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Economist Foresees Bleak Economic Future in Russia

Impact of sanctions on Russia. Ukraine Crisis Media Center, 29th of October 2014

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Kyiv, October 29, 2014. The Russian economist Slava Rabinovich believes that the Western sanctions policy poses big risks to the Russian Federation. Russia’s aggressive actions in Ukraine mark a drastic turnaround in Russian government policy after fifteen years of emphasis on global integration under Putin. Russia is becoming increasingly isolated by the international financial community as a result of the sanctions. This was stated at Ukraine Crisis Media Center by Rabinovich.

The sanctions against the Russian Federation in response to the annexation of Crimea and Russian support for separatism in eastern Ukraine are nearly unprecedented. Other countries that have been sanctioned by the international community—including Iran and North Korea—are relatively small economies that were not deeply integrated within the global financial system. As a result, it is difficult to foresee the economic effects of the sanctions because of lack of precedent. “There is no empirical data to conduct any research on what is going to happen,” declared Rabinovich. Russia’s quick turnaround into isolation happened almost overnight and was completely unexpected. “There was a U-turn that was actually a 180 turnaround,” he said.

Rabinovich emphasized that Russia has very quickly earned a bad reputation in international financial circles because of the new risks of investing there. “The sanctions make Russia as an investment target absolutely toxic,” he stated. Within the Russian government and bureaucracy there is an expectation that China and other states will help Russia circumvent the sanctions. “China will not help Russia,” Rabinovich warned. “They will never get into an antagonistic relationship with the US and they understand what violation of sanctions means.” Financial workers do not want to worsen ties with the Europe and the United States, or even end up in legal trouble.

Although the sanctions are clearly having an effect on the Russian economy, without past precedent and given a lack of quantifiable data, there is no way to know when the economy will feel the full impact. “We do not know what mistakes will be committed by President Putin,” said Rabinovich. The reaction of the Russian government to the deteriorating economic situation might only hasten an economic or financial crisis. He believes that there is still the possibility of a dangerous political situation in Russia if there is a sudden economic collapse of the economy.