Sanctions Battering Russian Economy But Putin Claims 'Everything Fine'

Nearly two months into the Russian-Ukraine war, the Kremlin has taken extraordinary steps to blunt an economic counteroffensive from the West. While Russia can claim some symbolic victories, the full impact of Western sanctions is starting to be felt in very real ways, Ken Sweret, and Fatima Hussein reported for the Associated Press (AP).

Photo Insert: The sanctions are taking a bite out of Russia’s economy as the country endures its worst bout of inflation in two decades.

As the West moved to cut off Russia’s access to its foreign reserves, limit imports of key technologies and take other restrictive actions, the Kremlin launched some drastic measures to protect the economy.

These included hiking interest rates to as high as 20%, instituting capital controls, and forcing Russian businesses to convert their profits into rubles.

Moscow’s mayor says the city is looking at 200,000 job losses from foreign companies shutting down operations. More than 300 companies have pulled out, and international supply chains have largely shut down after container company Maersk, UPS, DHL, and other transportation firms exited Russia.

As a result, the value of the ruble has recovered after an initial plunge, and last week the central bank reversed part of its interest rate increase. Russian President Vladimir Putin felt emboldened and proclaimed — evoking World War II imagery — that the country had withstood the West’s “blitz” of sanctions.

“The government wants to paint a picture that things are not as bad as they actually are,” said Michael Alexeev, an economics professor at Indiana University who has studied Russia’s economy in its transition after the collapse of the Soviet Union.

A closer look, however, shows that the sanctions are taking a bite out of Russia’s economy: The country is enduring its worst bout of inflation in two decades. Rosstat, the state’s economic statistics agency, said inflation last month hit 17.3%, the highest level since 2002.

By comparison, the International Monetary Fund (IMF) expects consumer prices in developing countries to rise 8.7% this year, up from 5.9% last year. Some Russian companies have been forced to shut down.

Several reports say a tank manufacturer had to stop production due to a lack of parts. US officials point to the closing of Lada auto plants — a brand made by the Russian company Avtovaz and majority-owned by French automaker Renault — as a sign of sanctions having an effect.

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