Effect of sanctions on the Russian ecomony

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Effect of sanctions on the Russian ecomony

D.S. Kislov

V.A. Martyanov

This article considers the influence of the sanctions on the different branches of economy. It gives a detailed analysis of the aftermaths of the sanctions and the ways of solution these problems by government.

Economic sanctions that are «applied in cases of totality of the circumstances requiring immediate reaction to an internationally wrongful act or unfriendly actions of a foreign government or its agencies and officials», representing a threat to the interests and security of the Russian Federation and violate the rights and freedoms of its citizens. This article analyzes the impact of sanctions on the development of the Russian economy today. Packages considered restrictive measures against Russia, Russian companies and individuals. The effects of the imposition of sanctions reveled against the Russian Federation, and also possible ways to solve this problem.

In the modern world, the current trend is increasing number of economic sanctions. First of all, this is happened because to the globalization of international economic processes, characterized by an increasing degree of integration as intensive commodity markets and services, and capital. The consequences of deepening the interaction of national economic systems of most countries are intensifying the relationship, economic cooperation, on which they depend for their vital interests of the proper functioning. Termination or restriction of economic relations could have significant consequences for the normal functioning of the state. The economic sanctions imposed by the US and the EU have focused on key sectors of the Russian economy: government financial institutions and energy. Restrictions were imposed on the funding of state-owned banks from the US and Europe, as well as the provision of energy technologies to enterprises. Relevance of the work determines the impact of Western sanctions on the functioning of economic institutions of state power in Russia.

In the period from March to October 2014 Western countries in relation to Russia, three groups of economic sanctions have been adopted, it was connected with the events in Ukraine.

The first group includes financial sanctions: reduction of investment in the Russian economy: the cessation of lending to a number of major Russian banks and corporations for more than a month and ban the purchase of stocks and bonds; a ban on investment in infrastructure, transport, telecommunications and energy sectors.

The second group includes a ban on the supply of high-tech equipment for industry projects, also for oil, gas and minerals, a ban on exports to the Russian armed technique. As a result of the sanctions cut business ties between many industrial enterprises of the West and Russia.

The third group included the restriction of business relations with a number of western companies Russia.

In response to the sanctions of the West Russia in August 2014 has banned the import to Russia of food, originating in the States implementing sanctions against Russia. Some responses touched upon a number of officials: they were denied entry to the territory of the Russian Federation.

Sanctions and the response had a serious impact on the economy through three channels.

Firstly, they have caused a significant depreciation of the national currency. Large-scale capital outflows led to the deterioration of the state of the account operations with capital and financial instruments and a reduction in net international reserves. In the second half of 2014 confidence in the ruble began to decline in anticipation of devaluation of the ruble, and the decline in oil prices will eventually lead to the fact that in 2014 the ruble depreciated by almost half in relation to the dollar. Depreciation of the ruble led to the acceleration of inflation. The ban on imports of food led to an increase in food prices in August, 2014. By February 2015 food inflation reached 23.3%, increasing the already high inflationary pressure due to the ruble devaluation. In response to the high inflationary pressures and to support the ruble Russian Bank significantly tightened monetary policy in the second half of 2014. Given that this policy is consistent with the strategic objectives of the Bank of Russia on the reduction of inflation and financial stability, it has led to an increase in the cost of domestic borrowing and more restricted access to credit resources for domestic investors and consumers.

The second channel began restrictions on Russia's access to international financial markets, which began to appear already from the moment of geopolitical tensions. Even before the entry into force of sanctions in the financial sector, markets began to lay the risks in Russia increased the cost of credit resources. The volume of new foreign borrowing decreased in 2014 and almost came to nothing after the imposition of sanctions. Tighter credit conditions had a negative impact on domestic and foreign markets on investment and consumption decisions, which led to the deferral and changing the plans. Sanctions on the financial sector had the most negative impact on domestic demand against the backdrop of falling oil prices. After the imposition of sanctions, very few foreign financial institutions provide funding for Russia and most Western financial markets remain closed for Russian banks and companies. Terms and conditions of external financing tightened, even for those companies and banks, which do not apply sanctions. Thus, in the first and second halves of 2014 drastically reduced the volume of issuance of bonds of Russian companies to the corresponding period of the previous year. The cost of borrowing remains high for Russian issuers.

Finally, the already low level of business and consumer confidence in the internal market due to uncertain prospects for future growth, caused a further decline in consumer and investment activity. In addition, the reduced level of investment activity abroad, reflecting the decline in business confidence.

Sanctions have affected turnover. Observed at the moment the effect of the sanctions is reflected in the figures on foreign trade for the third quarter 2014 compared to the third quarter of 2013: a sharp drop in imports due to the depreciation of the ruble, and the adoption of Russian response to ban food imports from Western countries. In 2014, imports declined in the Russian food and beverage industry of the EU.

The impact of sanctions on the export of Russian energy resources is evident. In 2014, coal exports declined (to the corresponding period of the previous year), not only in European countries but also in the countries of Eastern Asia, as well as in countries of the former Soviet Union (the third-largest market).

The Russian government has adopted a plan of measures to ensure the stable development of the country, regardless of adverse external factors.

The main areas that decided to pay particular attention were:

- support import and export not raw, including high-tech products

- optimization of budget expenditures.

- promotion of small and medium-sized businesses.

- measures of social support to the most vulnerable categories of citizens.

- increasing the stability of the banking system.

In conclusion I would say that the impact of sanctions on the Russian economy is likely to continue. In view of the preservation of geopolitical tensions international sanctions will continue to have an impact on the Russian economy, especially given the low oil prices. The state should support primarily domestic industries producing import-substituting products, including through direct government subsidies. As the state should provide support to socially vulnerable layers of the population.

References

economy sanction government

1. Кокоева З.В. Влияние санкций на экономику Российской Федерации // Молодой ученый. - 2015. - №23. - С. 568-570.

2. Леонид Злотников Влияние экономических санкций стран Запада на Россию, Ноябрь 29, 2014.

3. Пономарев С.В., Юрченко А.А. Влияние санкций на экономику России // Молодой ученый. - 2016. - №4. - С. 478-481.

4. http://www.mk.ru/politics/2015/01/28/pravitelstvo-opublikovalo-antikrizisnyy-plan-na-kom-sekonomyat-vlasti.html

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