CAVEAT FORWARD THINKING STATEMENT CAVEAT
- "For now, Russia can sustain its illusion of rouble strength thanks to a strong current account surplus meaning it has hard currency to spend, even as it faces looming default and has seen most of its assets frozen. This will no longer be the case if Europe ultimately does agree to an oil and gas embargo.
- The Russian state may also grow tired of effectively subsidising its importers and those seeking to take cash abroad, given Putin’s turn to autarky and lashing out against fifth columnists. The risks of a further rouble collapse are very real. Russia’s threat to dollar hegemony, however, remains a fantasy."
- WHAT WILL RUSSIAN ECONOMY LOOK LIKE AFTER THE UKRAINE WAR ENDS
- " Just four days after the beginning of the “special military operation” in Ukraine, the state effectively took control of 80 percent of corporate foreign earnings as part of its sanctions capital controls and in the weeks since has gone even further. The Kremlin is now nationalising the businesses that are pulling out of the country, making it all but impossible for Russia to continue as a market economy even after the end of Putin’s war in Ukraine. Expected defaults will only further complicate this. "
- " As analyst Nick Trickett explained in a recent article, the Kremlin is now seeking to build an economy that won’t be “affected by external price levels for the goods”. To achieve this, especially with a dramatically weaker rouble, the Kremlin will need to not only build a command economy but also have complete political control over pricing. This means businesses will not be competing on price or quality but on the basis of their connections to the Kremlin and other economic policymakers. "
- "The new economy Putin is building on the back of the Ukraine invasion will have some similarities with Russia’s pre-2022 market economy. For example, elites who remain loyal to the Kremlin will be allowed to retain their wealth – Putin has effectively declared as much. But Moscow will largely only be distributing its increasingly meagre reserves among them, rather than the spoils of its once-booming energy sector.
All in all, Russia will be moving from an autocratic market economy, akin to that of China, to an autarkic command economy, similar to North Korea’s."
"But the 1998 crisis was not the first, or the worst, default Russians experienced in the past century. Moscow had already been in this position in 1918 when the Soviet Union defaulted on the Russian Empire’s debts. After the Bolshevik Revolution, Moscow’s stock markets shuttered, never to reopen, and the communist government repudiated all debts issued by the Tsar. Western market players initially failed to judge the seriousness of the Bolshevik repudiation of capitalism. Russian paper initially continued to trade in London, and New York’s First National Bank, a predecessor of today’s Citibank, actually opened its first Moscow branch seven days after Lenin’s coup. But as the Bolshevik repudiation came to be understood, the Soviet Union would be cut off from US and UK borrowing and financial markets for years to come.
The Soviet Union’s economy would be rebuilt only years later, after the economic collapse induced a civil war, and then only under Stalin’s autarky that saw millions conscripted into labour camps. Although Stalin’s Five-Year Plans were able to industrialise Russia, the human cost was brutal.
Regrettably, it looks as if Putin – who claims to have a PhD in Economics – is ready and willing to plunge Russia not only back into the chaos of the 1990s, but into an even graver situation more akin to 1918."
Maximilian Hess is a Fellow at the Foreign Policy Research Institute and a Political Risk consultant based in London
