4 ways Russia is trying to prove it can live with sanctions

New York, USA (CNN) – In recent weeks, Russian President Vladimir Putin has devoted considerable time to broadcasting to reassure the Russian public that sanctions are doing more harm to the West than to Russia.

Putin said every sector of the Russian economy must “develop a long-term plan based on domestic capabilities.” Putin’s policy of self-reliance was predictable. Since Russia annexed Crimea from Ukraine in 2014, the country is preparing to increase Western sanctions.

However, the degree of economic offensive launched by the West since the invasion of Ukraine 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 last 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 is deemed to have failed due to asset freezes.

Meanwhile, here are some of the ways officials along with businesses and factories are trying to come to terms with Russia’s new normalcy:

1. Redesign of Lada

The famous Russian brand of domestic cars of the Soviet era relies heavily on imported parts. AvtoVAZ, which produces Lada, is owned by French carmaker Renault, and in response to news that Renault was leaving the Russian market on March 24, AvtoVAZ revealed that it had to quickly redesign many models so that they depended less on imported components.

2. Attracting Instagram users to VKontakte

According to social media analytics firm Brand Analytics, Instagram was – until recently – the best social network in Russia based on monthly users, with VKontakte, the local Russian version of Facebook, coming in second.

Since the invasion, and especially after the Russian Communications Authority cut off access to Facebook and Instagram last month, VKontakte has attracted creators to its platform.

The company waives its commission for any content earned money 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 have also published a step-by-step guide to starting a business on VKontakte.

VKontakte’s own data show that this can be successful. Monthly users reached a record high of over 100 million in March. According to Brand Analytics, Instagram lost almost half of its active users in Russian between February 24 and April 6.

Many Russian Instagram users are still active on it because they can circumvent the ban by using a VPN.

3. 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 Central Bank of Russia, more than 113 million Mir cards were issued in 2021, up from a total of 1.76 million at the end of 2016. About a quarter of card payments in Russia are made using Mir cards in the year passed.

Experts say the increase was partly projected by Russia. “They did not make it very attractive to ordinary Russians before the invasion,” says Maria Shagina of the Finnish Institute of International Relations. Instead, the government asked public sector employees, retirees, and anyone receiving benefits to use the Mir 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 works only in Russia and a few other countries, mostly in the former Soviet Union.

4. 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 city of Moscow is trying to overcome potential unemployment 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.

What’s next?

Russia has so far resisted the force of Western sanctions without collapsing its financial system. Thanks to a large part of the central bank, which immediately raised interest rates to 20% – and has since lowered them to 17% – and imposed strict capital controls.

This is not to say that Russia is in its worst situation right now. According to the International Monetary Fund, the economy may shrink by 8.5% this year. The decline could be even greater if Europe bans Russian oil imports. Inflation has reached 17.5%, something that even Putin admits hurts Russian citizens.

Experts 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 general economy.

“There is a feeling, especially in government, that they will turn a corner and then there will be a monster,” Rybakova says. “They do not know exactly when that monster will devour them.”

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