Wednesday, December 30, 2015

Anti-Russian Sanctions Cost West Influence, Credibility, and $100 Billion

For nearly two years, independent journalists and analysts in the US and Europe have been saying that sanctions against Russia should be repealed. Now, surprisingly, even the hawkishly anti-Russian foreign policy journal Foreign Affairs has joined the chorus, a recent article suggesting that sanctions have been nothing but a costly mistake.
The comprehensive analysis, written by CATO Institute Visiting Fellow Emma Ashford, offers few kind words for Russia or its leaders, using phrases like ‘Kremlin cronies’, and alluding to Russia’s ‘behavior’, as if the country was a child that needed to be taught a lesson. Nonetheless, as far as Western sanctions against Russia are concerned, Ashford laid down the truth. And the truth stings.
At first glance, the analyst suggested, “considering the dire state of Russia’s economy, [Western] sanctions might appear to be working. The value of the ruble has fallen by 76 percent against the dollar since the restrictions were imposed, and inflation for consumer goods hit 16 percent in 2015. That same year, the International Monetary Fund estimated, Russia’s GDP was to shrink by more than three percent.”
“In fact, however,” she notes, “Western policymakers got lucky: the sanctions coincided with the collapse of global oil prices, worsening, but not causing, Russia’s economic decline. The ruble’s exchange rate has tracked global oil prices more closely than any new sanctions, and many of the actions taken by the Russian government, including the slashing of the state budget, are similar to those it took when oil prices fell during the 2008 financial crisis.”
“The sanctions have inhibited access to Western financing, forcing Russian banks to turn to the government for help. This has run down the Kremlin’s foreign reserves and led the government to engage in various unorthodox financial maneuvers, such as allowing the state-owned oil company Rosneft to recapitalize itself from state coffers. Yet the Russian government has been able to weather the crisis by providing emergency capital to wobbling banks, allowing the ruble to float freely, and making targeted cuts to the state budget while providing financial stimulus through increased spending on pensions.”Therefore, Ashford points out, “even with continued low oil prices, the [IMF] expects that growth will return to the Russian economy in 2016, albeit at a sluggish 1.5 percent.”
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