Thesis:In the next 3 years the Russian economy might be pressured to get assistance from the IMF if they remain on this aggressive track.
Tension between the United States and Russia started immediately after World War II celebrations and that tension grew into the Cold War. The Cold War is over publically, but economic sanctions placed on Russia for their involvement with Ukraine tells a different story. The United States along with several other countries in the EU have enforced economic sanctions on Russia. Vladimir Putin remains strong as Russia endures the consequences of its own actions, but it’s economy has grown weak. In the next 3 years the Russian economy might be pressured to get assistance from the IMF if they remain on this aggressive track. Ignoring the collapse in Oil, food embargoes, Interest rates, and dwindling reserves are sinking the economy.
Several countries with the support of the United States have placed sanctions. “In response to sanctions from the west, the Kremline banned imported foods from any country which had issued sanctions against Russia. As a result food prices have spiked” (Levada). Prime Minister Dmitry Medvedev imposed a one-year ban of beef, pork, poultry, fish, fruit, vegetables, cheese, milk and other dairy products. Well According to Eurostat Russia imports nearly 10% of its agriculture and food exports. Ten percent is a large portion of food for a population of around 142,173,850. While these food embargoes are not creating the same kind of food shortage that Russia saw in Soviet eras, but certain western foods are becoming unavailable and domestic prices are rising. Vladimir Putins response sanctions have driven consumer price inflations in Russia, its highest point in three years.
According to the Bank of Russia the inflation rate in the month of February 2015 was 16.7, which is up 1.7% from January. “The latest news is that Russia’s central bank raised interest rates from 10.5 to 17 percent at an emergency 1 a.m. meeting in an attempt to stop the ruble, which is down 50 percent on the year against the dollar, from falling any further” (Washington Post). This raise in the interest rate backfired to create more uncertainty as the exchange rate sits at 80 Ruble per dollar. This dramatic drop is leading experts to predict a 5% shrink in Russian GDP (CNN). This collapse is reducing the value of Russian savings as their money continues to loss value, and it is happening during a simultaneous collapse of their biggest export.
High inflation and unstable markets have forced Russia to liquidate it’s foreign currency and gold reserve. It’s reserve of about $600 Billion has decreased by more than $200 Billion since 2008 (bloomberg). This has created an economic freeze that is bound to crack. Looking towards the future stockholder are looking at Russia now as a value trap, and they don’t see the upside. Russia might be forced to get help from global sources like the IMF but their actions in Ukraine are preventing that. Russia needs to learn that there are gains from trade, and that it needs to learn to play nice our it can’t survive in the global economy.