Development of Russian economy under the conditions of sanctions.

Development of Russian economy under the conditions of sanctions.

Economic sanctions imposed against Russia and counter-sanctions applied by Russian Federation have substantially complicated both external and internal economic situation for Russia. The sanctions have raised risks of the economy recession in 2014-2015 and is a threat of following stagnation: the rubble has been depreciated, credits became more costly, workforce productivity decreased, households’ consumption and investments have dropped, financial condition of businesses have gone downhill, unemployment have risen (FSSS).

What scale does the expected impact on Russian economy have? What are the appropriate measures to be taken in order to minimize the damage and take advantage of situation at hand?

We will try to provide schematic depiction of sanctions influential effect mechanism, it’s influence on interests groups and outline involved policy communities.

The nature of the problem.

By “the sanctions” we mean political and economic restrictive measures in respect of Russian Federation, number of Russian and Ukrainian citizens and organizations, which in view of some states’ and international organizations’ are involved in destabilization of situation in Ukranian. As well as counter-measures imposed by Russia.

Massive civil strife that began in end of 2013 and its resulting government overthrow have led to rapid escalation of socio-politic crisis in Crimea in February-March 2014^[1]. Russian military participation in Crimean political processes followed by admission of independence declared by Crimea from Ukraine and acceptance of Crimean proposal of its annexation to Russia have been met with accusation by series of countries of unlawful assertion of governmental authority in the Crimean region and undermine democratic processes and institutions in Ukraine^[2]. (Fred Dews, 19 March 2014) USA and European Union, Australia, New Zeland and Canada imposed sanctions against Russian and Ukranian citizens and businesses. Russian government have responded with symmetrical countermeasures. With escalation of War in Donbass number of actors and list of restrictions have expanded.

Russian economy have been exposed to powerful adverse shock which together with other negative influences have contributed to Russian financial crisis 2014-15. By other shocks we mean closing up of quantitative easing program by US Federal reserve (Zumbrun, Joshua, 13 September 2012), (Federal Reserve Board. 12 January 2012) that caused depreciation of most of worlds currencies including ruble; and drastic fall of oil prices, export of which is one of major contributors to Russian GDP. The sanctions have restricted long-term financing of number of largest Russian banks and businesses mainly from energy, military equipment and construction industries. Prohibited supplies of specific equipment for oil and natural gas extraction. Ceased issuance of licenses for export and re-export of wide spectrum of commodities and services into Russia, number of previously issued licences were canceled. Financial restrictions are sought as most harmful in short- and mid-term. Adverse effects may be grouped into four following categories:

• Direct effect: Limitations of Russian banks to finance accessibility, in the context of globalized financial system when international financial sources have effectively merged into a single market, makes the task of obtaining new sources nontrivial. It dramatically reduces international capital inflows.
• Inderect effect: Remaining geopolitical tension and risk of economy regulation are perceived by investors as a source of extra business risks, which decreases investments to Russian business altogether (not only sanctioned ones)
• Secondary effects: Decreased capital inflow results in reduction of consumption and cutbacks in production – symptoms of recession. (Galeeva, 2015)

Long-term effects lay mostly in geopolitical dimension so we’ll leave them out as it’s not the main focus of our issue of interest.

It is necessary to make an assumption about possible duration of the sanctions. Unfortunately there are no reliable methods of predicting how long with they last. It’s a subject of extremely complicated opaque interrelationships of geopolitical actors. However short historical overview^[3] on the matter gives an impression that such political leverage as economic sanctions and embargo are likely endure for a decade at least. Such opinion is also supported by a study study (Petrescu 2007) which indicates that sanctions imposed against one party in a militarized conflict deterred (to a modest ex-tent) not only the targeted party but also other similarly situated countries from engaging in new and different military conflicts in the next five years.

The main question was what course of actions should Russia follow to minimize losses and try to utilize those few advantages that situation at hand have provided. Specific measures will inevitably be similar among various programs, we are not intended to make matters overly complicated and will not go into details of proposed actions too deep.  Instead we will outline four feasible fundamentally different directions of development:

• Further economy desovereignization: strengthen of natural resources export specialization, reducing investments in domestic fixed capital. Provides easy funds from natural resources export to patch up momentarily happening problems, but does not solve occurred long-term difficulties.
• Reorientation to the East: shifting economic relationships priorities form European partners to Asian. Asian markets are geographically closer and their recent growth is remarkable.
•  Economy restructuring. Most desirable outcome. Many politicians have perceived emerged economic situation as an opportunity to overcome inertia of governmental machinery and reform the economy from resource based model into modern effective self-sufficient sustainable economy.
• Inactivity: scenario on basis of “do no harm” principle. Make no long-term alteration to avoid further destabilization, deal with local problem spots only. (Waghina, 2015)

Parties actively involved.

It’s appropriate to start discussion of concerned policy communities with agreement upon terminology of the subject. In current conversational use, policy community refers to the population of organizations with a stake in an area of public policy. In its more technical sense, it refers to interorganizational structures exhibiting a close, stable, cooperative relationship between a limited number of, mainly self-selected, interest groups and “partnering” elements of the governmental machinery. This entry describes the development of this term and also discusses the numerous critiques that have been made concerning it. (Badie et al 2011, pp. 1902) Even though policy agents are mostly interinstitutional, policy development process and implementation activities are to take place on macro-level, cross-institutional formations on macro-level concerned with such specific issue is not feasible, involved political communities coincide with institutions. Particularly, governmental top-tier institutions. Russian federal government is composed of three branches:  

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