As the effects of Western sanctions on the Russian economy intensify, President Vladimir Putin has devoted a considerable amount of airtime in recent weeks to reassuring the Russian public that sanctions are doing more harm to the West than to Russia.
Putin has decided to prepare his country for the long term, recently telling aviation executives that “the collective West is not planning to undo the policy of economic pressure on Russia” and that every sector of the Russian economy should “create a -short-term plan based on internal possibilities. “
At the same time, Putin’s policy of self-reliance was to be expected. Since Russia annexed Crimea from Ukraine in 2014, the country is preparing to increase Western sanctions with a strategy called “Russia Fortress.”
However, the scale of the West’s economic counterattack since the start of the war on February 24, combined with the growing wave of companies cutting off business with Russia to hedge against reputational risk or future sanctions, has come as a shock. “No one expected the kinds of sanctions the West could impose,” Foreign Minister Sergei Lavrov admitted in March, referring to the freezing of half of Russia’s $ 600 billion reserves.
Russia says it will challenge sanctions on its foreign exchange reserves in court and has also threatened to sue if it’s deemed it has no debt due to asset freezes. Meanwhile, there are several ways companies, industries and officials are trying to live up to Russia’s new normalcy.
Redesign of “Lada” and “VKontakte”
The famous Russian brand of domestic vehicles dating back to the Soviet era relies heavily on imported parts. Lada-based company Evatoz is owned by French carmaker Renault, and the two companies share a single purchasing system for spare parts. On March 24, in response to the news that Renault was exiting the Russian market, Evatoz revealed that he had to quickly redesign some models so that they would be less dependent on imported components.
The company did not say which models will be affected, but said they will be made available gradually in the coming months. According to a company statement, the redesigned models will be simpler versions of current cars, with no additional features.
The second step is to get Instagram. Until recently, the site was the best social network in Russia based on monthly users, according to social media analytics firm Brands Analytics. The local Russian version “VKontakte” came in second place.
Since the attack, and especially after the Russian Communications Authority cut off access to Facebook and Instagram last month, VKontakte has pulled all stations to lure content creators to its platform. The company waives commission on any money-making content until the end of April and offers free platform promotion to any creator who has moved from another platform or reactivated their site since March 1st. I also published a step-by-step guide to starting a business on VKontakte.
This section contains related items, located in the Related Nodes field.
And private data “VKontakte” shows that this can be successful. Monthly users reached a record high of over 100 million in March. Instagram lost almost half of its active users in Russian between February 24 and April 6.
That’s not the whole story, of course. Many Russian Instagram users are still active on the platform because they can circumvent the ban using VPN systems. Olga Levakova, who runs a business selling handmade fabrics, said that after the initial “shock” and “panic” when Instagram was shut down, she continued to use the platform to reach mostly foreign customers. Levakova thought of closing after being flooded with anti-war comments and messages in the first weeks after the attack. This faded at no point, but she omitted a line in the description of her site that mentioned Tsarist Russia and now simply says “historical tapestry.”
“I could not stand the onslaught of aggression,” Levakova admits. “Demands are still coming,” she says, but she says it is too early to say whether her business will be affected.
Internal credit cards
Russia has been preparing for financial isolation since some of its largest banks were hit by sanctions following the annexation of Crimea. Russia’s national payment card system and its bank-based credit card system, known as “Mir”, have grown exponentially. According to the Russian Central Bank, more than 113 million Mir cards were issued in 2021, up from 1.76 million at the end of 2016. Over the past year, about a quarter of all card payments in Russia have been made using cards Mir.
Analysts say the increase is partly projected by Russia. “They did not make it attractive to ordinary pre-war Russians,” said Maria Shagina, a visitor to the Finnish Institute of International Relations. Instead, the government asked public sector employees, retirees, and anyone receiving Mir benefits to use the card.
This means that when Visa and MasterCard announced in early March that they were suspending transactions and operations in Russia, an alternative was already in place. But Mir is not a direct replacement. It operates only in Russia and a few other countries, especially in the former Soviet Union.
The lack of global access has also hampered Russia’s attempt to build an alternative to the international payment system, SWIFT. And his version, known as “Space”, had 400 participants last year, compared to 11,000 on the Swift network.
“The network effect does not exist because foreign participants are not inclined to join it,” Shagina said. “If you do not trust Russia in other ways, why trust this system?”
Work in public works
According to Elena Rybakova, deputy chief economist at the Institute of International Finance in Washington, mass unemployment has not yet appeared in Russia, but it is one of the things the Kremlin fears most because of its potential to fuel dissent. “The more they suppress the demonstrations, the more I realize they are worried about unemployment,” she added. More than 15,000 people were arrested in Russia in the first weeks of the conflict for participating in anti-war protests, and the Kremlin has effectively silenced the independent media by criminalizing what it considers “false information” for a so-called “military operation.” .
Moscow is trying to prevent the potential unemployment problem with a program to retrain and hire people who have worked in Western companies, many of whom have suspended or suspended business operations in Russia. Moscow Mayor Sergei Sobyanin believes up to 200,000 jobs are at risk.
The solution, according to what he recently posted on his blog, is to give workers who are left behind something “useful” to do. Options he describes include managing work for official documents such as passports and birth certificates, and working in a city park or temporary health center that the city has recently begun to establish. $ 41 million has been allocated for the creation of these jobs and the retraining of workers.
Shocking losses and figures
Russia has so far managed to resist Western sanctions without collapsing its financial system. Thanks to a large portion of the central bank, which immediately raised interest rates to 20 percent and has since lowered them to 17 percent and imposed stricter capital controls.
But this does not mean that Russia is not in the worst situation. The economy may shrink by 8.5 percent this year, according to data from the International Monetary Fund. The decline could be even greater if Europe bans Russian oil imports. Inflation was 17.5 percent, something that even Putin admits hurts Russian citizens.
Analysts say another major risk is Russia’s dependence on imported products – many of which are now subject to sanctions. It may be more difficult for the Kremlin to oppose it than measures aimed at the macroeconomy.
“There is a feeling, especially in government, that they will turn the tide, and then there will be a monster … They do not know exactly when that monster will devour them,” says Rybakova.