Russia Heads for Recession, Economy Shutdown Despite Ruble Rebound, US Says

Plastic letters arranged to read “Sanctions” are placed in front of the US and Russian flag colors in this illustration taken on February 28, 2022. REUTERS/Dado Ruvic/Illustration

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WASHINGTON, April 1 (Reuters) – Sanctions imposed by the United States and its allies on Moscow for invading Ukraine are pushing Russia into recession and beginning to turn it back into a closed economy, a senior U.S. Treasury official said on Friday. .

The official, who spoke on condition of anonymity, told reporters that the Treasury sees Russia as struggling with high inflation, lower exports and shortages despite the ruble’s recovery against the dollar. The official dismissed the rally as driven by strict capital controls and foreign exchange restrictions, not market forces.

Inflation reaching 6% in the last three weeks is a better indication of the performance of sanctions inside Russia, revealing the diminished purchasing power of the ruble, the official said, adding that ruble exchange rates in the black market were well below the international rate. .

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After Western democracies imposed initial sanctions that froze around half of the Russian central bank’s $630 billion in foreign exchange assets and cut several key Russian banks from the SWIFT international transaction network, the ruble lost half of its value. its value against the dollar.

It has since recovered to its pre-invasion value, hitting a five-week high in early Moscow trading on Friday before settling in the 83-84 per dollar range.

But the Treasury official said that won’t stop a sharp contraction in Russia’s economic output that outside analysts now forecast at around 10% this year, far worse than the 2.7% contraction it suffered during 2020, the first year of the COVID-19 pandemic. .

“The economic consequences facing Russia are serious: high inflation that will only increase and a deep recession that will only deepen,” the official said.

THE CLOSURE OF THE RUSSIAN ECONOMY

The Treasury official said the cumulative effect of sanctions on banks, wealthy oligarchs linked to Russian President Vladimir Putin, key industrial sectors, and US export controls that deny Russia access to critical technologies, was to push Russia back into its Cold War existence as a closed economy.

But Russia, a producer primarily of basic goods and raw materials, was ill-equipped to produce its own consumer goods and technology, the official said.

“As a closed economy, Russia will only be able to consume what it produces, which will be a big adjustment,” the official added.

The process will not happen immediately. China, India and other countries continue to trade with Russia and could replace some goods and parts that Russia would normally buy from Western companies.

However, their access to semiconductors, software and other technologies is limited due to US export restrictions that will also prevent China from selling such chips to Moscow, as all of its semiconductors are made with US technology or software. USA read more

The United States intended the sanctions and export restrictions to weaken the Russian economy and cripple the Russian military’s ability to acquire parts and equipment for the war effort, the official said.

Washington has been comfortable with the enforcement of sanctions and export controls so far, but has remained vigilant for any violations.

Treasury’s comments come as senior Biden administration officials traveled the world to press world leaders to keep up sanctions pressure on Russia. Read more

Washington planned to maintain humanitarian exemptions from the sanctions, given growing food insecurity problems and Russia’s role as a major wheat producer, the Treasury official said.

Other exemptions were intended to protect Western financial institutions holding Russian assets, through a license to allow Russian debt payments to be made.

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Reporting by David Lawder and Andrea Shalal; Edited by Daniel Wallis

Our standards: The Thomson Reuters Trust Principles.

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