Ukrainian experts: how the sanctions will affect Russia

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2014/07/31 • Politics

Ukrainian experts are unanimous in the conclusion that third-level sanctions against Russia will have a significant influence on the country’s economy. 

The US and the EU earlier increased the sanctions against Russia because of the situation in Ukraine.

On Tuesday the European Union approved new economic sanctions as to the oil sector, defense industry and dual-use technology. The EU intends to limit the access of Russian state banks to financial resources. As is reported, the sanctions will not touch on the gas sector, which the majority of European countries depend on.

The US joined the EU and stated that they are imposing new sanctions on Moscow in energy, defense and financial industries. US President Barack Obama said that the new economic measures are called to make access of Russian banks to capital markets more difficult and land a blow to the Russian economy, thus punishing Moscow for supporting the separatists in the east of Ukraine.

It is expected that on Wednesday the EU will publish a broader list of Russian citizens, which await freezing of assets and a prohibition of entry to European countries. At the moment the list already includes 87 people.

Sanctions will be felt by every Russian citizen

Independent economical expert Valeriy Hladkiy thinks that third-level sanctions are different from the first- and second-level ones in goal and the expected consequences:

“While first- and second-level sanctions dealt, most probably, with President Putin’s inner circle with the goal to influence the Russian leader through his friend, the third-level sanctions show the seriousness of the intent of western countries. I consider the swift implementation of third-level sanctions evidence to the fact that there was and maybe there still is a real threat of a full-scale invasion of Russian Federation to Ukrainian territory,” said the economist during a press conference by online publication Oboozrevatel.

To his mind, the consequences of the sanctions for Russia will depend on Moscow’s concrete actions in foreign policy.

“If Russia does not correct its foreign policy, the consequences will be very significant, this will be felt by both Putin’s inner circle and regular Russian citizens. There is capital outflow, which by the end of the year may constitute 100 billion USD, and there is a necessity of refinancing the debts of state corporation and banks with about 100 billion USD throughout the next two years, meanwhile Russia’s monetary reserves as of today constitute 500 billion USD,” thinks Valeriy Hladkiy.

Head of the Ukrainian Economist Committee Andriy Novak thinks that third-level sanctions, which touches on the priority industries of the Russian economy – energy, the financial sector and the military-industrial complex, – will significantly influence the currency market of the country. Besides, to his mind, the effect from the sanctions will make itself known within a short period of time.

“The Russian economy is oriented towards selling fuel to the outside would, first and foremost to Europe. And the work of the Russian economy on the external market has very limited possibilities. Without foreign trade of fuel the Russian economy will simply not exist in the shape it does now,” stated the expert live on BTB TV channel.

Andriy Novak emphasized that the two biggest state-owned banks of Russia, “Sberbank” and “VTB Bank,” are subject to third-level sanctions on part of the US and Europe. “It is a significant blow to what we call ‘every Russian,’ because a significant number of Russians have deposits in ‘Sberbank’ and ‘VTB Bank,’ a lot of countries, including big ones, have accounts in these banks. The dependence on external factors of these financial institutions is very significant, because they used to take loans in Europe and the US. And if all of this is broken, it is already a blow to every bank customer and every company that has its accounts there,” thinks Andriy Novak.

When commenting as to what the reaction of the Russian market to third-level sanctions might be, the expert emphasized that only the news of such a possibility dropped the stocks by 1,5% and the ruble by 0,3% within a single day.

Blocking development

Dean of the International Business Institute Olexandr Savchenko is also convinced that third-level sanctions will have a significant influence on the real economy of Russia. The expert noted that despite the fact that first- and second-level sanctions had a mostly “psychological” character, at the same time they had some economical effect.

In particular, capital outflow has increased, which, according to Olexandr Savchenko, may constitute 100 billion USD by the end of the year with only the implementation of second-level sanctions.

Besides, the stagnation of the Russian economy is going faster than has been predicted earlier. The expert evaluates the possible fall of Russia’s GDP in 2014 at 1% and at 2% in 2015. This is also augmented by the fact that any investments into the Russian economy are de facto frozen.

“The imposition of sanctions aims not to ruin the economy, but correct the country’s foreign policy. Unfortunately, this has not influenced Russia, Russian policies have not changed. However we may allow that the sanctions that have already been imposed have engaged the breaks on Russia’s intense actions against Ukraine,” said Olexandr Savchenko during the press conference.

The expert also emphasized that the sanctions imposed on Russia, its companies and banks, “are aimed to block the development, but not stop activity,” and the full effect should be expected within 2-2,5 years. “Russia is cut off from capital and loan markets. This presumes the stagnation of the economy and a possible default of a number of Russian state corporations and banks, however, within 2-2,5 years. This will result in the slowing of GDP growth. Already in the current year the Russian GDP will probably be negative, and next year the entire cumulative effect from the sanctions will lead to a fall of 2-2,5 per cent.”

The expert also adds that on one hand, Ukraine’s expectations for harsher sanctions are completely understandable, however, on the other, the western countries may have other reasons, which many not even have to do with how the sanctions against Russia would influence them.

According to Olexandr Savchenko, economy theory states that the fall of the level of life by 5% evokes mass protest, by 5-20% – a revolutionary government coup, and should the citizen’s revenues decrease by over 20%, there is a big probability of civil war and dissolution of the state.

Obviously, those who are calculating the economical effect of sanctions against Russia, are also keeping such reasons in mind, thinks the expert.

Source: BBC

Translated by Mariya Shcherbinina

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  • Donald Casavant

    I am totally confused about whether the sanctions will do any good or have any impact on the Russian economy. Every news item I read by these different “experts” seem to have extremely different expectations! Of course I do not believe anything that is said by the Russians on this point but, western “experts” cannot agree on what the impact will be and how large the impact will be. Is anyone else as confused as I am?