Saturday, December 03, 2022

Refugee crisis or opportunity?

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By Ken Sweet and Ellen Knickmeyer in Washington

WASHINGTON ( Associated Press) – The ruble is no longer debris.

The Russian ruble returned by Wednesday from the fall it took after US and European allies moved to bury the Russian economy under thousands of new sanctions over its invasion of Ukraine. Russian President Vladimir Putin has used extreme financial measures to blunt the West’s penalties and inflate its currency.

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

It is a monetary defense that Putin may not be able to maintain, as long-term sanctions are pushing the Russian economy. But the recovery of the ruble may be a sign that the sanctions in their current form are not working as forcefully as Ukraine’s allies had hoped when it comes to putting pressure on Putin to withdraw his troops from Ukraine. It could also be a sign that Russia’s efforts to artificially support its currency are working by exploiting its oil and gas sector.

The ruble traded at about 85 against the US dollar, about where it was before Russia began its invasion a month ago. The ruble fell as low as about $ 150 to March 7, when news emerged that the Biden administration would ban US imports of Russian oil and gas.

Ukraine’s president spoke to Norway’s parliament on Wednesday, urging Western allies to inflict even greater financial pain on Russia.

“The only way to encourage Russia to seek peace is sanctions,” Volodymyr Zelenskyy said in a video message from his beleagured country. He added: “The stronger the sanctions packages will be, the faster we will bring peace back.”

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

“For Russia, it’s all about their energy income. That’s half their federal budget. This is the thing that supports Putin’s regime and the 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 more accurately document how effective the West’s sanctions are on thwarting Putin’s war-making ability.

The ruble also rose amid reports that the Kremlin was more open to ceasefire talks with Ukraine. U.S. and Western officials have expressed skepticism about Russia’s announcement that it will cut back on operations.

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

Sanctions against Russian financial institutions and companies, against trade and against Putin’s power brokers have crushed the country’s economic growth and prompted hundreds of international companies to stop doing business there, Biden noted.

Russia’s efforts to counter those sanctions by supporting the ruble could go just as far.

Russia’s Central Bank can not continue to raise interest rates, because it will eventually choke credit to businesses and borrowers. At some point, individuals and businesses will develop ways to circumvent Russia’s capital controls by shifting money into smaller amounts. As the fines hit the Russian economy, economists say it will eventually weigh the ruble. Without these efforts, Russia’s currency would almost certainly be weaker.

But Russia’s oil and gas exports continued to Europe as well as to China and India. Those exports acted as an economic floor for the Russian economy, which is dominated by the energy sector. In the European Union, a dependence on Russian gas for electricity and heating has made it significantly more difficult to turn off the tap, which the Biden administration did when it banned the relatively small amount of petroleum that the US imports from Russia.

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“The US has already banned the import of Russian oil and natural gas, and the United Kingdom will phase it out by the end of this year. However, these decisions will not have a significant impact unless and until the EU follows its example, “wrote Benjamin Hilgenstock and Elina Ribakova, economists at the Institute of International Finance, in a report released on Wednesday.

Hilgenstock and Ribakova estimate that if the EU, Britain and the US banned Russian oil and gas, the Russian economy could shrink by more than 20% this year. This is compared to projections for a contraction of up to 15%, as the sanctions are now.

Knowing this, Putin has largely used Europe’s dependence on its energy exports to its advantage. Putin has called on Russia’s Central Bank to force foreign gas importers to buy rubles and use them to pay for state – owned gas supplier Gazprom. It is unclear whether Putin can rectify his threat.

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

“The recovery of the ruble seems to indicate that US sanctions have not effectively paralyzed Russia’s economy, which is the price Putin has to pay for his war,” he said. Pat Toomey, R-Pa, said.

“To give Ukraine a chance, the US must cut off Putin’s revenue stream by cutting off Russian oil and gas sales worldwide,” Toomey said in an email to The Associated Press.

Sen. Sherrod Brown, chairwoman of the Senate Committee on Banking, Housing and Urban Affairs, said on Wednesday that lawmakers are considering ways to extend the sanctions Biden recently imposed on members of the Russian parliament “and is likely to extend them to other political players. ” Brown, D-Ohio, said lawmakers are also weighing more fines against banks.

Western leaders, under Biden’s encouragement, have embraced sanctions as their most difficult weapon in trying to force Russia to invade Ukraine, which is not a member of NATO and is not protected under that bloc’s mutual defense policy. stop.

Some of the allies now acknowledge that their governments may have to double the financial penalty against Russia.

British Prime Minister Boris Johnson said on Wednesday that the Group of Seven Major Industrialized Countries “should intensify sanctions with a continuous program until each of (Putin)’s troops is from Ukraine.”

But this is a more difficult question for other European countries such as Germany, which is dependent on Russia for essential natural gas and oil. The EU generally gets 10% of its oil from Russia and more than one third of its natural gas.

Many of those countries have promised to wean themselves off that dependency – but not immediately.

If European nations did move faster away from Russian petroleum, analyst Charles Lichfield of the Atlantic Council wrote, “a more comprehensive embargo on Europe would threaten Russia’s current account surplus – suddenly make it harder to pay salaries in the public sector and to wage war. “

He noted that “such an outcome could be beyond the reach of Western consensus.”


Sweet reported from New York. Associated Press Congress correspondent Lisa Mascaro contributed to this report.

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