The economic moves of the USA and Europe, in response to the Russian invasion of Ukraine, appeared on Monday, and in the Russian economy, which was largely cut off from a large part of the West, and hindered the capacity of the central bank of Russia. to manage the country's financial system and mitigate the loss.
Western banks and companies have ceased operations in Russia and their sales to Russian companies. Many cited the risks of possible breach of sanctions. In general, businesses reward stability, while invasions create chaos.
Within days, Russia was cut off from a global system that fueled its transition from a closed, government-controlled economy to a more modern one that brought Western goods, travel abroad, and a middle-class lifestyle. “Today, the Russian financial system and economy are in a completely unusual situation,” said Elvira Nabiullina, the Bank of Russia 's usually cautious governor, dressed in black on Monday.
The sanctions hit Russian stock, bond and foreign exchange markets. Russia's central bank closed the stock market, avoiding a possible selloff, and raised benchmark interest rates to 20% from 9.5% to make keeping the ruble more attractive and absorbing a possible fall.
The ruble fell to 108,014 against the US dollar from 83 on Friday – a fall of more than 20% and its worst decline in a single day since September 3, 1998. Shares of many major Russian companies traded in London and fell as well. Sberbank, the country's largest lender, fell 74%. The bank has been sanctioned by Western nations. The country's energy giants were also affected, with Gazprom down almost 53% and Rosneft down 42%. The central bank said the Russian stock market would remain closed on Tuesday.
Russia has imposed capital controls, preventing residents from sending money to foreign bank accounts and restricting offshore debt payments. On the streets, Russians lined up at ATMs on Monday to withdraw cash.
The speed and breadth of sanctions overturned years of Russia preparing for sanctions, following sanctions imposed in 2014. In a strategy called Fortress Russia, the country raised more than $ 600 billion in foreign exchange reserves, bought gold and focused its targets for boosting exports to China. Russia's blocking of these reserves weakened its strategy, which was acknowledged by Nabiullina, the head of the central bank.
Timoth Ash, strategic strategist at BlueBay Asset Management, wrote in a note to customers on Monday: “From Fortress Russia to Rubble Russia within a week”.
The latest package of sanctions is likely to cause a significant contraction in Russia's economy this year, and could lead to the withdrawal of bank deposits and higher interest rates as the Russian ruble depreciates, according to the Institute for International Finance. Washington-based financial firms.
Elina Ribakova, deputy chief economist at the IIF, said Monday she expects sanctions to reduce Russia's gross domestic product by at least 10 percent and double-digit inflation./p>
“The pressure on the Russian economy is enormous,” said Janis Kluge, a Russian economist at the German Institute for International Affairs and Security. “And things will get even more dramatic in the coming weeks and months.”
Even before Russian President Vladimir Putin's decision to invade Ukraine, Russia's central bank found it difficult to control inflation. Inflation hit 8.7 percent in January, more than double the central bank's target, despite a series of interest rate hikes that began last March.
criticized the central bank for raising interest rates on Monday, saying in an Instagram post that it had chosen to impose further sanctions on Russian companies already at the forefront of sanctions.
In volatile ground
The new sanctions could hurt Russia's economy, which has recovered from economic shrinkage in 2015 and 2020.
The economy is shrinking
The sinking ruble and queues at ATMs remind us of the economic collapse of Russia two decades ago, which laid the groundwork for Putin's rise to power.
In August 1998, with oil and gas revenues declining, the government ran out of money. It devalued the ruble and suspended payments on its debts, leading to the collapse of the banking system. The Russians have lost their savings, and many have seen their living standards fall due to inflation and shortages. largely from the stabilization of the economy, which has benefited from rising oil and gas exports.
Russia, the 11th largest economy in the world, is smaller than South Korea and does not have the same economic weight as the United States or China.
Sanctions in the long run could reverse years of slow progress in diversifying its economy – one of the world's largest suppliers of gas and oil – to a more service-based economy. The oil and gas sector accounts for about half of Russia's exports, but no more than one-fifth of GDP and up to 5% of employment, according to ING Bank.
Russia has one dynamic technology sector with innovative companies contributing significantly to the global economy. Analysts say many of them will no longer be able to trade with their Western counterparts or have access to international supply chains, while others will not be easy to operate outside the country.
Sanctions on semiconductor chips have cut off much of Russia's technology and manufacturing industries. The country has only a few, mainly semiconductor plants, and is dependent on spare parts and patents from Western companies.
Leaving the ship
Yevgeny Bykov, owner of a company that distributes components for electronic devices, said the sanctions have had a significant impact on his business. The company, called Promelektronika, based in the industrial city of Yekaterinburg, buys its products mainly from European subsidiaries of electronics distributors in the USA. These companies have stopped selling to his company, he continued.
Bykov had prepared for possible sanctions, he said, and had more than $ 2 million in foreign exchange reserves at Sovcombank. However, his company is included in the latest US sanctions package and cannot access his funds.
“We have experienced many crises in the 30 years since the company started operating,” he said, noting the Russian bankruptcy of 1998, the global financial crisis of 2009 and the sanctions imposed on Russia after the annexation of Crimea in 2014. He does not see an easy way out of this.
Ivan Vinogradov, who runs a company in St. Petersburg that sells German-made windows, said his associates in Germany had not significantly increased the price of imports and doubted whether his profits would be affected. “Much of his trading is done in cash,” he said, “so he's not too exposed to the problems that have arisen from sanctions on banks.
” We may not have seen the real results yet, “he said. with western sanctions. “However, if they block our access to distributions, then we will have a problem.”
Putin does not have the tools to counter the West financially. On Monday, it issued restrictions on foreign currency loans and transfers from Russians abroad as part of a package of retaliatory measures.
Aside from the disruption of world commodity trade by Russia, a move that would devastate its own economy, analysts do not expect significant consequences from Russia's anti-sanctions measures announced so far. In addition to oil and gas, Russia is a major exporter of metals and coal, but there are few signs so far that it would restrict this trade.
The scale of Western sanctions, however, has raised concerns about their impact on the global economy, say US sanctions experts. Oil prices have soared due to the conflict in Ukraine, which will increase gasoline prices in the US and other parts of the world. One of the new challenges is rising prices, due to high inflation, which companies and central banks are already facing. Any halt in exports of Russian goods and raw materials could also worsen the tense global supply chain for semiconductors.
There is also the possibility of escalating anti-sanctions by Russia. European companies and banks are reviewing their operations there and trying to sell or sign the value of their assets.
BP PLC announced on Sunday that it would sell almost 20% of its stake in Russian oil company Rosneft. The Sovereign Wealth Fund in Norway has said it will try to leave about $ 3 billion in Russian assets, representing a portion of the fund's $ 1.3 trillion. Daimler Truck Holding AG has stated that it will no longer ship parts, while Volvo Car AB will cease operations in Russia.
The effects of sanctions on Russia are likely to be long-lasting, even if they are not in place for a long time. Few companies are unaffected by the country's decisions.
Some sections of the top Russian business community have already begun to protest.
Russian metal tycoon Oleg Deripaska said it was time to put an end to “all this state capitalism” and change Russia's policies. “I really need clarifications and clever comments on the economic policy of the next quarter.”
Another billionaire, banker Oleg Tinkov, has spoken out against the war, calling it unthinkable and unacceptable. “States should spend money on caring for people, on cancer research, not on war,” he told Instagram. “We are against this war!”
Russia's last hope is China, a partnership that is unlikely to succeed.
Foreign Ministry spokeswoman Maria Zakharova said Russia “understood” that it had friends. See the reaction of the giants around the world. Not those who represent the giants, but the real giants and, in particular, China.
Analysts say China may not be willing to support the Russian economy if that means endangering its already frozen relations with the West. Bank officials say China is normal. will have to comply with US sanctions, as is usually the case.
Still, China can not do much. Although trade in energy between Moscow and Beijing has increased, most of Russia's oil and gas is exported to European countries. There is no quick fix for Russia changing the course of its gas and directing its exports to other countries.
Meanwhile, China can not easily replace its chips and computers with the USA. as it does not have the same technological level, and some of its companies have already been sanctioned.
“What Russia has done in recent years is to build up reserves to deal with the sanctions imposed in 2014,” Klug said. “However, regarding the current sanctions, there is no appropriate way to deal with them.”
Source: ot.gr
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