Russia economy: Sanctions against Moscow are not all that effective

Angle down icon An icon in the shape of an angle pointing down. Russian President Vladimir Putin. Getty Images The West has made a key error in assuming Russia’s economy is state-run, said a Russian economist.Russia is a “market economy” with private companies adapting quickly to trade restrictions, he said.Russia’s economy appears resilient even after 22 months of sweeping sanctions.

The West and its allies unleashed a swath of sanctions against Russia following its invasion of Ukraine, but the restrictions have yet to compel Moscow to put an end to the war.

This is because there’s a fundamental flaw in the West’s assumptions about Russia’s economy that has hampered its efforts to force Moscow’s hand to halt the war, said a Russian economist.

“The main mistake of Western experts and politicians was to create fairy tales that the entire Russian economy is state-run,” Vladislav Inozemtsev, founder of the think tank Moscow Center for Post-Industrial Studies, told the Spanish media outlet El País in a Tuesday report.

So sanctions were applied on the basis that Russia’s economy is an inflexible state-run behemoth that would collapse quickly, he said.

“But that was a mistake, because the Russian economy is very much a market economy,” added Inozemtsev.

Unlike the collapse of the Soviet Union’s planned economy following its dissolution, Russia’s economy is humming along because most employment is concentrated in the private sector, which has found ways to skirt sanctions.

Russia’s massive oil trade, for instance, managed to divert most of its customer base from Europe to India and China. Russian companies have also developed new supply chains and are stocking up on parallel imports.

Russia reported 5.5% GDP growth in the third quarter of 2023. While reports suggest that much of the country’s growth is due to massive military and government spending, Inozemtsev doesn’t seem to think that’s all due to the country’s economic resilience.

Russia is planning to spend 6% of its GDP on military expenses this year, which was what the US spent on defense during then-President Ronald Reagan’s first term from 1981 to 1985.

But “no one would say that the American economy was a war economy,” Inozemtsev told El País.

Russia’s economy is expected to grow 3.1% in 2023, reversing from a 2.1% contraction in 2022, according to a Reuters poll of 15 economists and analysts.

However, they expect Russia’s GDP growth to slow to 1.1% due to high interest rates, which dampen investment and spending.

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