What strategy did Vladimir Putin develop to make Russia resist economic grounds?

“We will cause the collapse of the Russian economy.” Minister of Economy Bruno Le Mer was confident in France Amfo in March when he defended the second wave of European sanctions against Russia in response to the invasion of Ukraine. However, the Russian economy has not collapsed and is recovering in some sectors. Resilience not by chance.

“Before the war, Russia tried to build an economic fortress.”Summarizes with sciences Po economist franceinfo Sergei Guriev. Nevertheless, the robustness of the wall is being tested today by unprecedented strength attacks, forcing us to find a new parade. How is the country prepared for the crisis? And how does he adapt to it?

Incomplete economic isolation

Moscow has long sought to make its economy more self-reliant. “Russia implemented the so-called” import substitution “policy from 2014 to 2015.”Sciences Po Bordeaux instructor and book author Franceinfo Caroline Dufy. Revival of Russian grain power (Edited by Peter Lang, 2021)..

“In many areas, the idea was to promote the substitution of imported goods for domestic production.”

Caroline Dufy, Lecturer at the Bordeaux Political Academy

on franceinfo

This policy has had some success, especially in agriculture. According to David Teurtrie, Russia imported up to one-third of food in 2014, but is self-sufficient in wheat and meat due to certain European food embargoes imposed after the invasion of the Crimean Peninsula that same year. It is now possible. , Deputy Researcher at Inalco’s European-Eurasian Research Center on French Culture.

Moscow is also encouraging the creation of national technology champions such as the Yandex search engine and empowerment of the financial sector. “We have developed our own payment system, Mir, and our own interbank messaging system.Franceinfo David Teurtrie. These technologies allow Russian banks to continue to trade smoothly with each other, even though they are being gradually eliminated. [par vagues, au fur et à mesure, depuis le 1er mars] Swift’s “, A messaging system used by banks around the world to send information related to bank transfers.

But in the face of western sanctions, this policy quickly finds its limits. According to Reuters, only about 50 foreign banks are using “Russian Swift”, and the banks that accept Mir Bank’s cards are mainly in small countries, the company’s official website said. (In Russian).. In particular, “import substitution” has failed to make Moscow technically independent and is in short supply. For example, according to Russian media, the country has approved the production of cars without airbags due to lack of parts and may need to dismantle others to repair the plane. .. Kommersant (Russian).. Sanctions have also separated the country from the latest semiconductors (Taiwan, South Korea, or the United States) used in all advanced technology configurations, from smartphones to medical devices and weapons.

“Russia is a minor producer of processors and its performance is far from the cutting edge.”

David Teurtrie, Deputy Research Fellow, Center for European and Eurasian Studies

on franceinfo

In response, as Reuters * reported, Moscow again encouraged production transfers and allowed technology imports through intermediaries, contrary to Western bans. But for David Teurtrie, “Slightly complex industrial products always require foreign parts. With advanced technology, Russia requires many years of work and a large investment to develop the necessary know-how.”

The country can also rely on China to replace these parts, but according to Sergei Guriev. “Chinese companies are afraid of sanctions and do not want to replace cutting-edge technology and do not offer military or 5G equipment in particular. Semiconductors are always behind Taiwan anyway. You can’t do that.

Huge surplus due to energy sales

This is the key to the resilience of the Russian economy. Russia sells much more than it buys, so it receives much more money than it spends. On the other hand, imports from Moscow fell by almost 40% between April 2021 and 2022, according to statistics from the Association of Experts. Institute of International Finance (IIF) *, due to international sanctions, uncertainty, and health restrictions in China.

But on the other hand, he points out that Russia’s exports are exploding. On twitter* This major global banking association. According to calculations by the Center for Research for Energy and Clean Air (Crea) *, overseas sales of fossil fuels have brought Russia to about $ 1 billion a day in the first two months of the war in Ukraine. But in 2021, it was about $ 660 million per day. Russian bank figures quoted by Reuters *. therefore, economist*.

All this money does not allow Moscow to purchase sanctioned Western goods. “But it can be used for trade with countries that do not authorize it, especially China.”, Franceinfo explains. Richard Connolly is a director and Russian specialist of the Eastern Advisory Group.

Grains of sand slipped into this well-oiled machine. The European Union adopted a gradual ban on Russian oil at the end of May. According to Claire, Moscow could suffer because the EU has accounted for 71% of Russia’s fossil fuel exports since the beginning of the war in Ukraine. But Russia has already begun to look for other buyers of hydrocarbons. “The market share sold in Asia has increased for more than 10 years.”, Emphasize David Teurtrie. Bloomberg * reports that the continent became the first largest buyer of Russian oil in April, largely thanks to China and India. The two giants are taking advantage of the discounts offered by Russia compared to other producers.

“Moscow is taking risks by doing business with its customers, so we need to offer them significant discounts.”

David Teurtrie, Deputy Research Fellow, Center for European and Eurasian Studies

on franceinfo

Russia may find it still difficult to transfer all of its black gold sales to Asia, as its pipeline is primarily directed to Europe. However, according to Richard Connolly, the impact of the European embargo should be limited, as oil, unlike gas, is relatively easy to transport by tanker. “If both sides have more than six months left to find a new partner and oil prices continue to rise, Russia’s losses will diminish,” he said. Emphasize specialists.

Monetary policy that “frozen” the economy

This is one of the data regularly submitted by the Russian authorities to praise the resilience of the economy. The ruble is more and more valuable. It must be said that the disaster scenario was close. At the beginning of the war, the Russian currency lost almost 30% of its value, which could explode import prices, inflation and thus put the ruble in a spiral of hell.

Vladimirputin was afraid of such a scenario. “The Russian elite was traumatized by the 1998 Russian financial crisis and became dependent on Western financial institutions like the IMF.”, David Teurtrie explains. As a result, Russia has accumulated a large amount of foreign currency over the years. It can be used to support the value of the ruble in the event of a crisis. Thus, it constitutes one of the largest reserves in the world, with $ 630 billion stored in the Central Bank of Russia * in February 2022.

However, this strategy did not work as expected. Almost half of the reserves of the Central Bank of Russia were stored in foreign banks and were frozen by sanctions.

“It was completely unexpected. The main pillars of the Russian fortress have collapsed.”

Sergei Guriev, economist at Sciences Po, Paris

on franceinfo

The disaster scenario is back. Therefore, Russia has developed a major measure: it suddenly raised interest rates to encourage Russians to save, and the exchange of rubles with foreign countries was severely restricted. “Monetary policy is very well done.”For David Turtley, who points out that the value of the ruble has reached record highs, driven by these measures and the country’s huge trade surplus.

But for Caroline Dufy, “This” success “is completely artificial. This is the result of very strict financial management. Companies are not free to exchange rubles. “ However, hard currency isn’t very useful if you can’t use it anywhere. “Russia Returned interest rates to prewar levels Because these measures can oppress the economy by making credit so high. “, Add researchers.Checks made it possible for Moscow to do “Freeze the situation”POr German economist Janice Kruge quoted by the American media grid*, However, the rest may not last long.

According to the Central Bank of Russia quoted by Bloomberg *, the increase in minimum wages and pensions announced by Vladimirputin * in May is not sufficient to offset inflation, which could reach 23% in 2022. Despite currency resistance, Russians’ real income will fall. Also, according to official estimates by the Central Bank of Russia *, even if prices do not rise sharper than expected. “This probably hides the local shortage,” Emphasizes Caroline Dufy with a product that disappears purely and simply for sanctions. “Russia is in a difficult situationSummarizes Sergei Guriev. Not disastrous, but GDP will fall by 10% in 2022, and even if it recovers, it may not return to prewar levels until 2027. “ The siege of the Russian fortress is still in its infancy.

* All links followed by an asterisk lead to English links.