Russian Economic Difficulties at Time of War in Ukraine Very Different from Those in Earlier Crises, Inozemtsev Says

Paul Goble

            Staunton, Mar. 4 – The current economic crisis Russia faces because of the sanctions arising from Putin’s war in Ukraine is very different than its predecessors; and it is far from clear that the Kremlin, schooled in those crises, can adopt a new approach capable of dealing with it, Vladislav Inozemtsev says.

            Earlier crises had at their core problems with exchange rates, defaults on government obligations, and the stock market, the Russian economist says. But today, all these issues appear “very much secondary.” Instead, what the Russian economy faces is a crisis of production (kasparov.ru/material.php?id=6222715E3E143).

            “Russia depends in essential ways on imports,” and not just in areas like cosmetics and expensive clothes,” Inozemtsev continues. It needs them for both heavy industry and the service sector to continue to function. Foreign suppliers “are leaving and after a month or so,” Russian firms and the Russian government are going to have to make some hard choices.

            In some places, Chinese components and finished goods may fill the gap but hardly in all; and to compensate, Moscow must act in very different ways than it has in past crises. But so far at least, it has not made the fundamental shifts required, relying instead on the actions of the Central Bank and the regulatory system.

            Measures like these helped Russia get through its earlier crises; but as impressive as the steps the Bank and the government appear to be taking now, they are doing little or nothing to address the problems of this crisis. It remains to be seen whether the Kremlin will recognize this and change course or whether it will continue as now and make the situation worse.