Plastic letters reading “Sanctions” are placed in front of the flag colors of the US and Russia in this February 28, 2022 illustration. REUTERS/Dado Ruvic/Illustration
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WASHINGTON, April 1 (Reuters) – Punitive sanctions imposed by the United States and its allies on Moscow for invading Ukraine are pushing Russia into recession and beginning to turn it back into a closed economy, a senior official has said by the US Treasury Department on Friday.
The official, who spoke on condition of anonymity, told reporters that despite a recovery in its ruble against the dollar, the Treasury Department sees Russia grappling with sharp inflation, reduced exports and shortages. The official dismissed the recovery as being driven by tight capital controls and exchange controls, not market forces.
Inflation, which has risen to as much as 6% over the past three weeks, is a better indicator of sanctions performance in Russia and shows the reduced purchasing power of the ruble, the official said, adding that black market ruble exchange rates far below the international rate.
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The ruble lost half its value against the dollar after Western democracies imposed initial sanctions that immobilized about half of Russia’s central bank’s $630 billion in foreign exchange assets and cut off several major Russian banks from the international SWIFT transaction network.
It has since regained its pre-invasion levels, hitting a five-week high in early Moscow trade on Friday before settling in the 83-84 range against the dollar.
But the Treasury official said it won’t stop a sharp contraction in Russia’s economic output, which outside analysts are now forecasting to be around 10% this year — far worse than the 2.7% contraction seen in 2020, the first year of the year COVID-19 Pandemic .
“The economic fallout that Russia is facing is severe: high inflation that will only increase, and a deep recession that will only get deeper,” the official said.
CLOSE RUSSIA’S ECONOMY
The Treasury official said the cumulative effect of sanctions on banks, wealthy oligarchs linked to Russian President Vladimir Putin, key industry sectors and US export controls denying Russia access to critical technologies is pushing Russia toward its existence in the To drive the cold war as a closed economy.
But Russia, a producer of mainly commodities and commodities, is ill-equipped to manufacture its own consumer and technology goods, the official said.
“As a closed economy, Russia will only be able to consume what it produces, which will be a strong adjustment,” the official added.
The operation is not performed immediately. China, India and other countries are still trading with Russia and could replace some goods and parts that Russia would normally buy from Western companies.
However, its access to semiconductors, software and other technology is limited due to US export restrictions, which will also prevent China from selling such chips to Moscow, since all of its semiconductors are made with US technology or software. Continue reading
The United States intends the sanctions and export restrictions to weaken Russia’s economy and affect the Russian military’s ability to source parts and equipment for the war effort, the official said
Washington has been satisfied with enforcement of sanctions and export controls, but has been on the lookout for violations.
The Treasury Department’s comments come as senior officials in the Biden administration traveled the globe to urge world leaders to keep up sanctions pressure on Russia. Continue reading
Washington plans to maintain humanitarian exemptions from sanctions amid growing food insecurity concerns and Russia’s role as a major wheat producer, the Treasury Department official said.
Other exceptions should protect Western financial institutions holding Russian assets with a license allowing them to make Russian debt payments.
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Reporting by David Lawder and Andrea Shalal; Edited by Daniel Wallis
Our standards: The Thomson Reuters Trust Principles.
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