Putin has been preparing for them for nearly a decade

Russian President Vladimir Putin has been bracing for Western-led sanctions since the country was hit by a series of trade restrictions in 2014 due to the annexation of Crimea.Getty Images

  • Russia has been preparing for sanctions since 2014, after annexing Crimea.

  • Moscow has already been hit by a series of Western-led sanctions since the annexation.

  • Since then, Russia has protected itself through a series of measures.

Economists have predicted an implosion of President Vladimir Putin’s economic regime since the West hit Russia with heavy sanctions for invading Ukraine. But three and a half months into the war, Russia held out, with Putin announcing on June 7 that inflation had slowed and unemployment remained stable.

It helps that Russia is an energy powerhouse that is still posting bumper sales revenues thanks to soaring oil prices. Even without an unexpected energy gain, Russia could be protected by sanctions in the short term. This is because the country has been sanction-proofed since 2014, when it was also hit by a series of trade restrictions after illegally annexing Crimea from Ukraine.

Putin has “remodeled the Russian economy into a fortress” to withstand external shocks, wrote Veronica Carrion, an economic researcher at the American Bankers Association (ABA) in an ABA Banking Journal post on June 13.

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.

While the economy is holding up as it looks, Russia may eventually run out of time as the commodity rally comes to a halt and as escalating Western sanctions work their way through the system. But for now, the country is showing unexpected resilience from a number of measures, such as increasing reserves and weaning off foreign capital.

Here’s what Russia has done in an attempt to sanction its economy.

Moscow has accumulated reserves and accumulated gold

Prior to the invasion, Russia held the fifth largest heap of gold and currency 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 budget 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 hidden in the country, which is also the world’s second largest producer of the precious metal.

According to the central bank, Russia’s gold reserves have tripled since 2014 and are all stored in home vaults. The US has sanctioned Russian transactions using gold, but that would not prevent “opportunist countries” from doing business with Moscow, Carrion wrote.

Russia also continues to replenish some reserves in the form of emergency funds, thanks to a boon from 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, Reuters reported on June 9, citing a statement from the Russian government.

Russia got rid of foreign capital and paid off the debt

In addition to saving, Russia has shed foreign capital by aggressively paying off debt for the past eight years, wrote Gian Maria Milesi-Ferretti, an economics researcher at the Hutchins Center on Fiscal and Monetary Policy on March 3. is now a net creditor in international markets, he added.

“Vladimir Putin is allergic to lending money,” Andrew Weiss, a Russian expert with the Carnegie Endowment for International Peace, told NPR’s Money Planet in February. “He is not trying to use the banking system in Russia or access to Western capital to make Russia great.”

Russia’s foreign debts are quite low. The government owed about $ 39 billion in foreign currency bonds at the end of 2021, JPMorgan estimated. By comparison, Greece defaulted on 205.6 billion euros ($ 277.5 billion) of sovereign debt in 2012.

As for Russia’s overall national debt, it is just 17% of GDP, well below the triple-digit figures for many developed countries and mostly denominated in rubles. Hence, the country “doesn’t really need to borrow,” Anton Tabakh, chief economist at Russian rating agency Expert RA, wrote on the Carnegie Endowment for International Peace website on June 15. The US national debt is about 130% of GDP, per Statesman.

The biggest problem Russia now has is paying off its foreign debts due to the restrictions caused by the sanctions, Tabakh added. Once resolved, Russia and its companies will be able to repay their debt and the country’s own resources “should be sufficient to cover the needs of the budget, banks and corporations,” he added.

Russia is turning to economic self-sufficiency

Russia is turning inward as it has become an international pariah – but, as a huge commodity producer, its economy will not completely collapse – even if growth is slow and low, sovereign analyst Hassan Malik said. senior at the Boston office. Loomis Sayles management consulting.

“Russia is one of the few countries in the world that can engage in autarchy,” Hassan told Insider. He was referring to the notion of economic self-sufficiency. The country is a major producer of crude oil, natural gas, grain, and metals such as nickel and palladium.

To counter an exodus of international companies that have brought their goods and services with them, Russian entities have taken over the companies and are replacing their products with local offerings.

For example, the city of Moscow and a group backed by the Russian state took over the assets of the French carmaker Renault in the country for a nominal sum of 2 rubles (3.5 cents). They plan to revive a Soviet-era car brand with manufacturing facilities, the city’s mayor, Sergei Sobyanin, said in a blog post.

But Russia’s economic situation will still be very difficult. Putin himself said on 9 June that replacing imports with locally produced goods “is not a panacea,” AFP reported. He said Russia will seek new trading partners and continue to develop its industries for “critical technologies”.

The breadth and scope of the current sanctions go far beyond those imposed in 2014, so “they will impose very severe costs on the Russian economy,” wrote Milesi-Ferretti in his March 3 post.

The Russian economy is expected to shrink by 8.5% in 2022, with a further decline of 2.3% in 2023, according to the International Monetary Fund’s projections in an April report. This would be the largest decline in the economy since the years following the fall of the Soviet Union in 1991.

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