The Russian economy is in recession and is going back into being a closed economy due to the sanctions imposed by the United States and its allies over the invasion of Ukraine, a senior Treasury official said on Friday.
A Treasury official, speaking anonymously, informed reporters that Moscow is dealing with steep inflation, diminishing exports and shortages, despite the strength of the rouble against the dollar. According to the official, capital controls and foreign exchange curbs, not market forces, were to blame for the rebound.
An official said inflation of up to 6% over the past three weeks provides a better picture of the sanctions’ effects inside Russia, showing the rouble’s diminished purchasing power. He added that black market rouble exchange rates are well below international rates.
Several major Russian banks were cut off from the SWIFT international transaction network after Western democracies imposed initial sanctions immobilizing nearly half of the Russian central bank’s $630 billion in foreign exchange assets. The rouble lost about half of its value against the dollar.
During early trading on Friday morning in Moscow, the ruble touched its highest level in five weeks before settling in a range of 83-84 to the dollar.
However, the Treasury official said that will not curb Russia’s economic contraction this year, which outside analysts now predict will be about 10% — much worse than the 2.7% contraction it suffered during 2020, the first year of the COVID-19 pandemic.
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“The economic consequences Russia is facing are severe: high inflation that will only get higher, and deep recession that will only get deeper,” the official said.
U.S. export controls deny Russia access to critical technologies, as well as sanctions on banks and oligarchs tied to Russia’s President Vladimir Putin, have the cumulative effect of pushing Russia back towards its Cold War existence as a closed economy.
The official said that Russia, which is known for producing mostly commodities and raw materials, was not well-suited to produce consumer and technology goods.
“As a closed economy, Russia will only be able to consume what they produce, which will be a stark adjustment,” said the official.
Introducing this change will take time. Some goods and parts that Russia would normally purchase from Western firms could be replaced by goods and parts that China, India and other countries trade with Russia.
The United States, however, restricts Beijing’s access to semiconductors, software, and other technologies because its semiconductors are made with U.S. technology. Since all its semiconductors are made with U.S. technology, China will not be able to sell Moscow any of these chips.
AFRICA TODAY NEWS, NEW YORK