Faced with a payment default, Putin offers a false representation of the Russian economy
In a June 22 video address at the annual BRICS (Brazil, Russia, India, China and South Africa) forum, Russian President Vladimir Putin painted a rosy but distorted picture of the Russian economy and its relations with its foreign partners.
“I would like to emphasize that Russia’s strategy has not changed: while strengthening our economic, technological and scientific potential, we are ready to work openly with all partners in good faith on the basis of the principles of mutual respect for the interests everyone, the primacy of international cooperation, law and equality for all nations and peoples,” Putin said.
Putin’s claim that his policies have strengthened Russia’s economy and relations with its foreign partners is misleading.
For starters, more than 1,000 foreign companies have completely or partially ceased operations or left Russia since the invasion began on February 24. As of June 24, only about 400 foreign companies continued to do business in the country, according to a Yale University School of Management Tracking Database.
Sanctions will likely wipe out 15 years of gains in Russia’s economy, Reuters reported on June 8, citing a recent analysis by the Institute of International Finance, a global association of business groups and banks.
Due to ‘continued corporate exodus, Russian ‘brain drain’ and collapsing exports’, Russia’s economy ‘will shrink 15% this year and 3% in 2023’, report says .
Some analysts predict that despite oil purchases by China and India, Russia could soon default on its bonds. Helda Salemonsenior researcher at The Hague Center for Strategic Studies in the Netherlands, tweeted on June 24 that Moscow would probably not be able to make payments on Eurobonds due on June 27:
“A game-changing default: Due to #EU and US sanctions, #Russia is heading for a $40 billion default on its obligations next Monday (June 27), unheard of since the Russian Revolution of 1917. In effect, this will turn Russia into a ‘toxic asset’ for (Western) #investors,” Salemon said.
The Eurobonds in question are denominated in US dollars, which means that Russia must make monthly interest payments in US currency. However, in April, the U.S. Treasury Department banned Russia from making debt payments in dollars, a move that Bloomberg News said was “intended to force Russia to dip into its domestic dollar reserves or spend new revenue to make bond payments, or else go into default.
In May, the sanctions against Russia had already led to the freeze half of the country’s $640 billion in foreign exchange reserves. “The central bank says it has also sold off some of its foreign currencies to prop up the rouble, leaving questions over how long it can dip into its local coffers to pay its debts,” Bloomberg reported.
Russia says it paid its debts in rubles. However, to receive Russian debt payments in rubles, creditors will need to open accounts in rubles. According to Reuters“[i]It is not yet clear whether foreign investors – many of whom will face sanctions imposed by their own governments – will be willing or even allowed to open such accounts.
In Russia, inflation has skyrocketed and tech components are in short supply. This caused a series of problems, ranging from computer crashes to ground theft. It also prevented Russia from restoring or refurbishing certain weapons and other military equipment, The Wall Street Journal reported. The newspaper said the war had “erased” two years of tank production.
According to Trading Economics Global Tracking WebsiteRussia’s inflation rate was 17% at the end of May, and consumer and business confidence was in negative territory.
June 23, Novaya Gazeta Europe – a revamped version of the independent newspaper which the Russian government banned for its coverage of the war in Ukraine – gave a glimpse into the lives of ordinary people in Russia with reporting from the central region of Samara.
More than 14% of Samara’s population lives below the officially set poverty line and 44% have a monthly income of just 19,000 rubles, or about $351. Between January and March this year, the number of poor people in Russia increased by 100,000 compared to 2021, reaching 20.9 million, Novaya Gazeta said.
The report included interviews with Samara residents who said they had given up many types of food and other items that are now considered luxury items due to rising prices.
A local woman identified by her first name Anna told Novaya Gazeta that she has always loved peaches but now can only afford to buy them once a month on payday. “Last year, nectarines cost just over 100 rubles ($1.85) now they are 300 rubles ($5.54) for one kilogram. So I just pass by,” Anna said. .
Another Samara resident, a woman called Sasha, said most of her favorite imported cheese had disappeared, but she couldn’t even afford a local product because “a kilogram of local cheese costs 3,000 rubles”. It’s $55 for 2.2 pounds.
But of most concern is rising drug prices, Anna said, as her daughter has diabetes and the price of insulin has risen 28% since the February invasion.
So far, China and India have helped the Russian economy stay afloat by increasing their purchases of Russian oil, taking advantage of dramatically reduced prices after European customers decided to quit Russian oil as punishment for the war.
In May, China and India bought some 2.4 million barrels of crude from Russia at a discount of about 30% from the global benchmark price.
Chinese and Indian purchases of Russian crude “helped ease the pressure” on the Russian economy, while undermining “European and American efforts to isolate the Kremlin” and risking “serious diplomatic fallout that neither country would wanna”. The New York Times reported in a June 24.
The benefits the two countries derive from cheap Russian crude could be temporary, and the “real test” of their partnership with Russia “will come when the sanctions take full effect” by the end of the year, the minister said. Times.