Friday, June 27, 2014

Window on Eurasia: Russians Suffer from Three Misconceptions about Western Sanctions over Ukraine, Analyst Says

Paul Goble

            Staunton, June 27 – Russians must recognize that sanctions are “the new economic and political reality” in which they live and overcome three widespread and government-promoted misconceptions about such sanctions if the country is going to be able to cope with them as well as possible, according to a senior Russian scholar.

            In an article in today’s “Nezavisimaya gazeta,” Aleksei Portansky, a professor at the Higher School of Economics and a researcher at IMEMO at the Academy of Sciences, says that these misconceptions have arisen because only a few years ago hardly anyone thought they would be possible at all (

            The first misconception is that “the West will not move toward serious sanctions because this will harm itself.” Those who believe this point to disagreements between the United States and Europe and suffer from “the illusion” that Moscow can in every case play on these disagreements. In fact, “the West is capable of imposing sanctions even to its own harm.”

            The second misconception is that the West will not apply sanctions because Moscow has “declared in advance that they will be counterproductive and without any prospect of working.”  But despite this brave front, he writes, “independent economists” warn that even the first round of sanctions “cannot fail to have a negative impact on the Russian economy.”

            If the sanctions regime is toughened, that impact will be greater.

            Already, capital flight has accelerated: more capital left Russia during the first three months of 2014 as a result of sanctions than it did during all of 2013 when sanctions were not in place.  Capital flight not only slows economic growth but also puts more pressure on the ruble and increases inflation.

            If sanctions are maintained at the current level, Russia’s GDP will be 1-1.5 percent lower than if they were not in place, something Russians perhaps can absorb.  But there is another danger: Russian companies currently borrow more than 700 billion US dollars from Western banks and may not be able to renew those loans except on less favorable terms.

            Avoiding that problem, Portansky says, is “almost impossible” because “in fact everything will depend on the position of the US which extremely effectively controls the international financial sphere and over the course of recent years has only strengthened this control.”

            And the third misconception involves Russia’s supposed ability to use the World Trade Organization to block sanctions.  Prime Minister Dmitry Medvedev has suggested this, but there are few reasons to believe that the scenario he suggests is possible. The record does not suggest that Moscow will be successful.

            Russia has already brought two suits against the EU and is threatening to do the same against the US. “How any of these will end, no one can know in advance. But in any case,” the outcomes will depend on the competence of those making the case and “in no way on [Russia’s] opposition to other countries.”

            Thinking otherwise as many in Moscow now appear to do won’t help Russia to cope with the sanctions.

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