Russia is heading week by week, inexorably, towards a war economy that may leave it far behind the West and China in the coming years. The country initially overcame the sanctions imposed in retaliation for its war in Ukraine, but some of the country’s most renowned economists agree that the real crisis threatens to erupt in the coming months if there is no turnaround soon. 180 degrees in the conflict. In addition, there does not seem to be a clear plan: criticism is intensifying in the face of problems to substitute imports, and the Government has gone from staunchly defending its membership of the World Trade Organization (WTO) to wanting to abandon it. President Vladimir Putin insists that Russia will remain part of the global economic chain, but his isolation could push his tariffs to the level of North Korea’s.
“Elvira Nabiúllina and other important people speak sincerely that (the crisis) will arrive around the third quarter. The sanctions are piling up and there are reserves in the factories for two or three months, but later everything will be much more difficult,” says Alexei Portanski, the former director of the office that achieved Russia’s accession to the WTO on the other end of the phone. 2012. The professor at the Higher School of Economics in Moscow mentioned the speech delivered in April by the governor of the Russian central bank before Parliament. “The period in which the economy has been able to live on reserves is over,” warned Nabiúllina, an announcement that is even closer after the European Union has agreed on a new round of sanctions, ranging from the partial ban on import Russian oil to punish Alina Kabaeva, Putin’s alleged girlfriend.
Russian airlines are a true reflection of its current economy. Despite having European airspace banned, they continue to operate within the country with supposed normality. But they have grounded several planes to cannibalize their parts because neither Boeing nor Airbus send replacements, with the danger that this entails. Meanwhile, producing the new Superjet-100 — which has already suffered several accidents — is unfeasible because its engines are French. The authorities are considering reviving the Soviet Tu-214, which failed due to its inefficiency.
“Production will not stop completely. The problem is that we have entered a regression, production will not be based on modern technology, but old-fashioned. It will be a process of deindustrialization because because of the sanctions there will be technological restrictions,” warns Portanski, who emphasizes that this “will increase unemployment, while the quality of production will be worse.” “This will be a continuous process, not an immediate one, a long-term path,” adds the professor.
Three recent examples. First, Taiwan, the largest exporter of microchips in the world, has just banned the shipment to Russia of those that exceed 25 megahertz, so only those that use very basic appliances can be imported. Secondly, a court in the Russian city of Perm has requested special permission to buy Windows computers instead of software Russian because their programs don’t work. And finally, Kamchatka Airlines has stopped flying because it can’t fix its Cessnas, while S7 has confirmed it will be cannibalizing parts from its planes. In addition, RhZD, the Russian railway company, has suspended several high-speed trains for alleged works just after its manufacturer, Siemens, announced that it is leaving the country and canceling its maintenance.
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The economist Portanski is cautious in asking you for a forecast for this year. “Any forecast is premature, there is a huge political factor. If some kind of agreement is reached on Ukraine, the economic situation can be normalized. If the conflict deepens, then the worst predictions may come true”, he warns.
The forecasts of funds and institutions cover falls of 8% to 30% of the Gross Domestic Product (GDP) this year, while inflation would be around between 18% and 20% current official, although it may worsen. Also, many imported products, such as phones, will become increasingly difficult to obtain. Despite the myth of the alliance between Moscow and Beijing, Chinese giants such as Xiaomi and Lenovo have also suspended a large part of their exports.
After the introduction of the first sanctions at the end of February, the Russian currency sank from around 90 rubles per euro to more than 160. However, the mini-corralito imposed by the Russian central bank and the collapse of the demand for foreign currencies of the inability to import almost no product) strengthened it to an exchange rate close to 60.
But there is a trick. The dollars and euros acquired from March 9 can only be withdrawn in rubles from the bank account at least until September – and it is not known what will happen in the fall. When doing the test this week with Sberbank, the largest in Russia, it offered euros at 90 rubles if they are bought in cash, or at 70 if they are left taking dust in the account. That is to say, the same change that existed before the offensive and without taking into account that there is still part of the minicorralito to be built.
“This type of change will not hold,” Portanski believes. His opinion is shared by Russian investment funds such as LockoInvest and Ingosstraj-Investments. The head of Macroeconomics of the latter, Antón Prokudin, foresees that the depreciation of the ruble “will be noticeable this year as restrictions are lifted, and the next due to the fall in the prices of raw materials and the full validity of the sanctions. ”.
Without a free market, the exchange rate is relative. In the eighties, the parity of the ruble with the dollar was less than 100 kopecks (cents), but cowboys were smuggled in. Now, Moscow has legalized smuggling for many products.
without a solid plan
Before the war, the Kremlin set a 2030 horizon for 70% of its exports to be non-energy. Now that goal seems like a pipe dream. North America, Europe and part of Asia have called on the WTO to exclude Russia from the most favored nation clause, which could trigger its tariffs to 35%, a level only reached by the North Korean regime of Kim Jong-un.
The Russian delegation vigorously protested this discrimination in March and its Ministry of Economy stopped a parliamentary proposal by the Just Russia-For Truth formation to leave the organization. “The WTO is the only international platform where Russia can actively defend its economic interests,” the government replied.
That course only lasted a month. State Duma spokesman Pyotr Tolstoy announced on May 16 that his country has taken the first steps to leave the WTO and the World Health Organization.
Before starting the offensive, the Kremlin claimed to have achieved 90% of its plan to substitute imports for Russian production. A few weeks ago, Putin narrowed it down to “critical sectors.” Unlike the military campaign, politicians and businessmen have begun to openly criticize what they consider “a failure” of the import substitution plan, although the hard sector calls for five-year plans, while entrepreneurs implore free market regulations.
“It is true, the program has totally failed. There is nothing beyond chatter in institutions. Our people see it in consumer goods and other sectors,” Andrei Klishas, chairman of the upper house committee for Constitutional Legislation and State Building, said in May.
Klishas quoted the Senate spokeswoman, who urged a review of a plan that he considered “too soft.” They were joined by the chairman of the Anti-Corruption Committee, Kiril Kabanov, who called for punishing businessmen who have not complied with the Kremlin’s mandates. “It is time to curtail the appetites of a series of actors who put their personal interests before the state with projects that are irrelevant today, such as electric cars,” Kabanov added in an ode to isolation.
In contrast, businessman Oleg Deripaska, owner of Rusal, the world’s largest aluminum multinational, which saved it from sanctions, has demanded an end to Russian “state capitalism.” In his opinion, this crisis will be three times more serious than that of 1998.
Meanwhile, Russian schools have received a manual to teach children a new lesson, according to the RBK medium. The teacher must quote Putin — “Russia is under unprecedented foreign pressure,” according to the president — and then ask them about the government’s measures against the punishment imposed for “its special military operation in Ukraine.” The final conclusion is that the Russian economy is prepared thanks to the measures adopted by Putin in recent years.