The Russian economy begins to collapse under the weight of sanctions – 04/06/2022 at 18:23


A person is shopping at a supermarket in Moscow on April 6, 2022, the Russian Finance Ministry said it has repaid a debt of about 650 million rubles following a foreign bank’s refusal to pay in dollars. (AFP / Natalia Kolesnikova)

The risks of default, the collapse of the auto sector, inflation … After weeks of increasingly harsh sanctions, the Russian economy is beginning to collapse, according to data published on Wednesday.

If successive announcements of the withdrawal of international groups from Russia have made noise, they have not yet translated into serious repercussions for real economic activity. But with the waves of sanctions mounting since the beginning of the Russian attack on Ukraine, the effects are now beginning to show.

Russia’s Finance Ministry said it repaid a debt of about $650 million in rubles after a foreign bank refused to pay in dollars, putting it at risk of default at the end of a 30-day grace period that begins. April 4th.

For several weeks, Russia managed to avoid the risk of default, as the US Treasury allowed foreign currency held by Moscow abroad to be used to settle foreign debts. But he tightened the sanctions this week, and is no longer accepting dollars held by Moscow in US banks.

The Russian Ministry also warned creditors of “unfriendly” countries on Wednesday: the money will be returned to them in rubles deposited in a Russian account and they will be able to transfer these rubles only on the condition that the money from Russia to outsiders is open.

According to Elena Rybakova, of the Institute of International Finance in Washington, this is up to Moscow to “demonstrate its ability to pay”, while being a “symbolic gesture”.

For his part, Kremlin spokesman Dmitry Peskov said during a press conference on Wednesday, “There is no basis for a real default,” stressing that “Russia has all the necessary resources to meet its debts.

– Putin impoverishes Russia –

“A default is a default. Markets will judge it that way. Investors haven’t been paid. They will remember it,” said Timothy Ash, asset analyst at Blue Bay.

A manager opens the door for Lada Vesta at the Lada agency in Togliatti, April 1, 2022. With Western sanctions on Moscow, the workers of Togliatti and AvtoVaz are going through hard times.  (AFP / Yuri Kadunov)

A manager opens the door for Lada Vesta at the Lada agency in Togliatti, April 1, 2022. With Western sanctions on Moscow, the workers of Togliatti and AvtoVaz are going through hard times. (AFP / Yuri Kadunov)

This economist expects “an impact on investment, growth, and the standard of living” among other things. He concludes that “Putin has been impoverishing Russia for years.”

Another shocking figure today, sales of new cars collapsed 62.9% in March over one year, which is a symbol of an entire sector in the Gulf, where Westerners in particular have banned exports to Russia of spare parts.

Many producers have stopped selling components or cars to Russia, such as Audi, Honda, Jaguar and Porsche. Others stopped production, such as Renault, BMW, Ford, Hyundai, Mercedes and Volkswagen.

The factories of Avtovaz (Renault-Nissan Group), the leading automobile manufacturer in Russia, which employs tens of thousands of people, are almost shut down due to the lack of imported components.

According to Avtostat, new car prices rose 40% in March, and up to 60% for the top of the range.

The Russian Statistics Agency (Rosstat) announced, on Wednesday, that inflation from the beginning of the year to the end of March rose by about 10% compared to the same period in 2021.

Alexei Fedev, a research associate at the Gaidar Institute of Ranipa University in Moscow, estimates that the price hike in March will be about 20% annually, after exceeding 9% in February over the course of one year. This number is expected on Friday.

“It was a month of panic among consumers,” who rushed to products their anticipation of their demise, he notes.

“It is very expensive and very expensive,” Olessia Oguieva, a 42-year-old worker, laments in a Saint Petersburg supermarket. “We went home, looked at our purchases and didn’t buy anything.”

According to Andrei Yakovlev, from the Moscow Higher School of Economics, the real crisis will not reach the real economy until this summer or autumn: “In May, a large number of companies are likely to stop”, due to the lack of imported components, costing their jobs to hundreds of thousands of people.

Especially since Wednesday evening, Washington announced a new round of sanctions claiming to be “devastating” and specifically targeting all new investments in Russia.

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