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163Economic sanctions against Russia. Consequences Kabanova E. (Russian Federation) Экономические санкции против России. Последствия Кабанова Е. А. (Российская Федерация)
Кабанова Екатерина Александровна /Kabanova Ekaterina - студент, Международный финансовый факультет, Финансовый университет при Правительстве Российской Федерации, г. Москва
Аннотация: анализ влияния санкций на экономику России. Abstract: analysis of sanctions' impact on the Russian economy.
Ключевые слова: экономические санкции, импорт, ЕС, США, Россия, международная торговля.
Keywords: economic sanctions, imports, oil, the EU, the US, Russia, foreign trade.
Currently there are multilateral economic sanctions against Russia in connection with geopolitical tensions between Russia and Ukraine. The first sanctions were imposed by the US, EU and other countries in March and April 2014 in respect of certain persons, groups and companies. They include a ban on entry to these countries for persons under sanctions, freezing their assets, as well as a ban on business transactions with these individuals and companies... [c. 1]
Currently there are multilateral economic sanctions against Russia in connection with geopolitical tensions between Russia and Ukraine. The first sanctions were imposed by the US, EU and other countries in March and April 2014 in respect of certain persons, groups and companies. They include a ban on entry to these countries for persons under sanctions, freezing their assets, as well as a ban on business transactions with these individuals and companies.
Other sanctions were imposed in relation to the defense, energy and financial sectors in Russia in July 2014. In the financial sector, access to financial markets of the EU and the US was severely restricted for the six largest Russian state-owned banks and enterprises in the energy and defense industries. Since September 2014, these organizations cannot apply for loans and issue debentures for a period longer than 30 days. In the defense sector, the US and the EU have reduced access to finance Russia's largest companies for more than 30 days and imposed a ban on exports of dual-use technologies in respect of 14 companies related to the defense industry. Sanctions that restrict cooperation with Russia in the field of defense were introduced by the United Kingdom, Israel, Sweden and Switzerland. In the energy sector the US and the EU have limited access to financing activities of Russia's largest oil and gas companies. In addition, they have introduced a ban on the export of goods and services (excluding financial services) or technologies in support of deep-water drilling, exploration or extraction of resources on the Arctic shelf, or shale resources. Following the EU Norway, Canada and Australia have imposed sanctions against Russia.
In response to these sanctions Russia imposed a ban on imports of food products from a number of Western countries for a period of one year on August 7, 2014. This prohibition includes import of meat, fish, seafood, fruits and vegetables, milk, dairy products and a wide range of semi-finished products from the US, EU, Australia, Canada and Norway. Later this list was extended over some other countries.
Sanctions and responses had a serious impact on the economy through three channels.
Firstly, they have caused increased volatility in the foreign exchange market and a significant depreciation of the national currency. Large-scale capital outflows led to a deterioration of the capital account and financial instruments and the reduction of net international reserves. In the second half of 2014 confidence in the ruble began to decline
in anticipation of devaluation of the ruble, and the decline in oil prices eventually led to the fact that in 2014 the ruble depreciated by almost half against the dollar.
However the weakening of the ruble has not led to an increase in non-oil exports. Despite some momentum due to displace in the manufacturing industries, ruble's potential is likely to be small taking into consideration its limited reserve capacity and structural limitations. In the short term, positive effect of import substitution may be used to promote protectionism. Even before the current geopolitical tensions, government showed interest in supporting individual enterprises and sectors that may benefit in the case of import substitution. An example is the introduction of a ban on the import of pork products in early 2014. There is a risk that the government will continue to use protectionist measures. This may delay the implementation of structural reforms, by which the Russian economy could improve their competitiveness in the global market.
Devaluation of the ruble led to an acceleration of inflation. A ban on food imports in August 2014 led to an increase in food prices. By February 2015, food inflation reached 23.3%, increasing the already high inflationary pressure due to the depreciation of the ruble. In response to the high inflationary pressures, Bank of Russia has significantly tightened monetary policy in the second half of 2014. Despite the fact that this policy is consistent with the strategic objectives of the Bank of Russia on inflation targeting and financial stability, it has led to an increase in the cost of domestic borrowing and restricted access to credit resources for domestic investors and consumers.
The second channel includes restrictions on Russia's access to international financial markets, which began to appear since the emergence of geopolitical tensions. Even before the enactment of sanctions against the financial sector markets began to lay the increased risks in Russia the cost of credit, resulting in spreads on Russian credit-default swaps reached maximum values. The volume of new foreign borrowing declined in the first half of 2014 and almost faded in the second half after the imposition of sanctions. Tighter credit conditions in the domestic and foreign markets had a negative impact on investment and consumption decisions that led to the postponement of plans and cuts. It seems that the sanctions against the financial sector had the most negative impact on domestic demand amid falling oil prices in the last quarter of 2014. After the imposition of sanctions, very few foreign financial institutions provided financing Russia, and most of the Western financial markets remain closed for Russian banks and companies. External financing conditions have tightened even for those companies and banks, which do not apply sanctions. Thus, in the first and second halves of 2014 volume of the bond issue of Russian companies to the corresponding period of the previous year fell sharply. In this case, the cost of borrowing for Russian companies remained high, but began to decline in recent months.
Finally a low level of business and consumer confidence in the domestic market due to uncertain prospects of the future growth caused a further decline in consumer and investment activity. Another reason for the low level of trust in the background of geopolitical tensions and sanctions is the uncertainty about economic policy. Domestic demand was weak: the volume of investment in fixed assets declined in 2014 by 2.5%, while the contribution of consumption to economic growth was less than half the figure for 2013.
In addition, level of investment activity abroad has also decreased, reflecting the decline in business confidence.
Thirdly, sanctions have affected the turnover. Impact of sanctions is reflected in the figures on foreign trade for the third quarter 2014 compared to the third quarter of 2013: a sharp decline in imports due to the depreciation of the ruble and the adoption of Russian response to the ban on the importation of food from Western countries. In the third quarter of 2014, imports of food and beverages from the EU to Russia decreased. For example, the volume of imports of dairy products from the United States, Japan and Australia fell significantly. Despite the fact that the ruble was devalued in the fourth quarter, it would
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be wrong to attribute this reduction in the influence of import sanctions. Even in the absence of sanctions in the Russian economy, there was no growth due to the low growth potential. Oil revenues in 2015 will be no more than two-thirds of its former level according to forecasts, so as a result Russian imports can be reduced even more.
Some countries will benefit because of economic sanctions against Russia and Russian response to them, and traditional trading partners may lose their markets. In general, the impact of the ban on the import of food likely to be negative on Eastern European EU member states, but weak, as in total their imports to Russia are not significant.
Latin America and Belarus were able to expand production and increase exports to Russia to compensate for the lack of prohibited goods.
It is still too early to quantify the impact of economic sanctions on all sectors of the Russian economy, which are subject to sanctions. However, the effects of the sanctions imposed against Russia, are likely to be most pronounced in the field of investment, particularly in the oil and gas sector. Thus, restrictions on the export of high-tech oil drilling equipment can lead to postponement of the implementation of some new investment drilling projects. However, the pace of implementation of such investments may be declined due to the weak global demand and low world oil prices. Restrictions on new medium- and long-term borrowings will reduce the external financing of new investments.
The impact of sanctions on Russia's economy is likely to persist. International sanctions will continue to have an impact on the Russian economy, especially given the low oil prices. Russia's economic growth slowed down due to structural constraints and uncertainty caused by geopolitical tensions and sanctions. The economic consequences of sanctions will be developed under conditions of reduced demand for oil, falling oil prices and reduced export earnings. We assume that the above trends will continue during 2015, when the impact of previous and new rounds of sanctions will be most noticeable, and it will push the economy into recession.
References
1. World Bank, «Russia economic report: the dawn of a new economic era?» [Electronic resource]. Access mode:
http://documents.worldbank.org/curated/en/2015/04/24348746/ dawn-new-economic-era (date of treatment 15.04.2015).
