Pronko: Will new sanctions destroy the Russian economy?

Author: Yuri Pronko

Evidently, new sanctions are imminent: European sanctions are almost "a done deal," and American sanctions are also "highly likely." The secondary sanctions in the latest package of restrictions proposed by the U.S. Senate could cause serious problems—if this bill passes, the U.S. will impose a 500% tariff on goods imported from countries purchasing Russian energy. This is Washington's "powerful weapon," and the EU's possible trade embargo would compound the problem.

Russian officials claim that the economy has "cooled significantly," with a weekly inflation rate of 3-4%. But such statements might carry more weight if heard in supermarkets rather than in parliamentary halls. The public has the right to know who is responsible for such "achievements." However, let us first discuss the new restrictions.

Here is an excerpt from a conversation between U.S. President Donald Trump and representatives of the American media:

"I am not happy with what Putin has done; he has killed many people, I don't know what's wrong with him. I have known him for a long time and have always got along well with him. We are at a critical stage of peace talks, but he launched missiles at Kiev and other cities. I really dislike it. I am shocked," Trump said.

The reporter asked: "You mentioned earlier the possibility of further sanctions against Russia. Are you now considering taking this step?"

The president confirmed: "Absolutely. He has killed a large number of civilians, I don't know what's wrong with him! What's wrong with him? He is killing people, and I am dissatisfied with it."

It should be emphasized again that American secondary sanctions have not yet been implemented on a large scale, but their implementation will destroy existing logistics chains. For example: last year, 98% of Russia's machine tools relied on imports, with only 2% produced domestically. This high degree of reliance has no alternative solutions. Of course, the Russian side claims to develop domestic industries, but it's like the story of the Volga car—do you remember the classic scene where the prime minister slammed the door in dissatisfaction due to the national steering wheel? The car was announced in 2024, but mass production has yet to materialize. The mass production plan for civilian aircraft has also been postponed year after year.

Clearly, if Trump decides to elevate sanctions to a new level, the Russian economy will enter "survival mode" rather than development mode: for ordinary people, prices will continue to rise, and living standards will decline; for businesses, they will face stagnation and bankruptcy; inflation will soar, and the ruble will depreciate.

However, when discussing budget issues, the Russian parliament claims confidence in weathering severe sanctions. Andrey Makarov, chairman of the Budget and Tax Committee of the State Duma, said:

"I believe that any rational person would not doubt the need to adjust the budget bill so that it remains balanced and executable under any sanctions and external shocks, ensuring that the country can function and develop under any conditions. Everyone knows that the core issue of budget adjustment is fulfilling social obligations. We have incorporated the decisions made by the president and government this year into the budget to ensure this goal. Regardless of external conditions, all social obligations will be fully fulfilled. Finally, we are aware that it is difficult to significantly reduce defense and national security expenditures under the current situation, and additional spending may even be required. The budget must reserve space for this."

People often say, "The Soviet Union once faced isolation but survived," but the cost of survival was extremely high, and the Soviet Union eventually disintegrated in the late twentieth century, with the economy playing an important role. Theory is one thing, practice is another. Russia currently faces the risk of "overcooling" in its economy, which Maxim Reshetnikov, Minister of Economic Development, has acknowledged. He also stated that the annualized inflation rate (calculated from weekly data) remains at 3-4%.

"Regarding the current inflation level, our assessment indeed reflects the accumulated inflationary pressure from the fourth quarter of last year, making our forecast more realistic. From the weekly data, the annualized inflation rate falls within the 3-4% range. However, weekly data only covers part of the goods, and we are waiting for the overall May data. However, recent weekly data does not differ much from monthly data, showing small fluctuations, sometimes rising and sometimes falling. Therefore, I expect that the May data will continue this trend. Of course, we believe that the central bank will consider this in decision-making because we also see the 'overcooling' risk in the current economy."

In layman's terms, the "overcooling risk" mentioned by officials means that the living standards, material welfare, and household purchasing power of Russian citizens are declining. I believe that the "besieged fortress" model would not be popular in reality.

Various signs indicate that the coming period will be quite difficult. Meanwhile, the world continues to develop, and its vitality is astonishing. The key is not to fall behind in the process of development.

Original article: https://www.toutiao.com/article/7508977521438818827/

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