has been preparing strategically since 2014 to deal with the long-term impacts of sanctions and a withdrawal from SWIFT.

Furthermore, it should be understood that while several Russian banks are now cut off from SWIFT, they can still execute international transactions with other banks – except that they have to use slower and less secure methods of interbank communication, such as the network obsolete telex telegram or phone calls and emails.

By the way, Russia has also developed its own internal messaging system for financial transactions, the Financial Message Transfer System, which in a pinch could serve as a functional alternative to SWIFT.

Similarly, Western sanctions against Russia are bound to have ripple effects on global markets, including supply chain disruptions and higher prices for energy and agricultural products. As well as being a key exporter of oil and gas, Russia is the world’s largest producer of palladium and the second-largest producer of platinum – key commodities used in the manufacture of semiconductors – and a major exporter of other critical minerals, mining products and agricultural products. .

Clearly, Russia has no shortage of willing trading partners in Asia, Africa and the Middle East, as it is forced to rely primarily on non-Western-aligned countries for trade markets for the foreseeable future. .

This has bigger implications. Western sanctions could potentially accelerate a global economic divide between the West and Russia-aligned economies that are poised to break away from the current US-dominated financial system, thus accelerating a broad global economic reorientation.

Sure, the sanctions will isolate Russia from US and European markets, but its large reserve of natural resources and close ties to China lessen the likelihood of it becoming economically isolated.

On the contrary, if Western sanctions persist, economic relations with Russia could contribute to accelerating the growth of a non-Western bloc in the world economy, which would have a deleterious impact on the status of the American dollar as a world currency. .

Clearly, there are already emerging signs that thoughtful minds in Europe, particularly in France and Germany, are feeling troubled and aware of the need to rebuild bridges with Russia. It remains to be seen how they unfold.

It is likely that once Russia has achieved its goals in terms of security guarantees, a process of rapprochement will begin between the major European countries and Russia. In fact, at yesterday’s meeting, Putin expressed confidence that he expects an about-face even from the United States, just as the Biden administration recently did vis-à-vis the United States. vis-à-vis Venezuela and Iran.

EU foreign policy chief Josep Borrell, a warmongering Russia figure, made an abject confession on Thursday when he said the EU had exhausted all possible restrictive measures against Russia: “Of course , we can always go further, but we have already reached the limits of what we can do. We have done all we can. Of course, Putin reserves the right to retaliate against Western sanctions at a time of his choice. and selectively.Currently, he is focused on navigating the Russian economy through “sanctions from hell.”

Ambassador MKBHADRAKUMAR is retired from the Indian Foreign Service.

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