Ukraine conflict – How Vladimir Putin is ruining the Russian economy

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Ukraine conflict

How Vladimir Putin is ruining the Russian economy

Military humiliation, internationally isolated. Now the Russians are threatened with difficult economic times.

There is a possibility, at least in theory, that Putin will be overthrown. This would not change anything about the economic misery.

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The representatives of Russia also wanted to get involved in the climate conference in Egypt. Among other things, they sent the former ice hockey star Vyacheslav Fetissow to Sharm el-Sheikh on the Red Sea. This is the chairman of a Russian nature conservation organization and wanted to discuss proposals at a round table on how to protect the North Pole. It should not be. “I invited everyone, but nobody showed up,” Fetissow said disappointedly to the Washington Post.

Meanwhile, Russian troops in Ukraine suffer one humiliating defeat after another. In the east, the soldiers fled head over heels, in the south the Russians had to leave Cherson again. And the Ukrainians are not thinking of taking a winter break. General Valeriy Saluschnyj, the supreme commander and new national hero, recently posted on Facebook unequivocally: “Our goal is to liberate every country in Ukraine from Russian occupation. Under no circumstances will we abandon this goal. There is only one condition for peace negotiations: the Russians must give back all the lands they have conquered.”

Strong ruble equals weak economy

So far so bad for the Russians. But economically, so those who understand Putin still want us to believe, the West’s calculations don’t add up. Despite all the sanctions, the Russian economy has not collapsed. On the contrary, the ruble is stronger than ever and inflation is more or less under control.

This assessment can only come from those who turn the economic situation upside down. Konstantin Sonin shows this in an article in the magazine “Foreign Affairs”. Sonin is an economics professor at Chicago University.

The strong ruble is not a sign of economic strength; on the contrary, it shows that the sanctions are working. Russia is no longer able to import goods from the West, imports have fallen by 40 percent. A slump of this magnitude was not expected. As a result, Russia now has a massive trade surplus. “The consequence of this is that the ruble has appreciated against the dollar,” says Sonin.

A Ukrainian soldier fires an anti-tank missile.

A Ukrainian soldier fires an anti-tank missile.

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Sanctions do not take effect immediately. That is well known. But the fact that Russia only has limited access to chips and semiconductors is already showing massive consequences. “Between March and August, Russian auto production fell by an amazing 90 percent,” Sonin said. “The slump in the aircraft industry is similarly high.”

The war also changed the ownership of the Russian economy. After the financial crisis of 2008, Putin nationalized important industries again. “In some cases he has put them under the direct control of the government, in others under the control of state-owned banks,” Sonin said.

This backdoor nationalization has already hurt the economy. Between 2009 and 2021, Russia’s gross domestic product grew by a measly 0.8 percent per year on average. The war against Ukraine further encouraged creeping nationalization.

The Kremlin has been enacting laws and regulations since March allowing the government to close stores, impose production targets and dictate prices. Also, the fact that hundreds of thousands of Russians either fled the country or were conscripted as soldiers hasn’t really boosted the economy either.

Private armies increase corruption

Thanks to the private armies of Yevgeny Prigozhin and Ramzan Kadyrov, corruption, which is already rampant in Russia, has received a further boost. In the 1990s, the oligarchs of the time maintained their own security forces and thus ensured mafia-like conditions. A sequel to this film is on the horizon. “The mercenary forces that Putin created against Ukraine will play the same role in the future,” Sonin said.

So far, there is no way out of this unfortunate situation in sight. Putin is still firmly in the saddle and – unlike Nikita Khrushchev at the time – is not prepared to negotiate with the West. The formerly most powerful man in the USSR finally gave in to the Cuban Missile Crisis in 1962 and agreed to a face-saving deal.

The Biden administration is trying to persuade Putin to make a similar deal, so far without success. “Biden and anyone calling on the White House to persuade Kyiv to negotiate with Moscow should remember: the war on Ukraine is not like the Cuban Missile Crisis, and Putin is not Khrushchev, as he is happy to assure everyone », Timothy Naftali also states in «Foreign Affairs».

There is a possibility, at least in theory, that Putin will be overthrown. This would not change anything about the economic misery. “Even if Putin loses power and his successors enact significant reforms, it will take at least a decade for economic production and people’s quality of life to return to the levels they were a year ago,” Sonin said. “These are the consequences of a disastrous, misguided war.”

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