Rusija - zemlja cuda

[Dragan]

How western sanctions are squeezing Russia

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If you can’t draw on savings abroad or ongoing export sales to ease your budget or resource constraints, the only way to get more resources for your illegal war is to take them away from alternative uses at home. And there are basically three ways in which a government can make such a transfer happen:

-Through policies that force the private sector to reduce spending or give up resources, ranging from taxation, higher interest rates and outright confiscation (or conscription, in the sense of “human resources”)

-Through domestic borrowing (foreign borrowing is hampered by sanctions), where it cajoles the domestic private sector into giving up resources against a promise to get them back with interest later

-Through inflation that reduces the real economic value of assets and incomes that are not fully protected against price rises The choice will be determined by a trade-off between having to raise enough resources and imposing little enough pain on those who might be able to oppose you.

 

That, as all revolutions (and perhaps even this week’s US election) seem to tell us, requires avoiding excessive inflation. Inflation is not low in Russia: prices are rising at an annual rate of 9 per cent a year, and wages by a lot more in the sectors trying to draw in labour. But it would have been much higher had it not been for a draconian monetary policy, with the central bank rate at 21 per cent. Which is where we come full circle, back to Chemezov’s complaint about the high cost of credit. Only on the surface is this a discussion about the right monetary policy. At heart, it reflects an acute resource allocation dilemma. The high interest rate is part of a necessary policy package that starves long-term corporate investment and all but some subsidised credit-financed spending in order to maximise resources in short-term defence-related production while avoiding too much of the burden being paid by the real wealth inflation-exposed households. If exporters’ corporate investment was not to suffer as much, somebody else would have to suffer instead. But we have come to the point where executives very much part of the establishment feel free to complain about the resource allocation that has been decided. The upshot is that western policy is having significant economic and political effects, despite superficially positive accounting numbers for Russian GDP growth. These are levers western countries can work harder at little or no cost to themselves: by cutting off more Russian financial institutions, by wielding secondary sanctions (more) to discourage circumvention, by redirecting outright Moscow’s blocked central bank reserves for Ukraine’s benefit, and by speeding up the technological upgrading of the west’s cross-border financial architecture to pre-empt leapfrogging by Russia and its friends.