The Russian people may not be able to withstand the “economic siege”, experts say

IN crippling sanctions imposed on Russia for its invasion of Ukraine they are already wreaking havoc on the lives of ordinary Russians, who can only expect things to get worse in the coming days and weeks, experts say.

Measures announced by the United States and its allies over the weekend include aimed at Russia’s central bank’s ability to maintain the country’s currency, the ruble, which fell by about 30% against the US dollar on Monday to less than 1 cent. He regained some position after Russia’s central bank more than doubled its key interest rate to 20% to support the currency.

Developments have forced Russians to face the prospect of higher prices and limited travel abroad, as the collapse of the ruble has forced nervous depositors to flock to banks and ATMs. Social media posts reported on long queues and running out of money.

Moscow’s public transport department warned city residents over the weekend that they may have trouble using Apple Pay, Google Pay and Samsung Pay to cover tariffs, as VTB, the Russian bank that handles transactions, is among those affected. from international sanctions.

As flights have been blocked, entrepreneur Vladimir Vyaselov told the Associated Press that he was considering driving to another country to catch a flight abroad on his student visa. “I have long disagreed with the decisions of all authorities, so I keep all my money only in currencies and I am skeptical of Sberbank, VTB, the national banks in general,” he said. “I can’t say I was ready [for sanctions] but I was as ready as possible to be a citizen of the Russian Federation. ”

At least half of Russia’s estimated $ 640 billion hard currency reserves are now frozen, according to European officials.

Russia’s central bank on Monday raised its key interest rate to 20% from 9.5% in a recent attempt to stem bank pressure. This means that Russian homeowners with mortgages or business owners who have taken out loans may be affected by the doubling of interest rates, analysts say.

Russians will see a decline in their standard of living as prices for imported goods, including iPhones, rise.

“Before the weekend, there were signs that the war in Ukraine was causing panic among Russian households and businesses. “Russians are queuing at bank branches and ATMs have been emptied as people try to exchange rubles for foreign currency,” Tatiana Orlova, an analyst at Oxford Economy, said in a note to customers on Monday. “There were local reports of people buying white goods [such as stoves and other large home appliances] to turn their depreciating rubles into something of tangible value. “

Deprived of basic products and facing high inflation, “we will begin to see public unrest,” said Karl Weinberg, chief economist at High Frequency Economics, during a conference call Monday.

“This will spread to their economy very quickly,” David Feldman, a professor of economics at William & Mary in Virginia, told the Associated Press. “Everything that is imported will lead to a jump in the local price in the currency. The only way to stop this will be strong subsidies. “

“economic siege”

The large-scale sanctions imposed on Russia by the United States and its allies are like an “economic siege, and I don’t think the Russian economy can withstand it,” Weinberg said.

“If we have three weeks of what is happening to the Russian economy today, it will be over,” Weinberg said. “My real feeling is that the Russian economy can’t survive three weeks without failing completely.”

“Western democracies have surprised many by pursuing a strategy of exerting intense economic pressure on Russia by effectively isolating themselves from global financial markets,” Oliver Allen, a market economist at Capital Economics, told investors in a research note. “If Russia continues on its current path, it is quite easy to see how the latest sanctions can only be the first steps towards a serious and lasting severance of Russia’s financial and economic ties with the rest of the world.

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Russia has made progress in producing many goods on the domestic market, including most of its food, to protect its economy from sanctions, Tyler Kustra, assistant professor of politics and international relations at the University of Nottingham, told the AP. However, for example, fruits that cannot be grown in Russia will “suddenly be much more expensive,” he said.

Russian consumers may be able to get food, but farmers in the country may not be able to get spare parts for their equipment, Weinberg suggested.

The automotive sector, which is a major employer, has been “affected very quickly by the ban on imports of microchips and other parts,” said Chris Weifer, chief executive of Macro-Advisory, a strategic consulting firm in Eurasia.

Weinberg said he was “reassured” that China was not trying to offset the damage done to Russia, which the economist said could be achieved by Russia selling all its exports to Beijing.

“The People’s Bank of China can be a lifeline for the ruble and the Russian economy,” Weinberg told Beijing’s central bank, jokingly: “China is failing the ‘best’ test by a big margin.”

PBC would risk sanctions if it bought gold from Russia, the economist said. “China is not ready to form a separate monetary system with Russia at the moment, which they should do,” Weinberg said.

“Although China can blow up our economy, I don’t think it’s in China’s interest to blow up the world economy.

– The Associated Press contributed to this report.