When the war started it was seizure-this and sanction-that. I’ve read that $350B in Russian assets were seized and held, while major companies exited the Russian market, the ruble crashed, and inflation rocketed.
Meanwhile the cost of the Russian war must be astronomical to maintain, imports/exports have halted with Europe, there’s no financial aid to Russia (that I’m aware of) and multi-billion dollar resource supplies were cancelled.
All this, and Russia seems to still be having a good old time. Russians are on holidays en mass, the country is buying up arms and fossil fuels like its church Sunday, and their war machine still powers away and is prepared to keep fighting for a decade if it has to.
How? How does a country take that much of a financial beating and still be thriving? Where is the point of being broke and not being able to fund a war anymore?
An economics student from Russia here, here’s my perspective.
First, is that a country’s economy is a lot less volatile than we expected. There is also another factor that played into it. During covid, Russian companies amassed a sizable amount of inventory that was already inflated compared to European companies due to how volatile our economy is. This has given them enough time to reroute supply chains once sanctions hit.
Basically, the so-called “grey import” plays a major role in assuring the stability of our economy. Companies either route their import/export through neighboring countries or through affiliated companies.
Second is the competency of our central bank. After most of the major banks were cut off from SWIFT (used for international transactions), they raised the key rate, limited the amount of money you can cash out at one time, and did some other stuff. Higher key rate = higher deposit interest rate, but at the same time, credit became more expensive. All of this was needed for preventing banks from defaulting. Once panic died down, the changes were reverted. Now, they’re dealing with inflation.
Lastly, the majority of our budget comes from oil and gas. Since Europe didn’t want to buy it, Russia started selling it to Asia at discounted prices. Quantity of oil/gas sold drastically increased, which mitigated reduced prices and led to a surplus budget. Not to mention that they started pushing on large companies to reduce the amount of dividends and instead re-invest the money.
I wouldn’t call it “thriving,” however. All of this has definitely led to a slowdown in growth, which, as time goes by, will only get worse. But for now it’s fine.
The central bank has been surprisingly competent. But it seems like they’re often trading short term problems for long term ones, so we’ll see how they deal with them.
What do you think of this assessment? You agree, or is William Spaniel missing some stuff? https://youtu.be/ecdxs8Al424