The opinion of local and international specialists on the economic impact that the invasion of Ukraine will have for the country presided over by Vladimir Putin.
The invasion of Ukraine is the latest link in a chain of missteps, miscalculations and negative turns in the international situation that diverted Russia from the attempt to recover the role of economic power that it was able to hold in the past. The damage suffered by its economy due to the costs of the war, the political isolation in which it was placed and the sanctions of which it is the target will not only be short-term: it will take decades to recover.
Infobae consulted national and international specialists regarding the effect that the war will have and the future that can be outlined for Russia in the economic and geopolitical plans that are configured from now on.
At the beginning of the 21st century, and after the fall of the Berlin Wall, Russia had begun the slow path towards recovering its place in the world and positioned itself as one of the great emerging markets, forming, together with Brazil, India, China and then South Africa, a block called BRICS called to dominate the global economy due to its large population, territorial extension, natural resources and very high growth of the Gross Domestic Product (GDP). But the years went by and that promise was not fulfilled: the countries that make up the bloc today navigate very different waters and in recent years certain economic differences have begun to emerge between them, so notorious that the S&P ratings agency came to sentence the “death” of the country.
Subsequently, the global economic crisis of 2008 after the real estate and credit bubble that had been inflating in the United States, followed by the sanctions imposed by that country and by the European Union in 2014, pushed Russia into recession and the Putin government he relaunched his austerity policy.
Since then,The economy of the European country began to suffer a series of ups and downs such as the drop in oil prices, the Coronavirus pandemic that hit the entire planet and, more recently, the invasion of Ukraine on February 24 of this year.
This last action resulted in a counteroffensive by the West through strong economic sanctions that decimated the Russian economy with consequences that are still difficult to measure. The war adventure could be the coup de grâce for the old power’s attempt to return to being a leading performer in the international concert.
Costs to come
Luis Palma Cané , an economist and expert in international finance, told this outlet that Putin’s “move” is going to have extremely negative consequences for Russia. In this sense, he warned: “With each passing day, Russia is going to be worse off. If this continues for example six months, the GDP can fall 20 or 25% without any doubt”.
“The longer the war is delayed, the more Russia will fall in economic terms. 65% of Russia’s tax revenues come from energy exports and they now have a choked and isolated economy. The ruble is wrecked, the stock market is wrecked and they are technically in default. Any bond that is due today they cannot pay it,” he stressed.
With each passing day, Russia is going to be worse off. If this continues for six months, for example, the GDP can fall 20 or 25% without a doubt.Palma Cané
When tracing the diagnosis of Russia, Palme Cané considered that today the European country has a drowned economy and is financially isolated from the world. “You cannot import or export. The landscape is chaotic. There will be more inflation, more poverty and a drop in the level of activity. In this way, it will cease to be the power factor that it represents at this time,” he analyzed.
The economic analyst Marcelo Elizondo emphasized the effects of the economic restrictions that weigh on Russia and estimated a thorny outlook for the country led by Putin in the future. For the specialist, due to its size and relevance in international trade, the country cannot afford to isolate itself for a prolonged period since it needs its buyers to finance itself and its suppliers to keep its economy running.
“Russia is an economy of intermediate size, it is not one of the most powerful. Its GDP is 1.7 trillion dollars. It is the 12th largest economy in the world. It is not a power. So it is more vulnerable economically than politically. That makes a lot of sense that the West has reacted on the economic side and not on the military side,” he told Infobae.
“Its exports are about 400,000 million dollars per year, so affecting them is a hard blow. While its imports are about 350,000 million dollars and are also hit. This makes it difficult for companies to access inputs or capital goods to produce”, he pointed out.
Likewise, Elizondo assessed that the exodus of foreign companies in Russia after the invasion of Ukraine can weaken the country’s productive fabric in a much deeper way than the initial blow to activity, due to the loss of key parts of the gears that move different sectors and whose efficiency, knowledge and capacity for innovation cannot be replaced overnight.
“The default, the non-functioning of the financial system, the 40% devaluation and the difficulty of access to foreign currency obstruct, both internally and in Russia’s relationship with the rest of the world, the functioning of its economy. This can first generate a drop in GDP, then a drop in employment and later a weakening of the functioning of domestic value chains that will slowly abort economic normality,” he sentenced.
An unprecedented outcast
The bombs explode in different parts of the Ukrainian territory and although the final offensive that ends the resistance is not yet on the near horizon, analysts are already wondering what Russia’s position will be once the conflict is over.
Never before have there been such far-reaching sanctions against one of the five major security council members made up of Russia, China, the United Kingdom, France and the United StatesJaramillo
Mauricio Jaramillo , specialist in international relations and professor at the Universidad del Rosario, Colombia, told Infobae that there are two scenarios for the future of the Russian economy after the aggression against Ukraine.
“One is that they effectively become a kind of pariah, but it is difficult to foresee because never before have there been sanctions of such depth against one of the five great security councils made up of Russia, China, the United Kingdom, France and the United States. There had been very harsh sanctions on Iraq, Cuba, Venezuela, Syria and Burma, which had become pariahs. But we’ve never been in a situation where there was such a consensus to isolate one of the big boys. That is one option, for him to become a pariah and for these alternative social, financial and monetary network systems that Russia is betting on with the support of China to fail,” he posed.
“The other scenario is that we return to a bloc war, a ‘cold war’ in which they face each other in third-party territories, such as Syria,” he added.
For Jaramillo, the situation in Russia benefits states that can put scarce stocks of goods on the market. “One could immediately think of Venezuela, the United States and Iran as some of the nations that can benefit from weakening Russia. But I don’t think that from logistics it will be easy to replace it as a supplier of energy and grains because this dependency between Russia and Europe has been going on for more than 30 years. You can’t change a chain of exchanges over the course of a few months,” he stated.
In her turn, Gabriela Siller Pagaza, director of Economic Analysis at Banco Base de México, told Infobae that although the war is not over yet, “there is a wound on Russia because it invaded a country and in some way its assets are going to continue to be affected. for a period of time.”
“It is not going to be easy for companies to return to that country after Putin said he was going to nationalize the assets that left Russia. On the other hand, the ruble is not going to recover so quickly”, she considered.
There is a wound on Russia because it invaded a country and somehow its assets are going to continue to be affected for a period of time.Siller Pagaza
In line with the rest of the colleagues, Siller Pagaza assured that Russia will suffer the consequences of the invasion of Ukraine. “The GDP is going to contract and there will also be an impact on the numbers of its foreign trade. It is very possible that Russia will experience a recession and then a period of long economic stagnation. There will be a wound. I think there will be some kind of treaty or rules so that something like this does not happen again,” she told this medium.
While Brenda Estefan, a Mexican international analyst told Infobae that what can affect Russia the most are the sanctions that come from the European Union, since in the US case the impact is more limited.
“The Russian economy is highly concentrated in hydrocarbons. As Europe has an enormous dependency, it has them tied up. In this context, the sanctions imposed will limit the export of technology to Russia and that is something they do need. The technological elements are important to continue with the extraction of its oil fields. In the medium term they will need technology and they will not be able to import it”, she pointed out.
According to Estefan, Russia’s relationship with China could moderate the impact on its economy, although he considered that this will not be enough. “Russia will have to have relations with other countries. We have to see what happens with Brazil, Argentina, Turkey, Israel, among others. These countries may end up continuing to trade with Russia,” she stated.
And he added: “Yes, it is going to become a country far removed from most of the global markets. And remote also in terms of air connectivity.The Russian economy is going to take off from the rest of the world. They are going to tighten the belt brutally and so will income and sources of employment. That will happen as punishment for the invasion of Ukraine.”
Russia and an economy without a floor
Russian President Vladimir Putin won the presidential elections in March 2000 and, after the victory, began to turn his country’s economic policy after the dissolution of the Soviet Union. Gross Domestic Product began to grow, the ruble stabilized, inflation was brought under control, and investment began to grow slowly.
Well into the 21st century, the European country made large debt repayments for IMF loans and managed to grow its international reserves. Those were years in which Russia began to recover its place as an economic power and positioned itself as one of the great emerging markets, one of the thriving BRICS.
The Russian economy is going to detach itself from the rest of the world. They are going to tighten the belt brutally and also income and sources of employmentBrenda Estefan
However, the global economic crisis of 2008 after the bursting of the real estate and credit bubble that had been inflating in the United States, followed by the sanctions imposed by that country and by the European Union in 2014, pushed Russia into recession. Since then, the Russian economy began to experience a series of ups and downs also as a result of the drop in oil prices.
For Pablo Kornblum, an economist and doctor in international relations, the role of Russia in recent times was to sustain a strength with the accumulation model of the beginning of this century based on a boost in the production of hydrocarbons and the rebirth of the economy.
“Russia will be a pariah for many years in the NATO world, with clear short-term adverse economic and financial effects. What is not going to happen is an implosion like with the fall of the Soviet Union, which was due to the expansion into the military technology area to the detriment of other areas of the economy where internal needs were ignored,” the expert told this means, medium.
Russia will be a pariah for many years to the NATO world, with clear short-term adverse economic and financial effectsKornblum
Meanwhile, Gustavo Perego, director of the consulting firm Abeceb, said that what Russia is going to achieve with this process is to suffer a severe blow to its currency in the international financial market. In that order, he considered that Russia “is going to make international trade operations quite complex because many countries will also appear denying the use of their ports as a secondary port to trade with Russia.”
“There they have a problem because the entire international credit and financing scheme is complicated in order to be able to negotiate letters of credit with Western banks . The Chinese banks are going to be there as main actors and from the beginning that is a complication,” he said.
The trigger that caused the Russian economy to collapse
On February 24 of this year, Russian President Vladimir Putin jumped into the void and carried out the invasion of Ukraine through his “special military operation”. The West refused to intervene with troops or its air forces, but the sanctions response was much harsher than could have been initially calculated,
The main measures range from the decision of Western countries to exclude Russia from the SWIFT system (Society for Worldwide Interbank Financial Telecommunication), the high-security network that facilitates payments between 11,000 financial institutions in 200 countries, and which allows transactions of billions of dollars around the world, until the decision of the United States to ban imports of Russian oil and gas.
In addition, there were new restrictions on the debt and capital of the main Russian companies and entities. And additional total blockade sanctions on Russian elites and their relatives.
Some of the consequences so far have been the fall of more than 50% in the Moscow stock market, the collapse of the ruble, which reached its historic low against the dollar after recovering more than 60% since the day before the invasion of Ukraine.
Meanwhile, the economic sanctions unleashed by the United States, the European Union and other countries in response to the invasion of Ukraine have the financial system on the brink of collapse, international reserves frozen and Russian savers lining up to get their money back. So much so that the Russian central bank had to resort to a measure like the one that has been in force in Argentina since 2019 to try to limit foreign exchange purchases: a 30% commission was imposed on foreign currency purchases in an attempt to sustain to the Russian ruble.
In this framework, inflation in Russia would accelerate to 20% and its economy could contract up to 8% this year, according to an independent survey of analysts requested by the central bank of that country.
Also, after the economic sanctions applied by the West, the IMF joined a growing group that warned of the risk that the country presided over by Vladimir Putin will default on its debt obligations after its invasion of Ukraine, according to the news agency Bloomberg.
A Russian debt default is “no longer an unlikely event,” IMF Managing Director Kristalina Georgieva told reporters on Thursday. “It’s not that Russia doesn’t have money, it can’t use this money,” she stressed.
Indeed, Fitch Ratings said this week that Russia’s bond default is “imminent” as a result of measures introduced since the war broke out.
However, the collapse of the Russian economy does not end there: since it invaded Ukraine, hundreds of companies have announced the abandonment of their operations in Russia. Some of the companies that stopped operating are: Nike, Apple, Microsoft, BP, Shell, Equinor, Exxon Mobil, PWC, General Motors, Ford, Volkswagen, Toyota, Samsung, Microsoft, Apple, HP, Intel, Inditex, Netflix, EA, Airbnb, Google, Ikea, Oracle, Dell, Boeing, Airbus, Spotify, Walt Disney, Paramount, Warner Media, Universal and TikTok, among others from a long list of more than 300 companies.
These are transnational companies, with production chains that transcend borders and that can hardly be replaced with new corporations sponsored by the Government in the hope of filling the void they leave.
Putin may have had in mind to restore Russia’s old imperial glory when he ordered his troops across the border. But from the moment the first soldier set foot in the Ukraine he turned his country in the opposite direction. Getting closer to being out of the world.