Russia Direct releases a new Brief that describes Moscow’s strategy to minimize the implications of Western-led financial sanctions.
It remains to be seen if the Kremlin will be able to tackle the burden of economic sanctions. Photo: Kommersant
On Oct. 6, the U.S. dollar and euro both reached new records versus the ruble, trading at higher than 40 and 50 rubles, respectively. It now appears that Western financial sanctions – imposed as a result of Russia’s controversial policy in Ukraine – have weakened the Russian currency a great deal. As a result, there are growing doubts as to the Kremlin’s ability to protect the Russian financial system from the full brunt of sanctions.
Furthermore, Moscow’s economic woes might be exacerbated by further sanctions, including a plan floated by the UK to switch off Russia from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the international payment system. Although SWIFT claims that it is hardly likely to cut Russia off from its system, Moscow remains very leery and has been trying to come up with its own financial infrastructure that is independent of external players.
The question of the ultimate impact of financial sanctions has divided Russian experts in their assessments. While some pundits believe that Moscow is able to adjust to its economic isolation from the West, others are raising their eyebrows.
“The reactive measures taken by the Russian government and the Bank of Russia do not look convincing,” Oleg Buklemishev, an associate professor in the department of economics at Moscow State University (MGU), who previously worked as an assistant to Russia’s finance minister and prime minister, wrote in his recent Russia Direct column. “Creating an autarkic financial infrastructure in an era of global markets is costly and pointless.”
Buklemishev agues that “economic woes” are threatening “to break into a full-fledged crisis at any moment.”
Among the optimists is the author of Russia Direct’s Brief, Ivan Kapitonov, an expert from the Russian Academy of the National Economy and Public Administration (RANEPA).
The RD Brief, “Moscow’s Strategy Against Financial Sanctions,” outlines the Kremlin’s response to sanctions and presents a set of recommendations for how to deal with increasing economic pressures.
The first part of Russia Direct’s Brief examines the consequences of Western sanctions on the financial sector of Russia, while the second part offers policy measures to protect the Russian financial sector from the effects of sanctions imposed by Western countries – including the creation of a new national payment system and the development of an alternative system for interbank payments.
Although there is a great deal of uncertainty around Moscow’s capability to withstand sanctions, Kapitonov points out that experts may be discounting Russia’s traditional resilience.
“Under the influence of EU and U.S. economic sanctions, the Russian economy could move from stagnation to technical recession,” he admits, but emphasizes that, “Russia can cope with the sanctions on its financial sector by significantly increasing national resilience and competitiveness.”
What specific steps can Russia take to respond to sanctions and minimize their implications? What is the likelihood that the Kremlin’s countermeasures can withstand economic pressure? Subscribe and download the full version of the Brief to find out. If you are already an RD subscriber, check your e-mail today and see our message on how to download the Brief.