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Friday, December 02, 2022

As Ruble Rebounds, Some Question Impact of Sanctions Against Russia

WASHINGTON ( Associated Press) — The ruble is no longer a wreck.

As of Wednesday, the Russian ruble had bounced back from the fall that was taken by US and European allies to bury the Russian economy under thousands of new sanctions over the invasion of Ukraine. Russian President Vladimir Putin has resorted to extreme financial measures to blunt West’s punishment and raise its currency.

While the West has imposed unprecedented levels of sanctions against the Russian economy, Russia’s Central Bank has raised interest rates by 20% and the Kremlin has imposed tighter capital controls on those who exchange their rubles for dollars or euros. want to provide.

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This is a monetary defense. Putin may not be able to sustain sanctions for long as the Russian economy weighs in. But the ruble’s recovery could be a sign that sanctions in their current form are not working as powerfully as Ukraine’s allies had counted on to pressure Putin to pull his troops from Ukraine. It could also be a sign that Russia’s efforts to artificially propel its currency are working by taking advantage of its oil and gas sector.

The ruble was trading at around US$85, roughly where Russia launched its offensive a month earlier. The ruble had fallen to around $150 on March 7, when news emerged that the Biden administration would impose sanctions on US imports of Russian oil and gas.

Speaking to Norway’s parliament on Wednesday, Ukraine’s president urged Western allies to inflict even more financial pain on Russia.

“Sanctions are the only means of urging Russia to seek peace,” Volodymyr Zelensky said in a video message from his besieged country. He added: “The stronger the sanctions package, the faster we will bring back peace.”

Increasingly, European countries’ purchases of Russian oil and natural gas are coming under scrutiny as a loophole and lifeline for the Russian economy.

“For Russia, it’s all about their energy revenue. It’s half of their federal budget. This is what drives Putin’s regime and war,” said Tania Babina, an economist at Columbia University. Who was born in Ukraine.

Babina is currently working with a group of 200 Ukrainian economists to document more precisely how effective the West’s sanctions are in curbing Putin’s war-capability.

The ruble has also risen amid reports of the Kremlin becoming more open to ceasefire talks with Ukraine. US and Western officials have cast doubt on Russia’s announcement that it will conduct dial-back operations.

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President Joe Biden hailed the success of the sanctions – some of the toughest ever imposed on a nation – when he was in Poland last week. “The ruble is reduced to rubble almost immediately,” Biden said.

Biden said sanctions on Russian financial institutions and companies, trade and Putin’s power brokers were crushing the country’s economic growth and prompting hundreds of international companies to stop doing business there.

Russian efforts to counter those sanctions by backing the ruble can only go so far.

Russia’s Central Bank cannot raise interest rates because doing so will eventually stop lending to businesses and borrowers. At some point, individuals and businesses will develop ways to get around Russia’s capital controls by transferring small amounts of money. As the penalty strains the Russian economy, economists say the ruble will eventually weigh less. Without these efforts, Russia’s currency would almost certainly weaken.

But Russia’s oil and gas exports to Europe as well as China and India continue. Those exports have served as an economic floor for the Russian economy, which is dominated by the energy sector. In the European Union, the reliance on Russian gas for electricity and heating has made it significantly harder to close the spigot, which the Biden administration did when it banned the relatively small amounts of petroleum that the US imports from Russia.

“The US has already placed sanctions on Russian oil and natural gas imports, and the United Kingdom will end them by the end of this year. However, these decisions will have no meaningful effect until the EU follows suit. does not comply,” wrote Benjamin Hilgenstock and Elina Ribakova, economists at the International Finance Institute, in a report released on Wednesday.

Hilgenstock and Ribakova estimate that the Russian economy could contract by more than 20% this year if the EU, UK and US impose sanctions on Russian oil and gas. This is compared to estimates of a 15% contraction, as the restrictions are in place.

Knowing this, Putin has taken much of Europe’s reliance on its energy exports to his advantage. Putin has called on Russia’s central bank to force foreign gas importers to buy the ruble and use them to pay state-owned gas supplier Gazprom. It is not clear whether Putin can make good on his threat.

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The White House and economists have argued that sanctions take time, weeks or months to take effect as industries shut down due to lack of materials or capital or both. But critics of the administration say the ruble’s recovery shows the White House needs to do more.

“The rebound of the ruble indicates that US sanctions have not effectively crippled Russia’s economy, which is the price Putin has to pay for his war,” said Sen. Pat Tomei, R-Pa.

“To give Ukraine a fighting chance, the US must isolate Putin’s revenue stream by cutting global sales of Russian oil and gas,” Tumi said in an email to the Associated Press.

Sherrod Brown, chairman of the Senate Banking, Housing and Urban Affairs Committee, said on Wednesday that lawmakers are looking at ways to expand the restrictions Biden recently imposed on members of the Russian parliament “and perhaps extend it to other political players.” Extend it.” Brown, D-Ohio, said lawmakers are also weighing greater penalties against banks.

Western leaders, under Biden’s encouragement, adopted sanctions as their toughest weapon to try to force Russia to reverse its invasion of Ukraine, which is not a member of NATO, and mutual defense of that bloc. Not protected under the policy.

Some allies now acknowledge that their governments may need to double the fiscal penalties against Russia.

British Prime Minister Boris Johnson said on Wednesday that the Group of Seven major industrialized nations should “accelerate sanctions with a rolling program until every one of (Putin’s) troops is out of Ukraine.”

But that’s a tough question for other European countries like Germany, which depend on Russia for vital natural gas and oil. Overall, the European Union gets 10% of its oil from Russia and more than a third of natural gas.

Many of those countries have pledged to free themselves from that dependency – but not immediately.

If European nations move more quickly than Russian petroleum, wrote Atlantic Council analyst Charles Litchfield, “a more widespread embargo from Europe would threaten Russia’s current account surplus – suddenly paying public sector wages and wage war.” It will be more difficult to do.”

He added that “such an outcome may be beyond the reach of Western consensus.”

Sweets reported from New York. Associated Press Congressional correspondent Lisa Mascaro contributed to this report.

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