Russia: A country that is considered invulnerable to economic sanctions

Thursday, February 24, 2022 | 8:12 p.m.

On Monday, February 21, the Russian stock market lost 12%. The ruble also fell under the pressure of events. Russian investors are nervous, but the Kremlin remains unfazed. On February 18, Vladimir Putin praised the results of the Russian economy. With a 4.5% increase in GDP in 2021, the losses of 2020 have been erased and national wealth is already above the pre-pandemic level, the Kremlin leader said.

He did not say a word about the situation in Ukraine, as if the Russian economy had become impervious to external dangers. Vladimir Putin believes that the efforts made since 2014 will bear fruit.

Since the start of the conflict with Ukraine, the Russian economy has diversified, is less dependent on oil and gas, and has built on its strengths. Its exports of minerals, aluminum, nickel, gold, diamonds and wheat, in which it has become the world’s leading player, give it a commercial advantage over the rest of the world.

The head of the Kremlin has also been busy consolidating public accounts. The state debt is under control. It only represents 13% of GDP, while in Europe it is more than 80%. The budget was built on a barrel of crude oil at $44, which is now worth almost twice as much. This prudent management of public funds even produced a budget surplus last year. Corporate debt denominated in dollars has been restructured into rubles.

This is part of the vast de-dollarization plan started eight years ago, following the sanctions decided after the annexation of Crimea. To protect itself from a new round of sanctions, Moscow has tried to free itself from the dollar. In particular, through agreements with China

Both countries intend to settle their bilateral trade in their national currency. Russia, in particular, has stepped up its efforts. Only 20% of its exports to China are denominated in greenbacks. In contrast, 60% of Chinese exports to Russia are still in dollars.

Finally, the Central Bank of Russia has completely renewed its portfolio of foreign exchange reserves. It has abandoned the dollar in favor of the yuan, the euro and gold. It has also greatly increased its reserves to a record level, exceeding $630 billion at the end of January.

Are these replenishing reserves Russia’s life insurance?

Yes they are. It is what will allow it to support the ruble and the banks if they are targeted by sanctions, to pay for imports. And with $630 billion in reserves, the Kremlin has a lot to look forward to.

That is almost double the reserves of 2014, the fourth worldwide, equivalent to that of a petro-monarchy. Will this anti-crisis weapon be enough to resist sanctions? Some US experts doubt it. This is, in any case, the conviction of the Kremlin.

By Dominique Baillard for Radio France International

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