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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

The Kremlin: how to lose everything

“Fifty thousand Russians have already felt the consequences of sanctions”
11 August, 2014 - 18:21

The Kremlin demonstrates its ambitions of a global player on the international arena. This is what the Kremlin’s attempt to punish the US, the EU, Canada, Japan, Norway, Switzerland, South Korea, and Australia for implementing sectoral sanctions against Russian business looks like. The Kremlin banned import of specific types of agricultural produce, raw materials and goods from these countries. The resolution came into force recently and will hold for a year, but its practical implementation will start later: Russian government has to determine a list of prohibited goods with a separate resolution.

First of all, the list of countries the sanctions were imposed on looks strange: it includes international supporters and arbiters in the Ukrainian question. At the same time, Russia did not include Ukraine in this list. A de jure excuse for this might be our country’s delay of implementation of a sanctions package against Russia, which is to be announced on August 12 according to the latest promises. Perhaps, the Kremlin just pretends Ukraine does not exist on the map of the world.

“Russia tries to be a geopolitical player and it shows its might to others. But it will fail,” states Volodymyr Panchenko, head of economy programs at the Open Dialog Foundation, in his commentary to The Day. According to the expert, the first and second rounds of sanctions basically did not harm Russia. They rather affected the EU. But the third round and sectoral sanctions against serious energy companies it includes brings negative consequences for Russia’s economy, its slowdown, and companies’ bankruptcy. “If the West’s sanctions will stay in force for at least six months, there will be unpredictable consequences for Russia. But restrictions on import by the latter in a historical step. It has an instant positive effect, but the mid-term one is extremely negative, especially for the population. Besides, it will be Russian citizens, rather than Europeans, who will feel the consequences of the sanctions,” Panchenko is convinced.

Every Russian has already received the signal that Russia’s military aggression in Ukraine must be paid for (literally). These days Russia’s Prime Minister Dmitry Medvedev stated that in 2015 tax load on Russians might be increased, since the budget for the next year must take the current state of Russia’s economy into account. He admitted that because of the West’s sanctions, Russian companies and banks are having problems with foreign loans and the current situation does not “favor” the inflow of investments. So, among possible ways out of the situation Medvedev mentions (attention here) considering “the widest variety of options, even increase in taxation.”

But this is not the end of it. According to Panchenko, European companies send a maximum of 20 percent of their goods to Russia. And they have already started looking for safer product markets. In what way exactly will it be revealed? “Further escalation of the trade conflict between Russia and Europe will lead to deterioration of investment climate in Russia and withdrawal of a number of international importing companies that had outlets in the Russian Federation,” Panchenko explains. According to him, 1998 can be remembered as an analog of these events, when 70 percent of Moscow companies went bankrupt. “An empty Moscow. But there was a currency collapse back then, because the national currency of Russia depreciated by 2.5    times. And now these are the consequences of a political decision of one person,” he says. According to the expert, international companies will leave Russia because of a whim of one person, and billions of investments and a number of partner companies will disappear along with them.

“During the six months of the implemented third round of sanctions, there might be zero growth or even stagnation in Russia,” Panchenko predicts. Let us also bear in mind that after the Russian government’s conversations about limitation or full ban of transit flights of European airlines from Europe to Asia across Russia’s air space, common shares of Aeroflot went down by about six percent on the Moscow stock market! And what will happen to them after the full ban? By the way, Europe has also promised to shut down its air space for the Russian Federation. Who will be the first in the way of the economic boomerang, which comes back to Russia? Panchenko thinks tourism companies will be the first to suffer. According to him, five Russian travel agencies have already gone bankrupt, 50,000 Russians have felt the consequences of sanctions.

COMMENTARIES

“RUSSIAN SOCIETY WILL REACT NEGATIVELY TO THE DECISION OF ITS GOVERNMENT”

Nikolay PETROV, professor at the Higher School of Economics, Moscow:

“Russia’s ban on the import of Western goods serves a number of objectives. One of them is a response to the sanctions announced by the West.

“The second objective is that the decrease in the living standard, which Russians will feel in near future (several months or a year), is happening now, when the level of confidence in the government is very high. Russians will perceive some minor problems and the necessity to tighten the belts a little easier against this background.

“The third one is to create problems for the countries that have implemented the sanctions. These problems will be felt by groups of citizens from the countries that produce agricultural goods. It is needed to influence the public opinion, which certainly will not be happy about the price of pressurizing Russia that has to be paid now.

“Russia’s society will react negatively to the decision made by its government. Another thing is that it is convenient for the Kremlin to provoke this reaction now, when everybody loves it, instead of waiting for people to stop sensing connection between what they have to pay for and those additional problems that appear. The Kremlin took    into consideration that the society will deal with these sanctions easier now.

“Of course, this resolution entails several large problems. But on the other hand, Putin decided that in case of continuing the confrontation with the West, something similar might occur, but the West will get to choose the moment when it happens. The Kremlin thinks that it is better to go through painful preparation and reestablishment of  a cumbersome mechanism of goods supply and replacement now. People are happier in summer than in winter.

“Even though Putin is between a rock and a hard spot, it is naive to think that he is cornered for good. He can be comfortable there for a while. This is what he counts for: Ukraine’s government has much harsher time limits than he has. The sanctions have been announced: there can be no improvement or aggravation. The West laid out its trumps, and it may become painful for it and the public opinion, which seriously affects politicians. Putin occupies a comfortable position, since Ukraine is going through a serious economic crisis and has not settled the problem with the supply of Russian gas.

“The situation might change in a few months. But there is no other alternative except for the West and Kyiv to negotiate with Putin. The circumstances now are worse than before the MH17 disaster, but Putin does not have to do anything immediately. He can calmly wait.”

“IF EUROPE, THE U.S., AND OTHER COUNTRIES DO NOT STOP PUTIN’S RUSSIA IN UKRAINE, WE WILL HAVE TO STOP IT IN OUR OWN GARDEN”

Marius LAURINAVICIUS, senior analyst at the Eastern Europe Studies Center, Vilnius:

“It should not come as a surprise that the West’s sanctions against Russia caused a response. It could have been predicted. Only a naive person could count on something different. I have thought before that the price of these sanctions will not be small. Freedom has its price too and everyone must understand it.

“If Europe, the US, and other countries that imposed sanctions do not stop Putin’s Russia in Ukraine, we will have to stop it in our own garden.

“Pro-Russian politicians will appear in Lithuania, who will say: look now what you have done with your sanctions... However, I have not heard anything like this yet.

“Entrepreneurs who work with Russia receive great profits. But I think they have to assume all the risks instead of turning to the government when things go sour.

“Lithuania and Russia used to have stronger economic ties before. Everything changed in 1998, when a crisis also struck Lithuania because of Russia’s default. Lithuanian business has been redirected to other markets since then. Of course, it took some time, but Russia has not played an important role in Lithuanian economy after that.

“During the last year’s boycott [by Russia. – Ed.] of certain goods, Lithuanian businessmen showed they can find other markets. It did not make a great tragedy for companies that could not export their goods to Russia. Lithuanian companies work even in Africa.”

“LIMITING IMPORT OF JAPANESE GOODS TO RUSSIA MEANS NOTHING FOR OUR ENTERPRISES”

Nobuo ARAI, professor at the Center for Slavic Studies at the Hokkaido University (Japan):

“Japanese mass media like to speculate that Russia (at least before its conflict with Ukraine) had a great potential for Japan’s export of agricultural goods. This opinion has been cultivated, because a middle class grows rapidly in Russia, which prefers buying high-quality goods.

“Japanese products do possess that kind of quality, but when it comes to export prices (not only to Russia, but to other countries too), they are too high.

“There are no enterprises or companies in Japan that would be highly dependent on their export of goods to Russia. Limiting import of Japanese goods to Russia means nothing for Japanese entrepreneurs.

“Even though Japanese automobile manufacturers, such as Toyota and Nissan, opened production plants in Russia, a great number of Japanese people has a negative attitude towards Russians on a psychological level.

“The majority of Japanese will perceive countermeasures taken by Russia against sanctions like the fact relating to Russians being bad guys. Besides, Russia has always been against Japan and the Japanese.

“However, since last April Shinzo Abe’s government pretended to have extremely good relations with Moscow. Abe said that in 2014 the problem of the so-called Northern Territories [territorial dispute between Japan and Russia about the Kuril Islands. – Ed.] will be settled thanks to friendship with Putin. But few experts believed in it.

“Vladimir Putin states that despite the sanctions, Russia stands firm on the position of its national interests. It means that the Russian president has absolutely no opportunity to come to an agreement with his Japanese colleague.

“Putin’s decision on restricting Japanese agricultural import is not a serious measure against Japan. But from a political point of view it shows that the Russian side takes countermeasures against any sanctions. It means that Putin shows that Japan has no reasons to expect friendly attitude in any areas of bilateral relations.”

By Natalia BILOUSOVA, Ihor SAMOKYSH, The Day
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