Vladimir Putin Feels Pinch from Sanctions


President Vladimir Putin of Russia told members of parliament that there are tough economic times ahead, and citizens should brace themselves for financial challenges, an indication that he feels the pinch from the sanctions imposed on the country by the United States and the European Union. Addressing parliamentarians during the State-of-the-Nation address, Putin said western governments were attempting to take Russia back to the cold war era through sanctions.

Russia has suffered economically following the sanctions leveled against the country for its continued aggression towards the government of Ukraine. Falling oil prices have also impacted Russia’s economy negatively. The Rouble, Russia’s currency, suffered its lowest declined in 15 years on Monday when it fell to approximately 9 percent below the dollar. Russia’s central bank intervened to stop the downward trend. The government has asked the people to prepare for a recession in 2015.

In his address to both chambers at the Kremlin, Putin defended Russia’s annexation of Crimea. He said that the region historically belonged to Russia, and held a sacred meaning to the country. He criticised the west for attempting to contain Russia’s growth and independence through sanctions. He told parliamentarians that the west was using Crimea as an excuse to impose sanctions on Russia. He explained that the west could have picked on a different reason to impose sanctions on the country even if it hadn’t annexed Crimea. He called upon Russians to united for the good of the country.

Putin also offered amnesty to those who are willing to return the money that they have stashed abroad. He said no one would be questioned about the money. He announced that the government will stop taxing businesses for four years so as to help businesses grow. He said that Russia’s National Welfare Fund will lend money to national banks at reasonable interest rates.

Vladimir Putin told parliamentarians that he anticipated budget cuts of up to 5 percent in the next three years, followed by gradual economic growth thereafter, a sign that he feels the pinch from sanctions. He urged Russians to view sanctions as catapults of economic growth. He said the country was large enough to create an internal market for its own products. Putin said that Russia will not engage in costly arms race, but will commit to defending itself against aggression.

According to an analysis by BBC’s Sarah Rainsford, Russians have taken more than 100 billion out of the country this year. She estimated that the country is losing as much as 140 billions per year due to sanctions.

Tim Ash, an analyst with Standard Bank, said Putin’s speech did not include any new ideas that will ease the pressure on Russian markets or jump-start the economy. He said in a note to BBC that Putin’s ideas were similar to those used by Russian leaders during the cold war era.

Speaking on CNBC, United States President Barrack Obama said the sanctions were working well even though they were hurting the Russian economy. He praised partners from European nations for taking a stand against Putin even though the decision also negatively impacted their countries.

As Vladimir Putin’s address to parliamentarians implied that he felt the pinch from sanctions, Anders Aslund, a senior fellow at the Peterson Institute for International Economics, told CNBC that Russia’s myth of stability has come to an end. He said that even though some observers believe Russia can withstand the effects of the sanctions due to its more than $400 billion in foreign reserves from oil sales, the actual currency available for use is less than that amount. He said the continued slump in oil prices is likely tom make matters worse.

By Benedicto Ateku

The Economist
Image courtesy of www.kremlin.ru Flickr License

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