Yale College: Russia’s financial system crushed by sanctions

According to a study by Yale University, Western sanctions against Russia and the departure of many companies “harm” the Russian economy “in the short and long term”. Economic sanctions do deter many companies from continuing their activities in Russia when they represent “about 40% of its GDP”. Despite the Kremlin’s budgetary and monetary intervention, the Russian economy is in a difficult situation and cannot count on China’s support.

The impact of Western sanctions on the Russian economy is far greater than official figures show, according to a Yale University study, also emphasizing that a “pivot to China” seems unrealistic.

“A common narrative emerged”, say the authors of this study: the economic sanctions imposed by Western countries against Russia since the invasion of Ukraine, created “a war of economic attrition that is wreaking havoc in the West+, given the supposed + resilience+ or even +prosperity+ of the Russian economy”.

“It’s simply false,” say these experts at the Yale School of Management, denouncing “selected statistics” by Russian President Vladimir Putin.

The restaurant chain ‘Vkusno i Totchka’, which took over McDonald’s restaurants in Russia (AFP)

However, according to his analysis, “corporate exits and sanctions are crippling the Russian economy, both in the short and long term.”

Economic sanctions, therefore, prevent many companies and countries from continuing to trade with Russia. And the country is struggling to obtain spare parts and raw materials, or to obtain certain essential technologies.

The picture is grim: “Despite illusions of self-sufficiency and import substitution (…), Russian domestic production has completely stopped and has no capacity to replace lost companies, products and talent”.

The companies that left the country “represent around 40% of its GDP, canceling out almost all three decades of foreign investment”, the authors of this survey also advance.

To overcome these weaknesses, Vladimir Putin “resorts to unsustainable budgetary and monetary intervention”, and the Kremlin’s finances “are in a much more desperate situation than is admitted”.

Russian Foreign Minister Sergei Lavrov and his Chinese counterpart Wang Yi in Bali (AFP)

As for the “pivot to China” desired by Vladimir Putin, it may be based on “unrealistic optimistic assumptions”.

“Russia represents a minor trading partner for China, (…) and most Chinese companies cannot risk violating US sanctions,” the study authors describe.

They also point out that Chinese companies “do not have many of the technologies needed to maintain and service Russian oil and gas supplies,” they detail.

According to the International Monetary Fund, Russia is doing better than expected this year, with a predicted GDP recession of 6.0% in 2022, according to its latest forecast published on Tuesday, far less than expected. the 8.5% drop the organization had expected in April. But the recession in 2023 is expected to be stronger than expected (3.5% instead of 4.7%).

with AFP

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