Bloomberg Audio Studios, podcasts, radio news.
Hey Sarah here today on The Big Take, We're bringing you an episode hosted by my colleague Sliah Mosen. She covers policy, politics and power and hosts the DC version of the show, The Big Take DC. You can find it and follow wherever you get your podcasts. I'll be back tomorrow.
In February twenty twenty two, Russian forces stormed across the border into Ukraine and triggered one of the greatest military crises in Europe in nearly eight decades. America, in over thirty of its allies joined together to impose the harshest economic sanctions any nation has ever experienced. The goal was to punish President Vladimir Putin and to drain the resources that kept his war going in those first few months of the war. Those sanctions aimed at Russia also hit
the wallets of Americans. When the US banned Russian oil imports, gasoline costs jumped twenty percent. President Joe Biden told the American public at the time that this was the price they had to pay to combat Russia's aggression.
The decision today is not without cost.
Here at home, Foodin's war is already hurting American families at the gas pomp. Back then, polls showed that most Americans said it was worth it. They were willing to pay more for gas if it meant stopping the war. But two years have passed and the war is still going on, and while gasoline prizes have fallen, America has spent tens of billions of dollars on aid to Ukraine and is debating more, and the White House has announced
new substantial sanctions. Today on the show, as US lawmakers debate more aid to Ukraine and as the White House unveils new sanctions tied to the death of Alexei Navaldi and the anniversary of the war, we take stock of US led sanctions on Russia. Two years out, we'll hear from the US Treasury Department's first ever Chief Sanctions economist.
Sanctions have been very effective and god things up making this very painful process for Russia. It's ultimately changed the structure of the Russian economy.
And another economist, one who was working at Russia's Central Bank when the invasion happened.
I remember how Jenetiellen said in March twenty tiny two s as the sanctions will devastate Russian economy. But well, two years later, I can definitely say that the Russian economy is very much alive.
What did all of these sanctions add up to and where do they leave the US and Russia? Now from Bloomberg's Washington Bureau, this is the Big Take DC podcast. I'm Saliya Moosim. Let's go back to February twenty fourth, twenty twenty two, those first hours after Russia invaded Ukraine.
I can remember walking around seeing, you know, pictures of Ukrainian men, women, children huddling in underground platforms were falling. Kiev was supposed to fall in days, and I think the world had never seen anything like this since World War Two. You know, this was a land war on the European continent.
That was Bloomberg's Dan Flatley. He covers US sanctions. Just days after the invasion, the US, European allies and others announced sweeping financial restrictions on Russia.
As an outside observer, I'd say kind of very important moment and the history of imposition of sanctions just in terms of how coordinated and multilateral a lot of the activity was and how swift it was imposed.
That's Rachel Lingos. At the time Russia invaded Ukraine, she was an outside observer, but now she works inside Treasury as its chief sanctions economists. Her job is to analyze whether American sanctions are working, which is a tough thing to measure. Data from targeted countries is often unreliable, so she has to piece together information from tons of different sources. But she told told me that the key to measuring
the efficacy of sanctions is identifying their goals. Back in February twenty twenty two.
Two prongs. One is to deny Russia the ability to acquire weapons and technology they need to prosecute this war in Ukraine, and number two, to reduce the revenues made available to President Putin to fund this war.
One of the first things America and its allies did was to cut Russia off from a body called SWIFT. It stands for the Society for Worldwide inter Bank Financial Telecommunications, but it's easier just to think of it like the GMAIL of the banking system. It's a way that banks around the world transfer money in a secure way.
Cutting Russia off of SWIFT was seen as something that would never ever happen. Because the financial system is dependent on transparency and making sure that everybody's talking to each other. So it was sort of seen as kind of one of the red lines that the US ended up crossing along with its allies.
And what did it mean for Russia.
For Russia, it basically meant no access to the worldwide financial system, at least no easy access.
It was one of the first indicators of just how much these policies that were meant to squeeze Putin would involve the rest of the world. Another one of those signs was that pain at the pump that Biden described. The US and its allies sanctioned countless Russian individuals, businesses, and even yachts, and banned imports of Russian oil that limited gasoline supply and hiked up prices in the US. But the interconnected nature of the global economy also worked
to America's favor. Countries like Russia don't keep all their money in local banks or national currency. They saw a good chunk.
Of it abroad, and essentially, because it's in dollars and because it's in euros, the Japanese yen, and other currencies, the G seven was able to basically say we're locking this down and you don't have access to it anymore, which is really almost without precedent in the modern era.
In other words, the US and its allies that made up the Group of Seven essentially cut the Russian government off from hundreds of billions of dollars of its own money.
I believe it was the Sunday after the invasion actually that nearly half abound three hundred billion of these foreign exchange reserves were suddenly immobilized.
So in those first few days, the US led the world in immobilizing Russia's reserves, cutting it off from swift, and sanctioning hundreds of people, businesses, and entities.
I think all in all, thirty countries fifty percent of global GDP had some measures that they imposed on Russian.
So what did all of this do to the Russian economy?
I think it's important to kind of take a look at the framing of where the Russian economy was kind of prior to that moment in February twenty twenty two, the Russians had built up a really sizable fiscal buffer
over many years of fiscal discipline. They were coming out of COVID, and the expectations was that their economy would grow anywhere between two point five to three point five percent that year, and then you have a steady drum beat of sanctions and different sectors, you know, different financial institutions, not just the United States, but other allies and partners.
So what was the impact on the Russian economy? Well, I think we can immediately point to the collapse and imports around eleven percent overall for that year, and then there were massive capital outflows as well, and I think that according to the IMF's latest projections published earlier this month, there's ultimately a contraction of about one point two percent of GDP that year.
So Russia's economy shrunk. But as Lingus told me, that doesn't mean Russia and its citizens weren't able to find ways around the sanctions.
It's kind of like analogous to having a rock and like putting it in a stream of water. You know, over time, like water is going to find a way around the rock. So in terms of how the authorities respond, while they were able to stem some of that bleeding by imposing a set of very draconian capital controls to try and prevent money from continuing to leave the country.
Like raising interest rates to stabilize the plummeting ruble and limiting bank withdrawals in Western currencies.
And they provided capital from the Central Bank to support the financial sector and use their National Wealth Fund, which is their sovereign wealth fund, to also help support their economy.
I think the reality is that Putin has found a way around the sanctions.
My colleague Dan Flatley, again, it's.
Not as though the entire Russian financial system has been cut off from the world. There are loopholes. Putin's able to get a lot of the technology into the country through the help of allies like China. He's able to get weapons from Iran and North Korea, and he's able to basically get his oil out still under the price cup.
Wealthy Russians found loopholes too. They started buying up Bulgari watches and other luxury items as a way to maintain their savings, even as the ruble rapidly lost its value. I wanted to talk to someone who'd seen the impact of sanctions from inside Russia, so I caught up Dennis Kostenschuk. He's an economics editor for an independent Russian media outlet called The Bell, from where he sits crunching the numbers
in Russia's economy. Costinchuk isn't so impressed by US sanctions two years into the war.
Honestly, it seems to me that sanctions have run their course. It is hard to say that Rasian economy is devastated at this moment, because a week ago the Russian Statistical Agency dropped its numbers about the growth of Russian economy. So in twenty twenty three is the Russian economy grew by three point six percent.
Russian factories were able to keep up manufacturing. They just got their raw materials from new sources.
Last year, I made a research and found that Russia increased imports from neighbor countries by almost forty percent in the first half of twenty twenty three compared to the same period in twenty twenty two. So Russian companies just buy all the components they needed from the neighbor countries like Armenia, Kazakhstan, Uzbekistan, Georgia and Seoul.
Bloomberg Is reported that Russia actually managed to import over a billion dollars worth of American and European microchips last year for use in war technology. That's because the chips went through neighbor countries, so they weren't blocked by sanctions that would require additional export controls. But Treasury's Linga says it's not so simple. Just because the Russian economy is growing does not mean that all GDP growth is created equal.
The initial reaction is like, oh, things are looking so resilient. But I think for when you start to get into the data and kind of like what's driving GDP, these are where these distortions really start to emerge.
Coming up. We dive into the data to see how these sanctions have reshaped the Russian economy and find out how America and its allies feel about the sanctions now. In January, the International Monetary Fund revised its projections for Russia's economic growth this year. It said, actually, we think it's going to be more than double what we predicted
back in October. That may make Russia sound strong and US led sanctions weak, But Rachel Lingos, the chief sanctions economist at Treasury, says that Russia's GDP growth last year was driven by military production.
There's been this fundamental shift in the whole structure of the economy. It's very much driven now by military spending. This is a third of Putin's proposed budget now for this year, one hundred billion dollars. That's a seventy percent increase over the prior year.
That comes at the expense of investing in social welfare.
Things that make people's quality of life better Russia Consultavane.
Russian economic analyst Dennis costenschook again in.
The ideal world of reals of war as a state good to invest this money to build a civilian infrastructure, to invest this money in science, to invest this money in healthcare. But in this case Russia had a lot of money just to invest this money into the war.
All that investment in war at the expense of investing in people. Let's take it a toll.
There's been this severe brain drain. Not only is there this horrible loss of life of kind of prime age workers that have been drafted and are just dying. On the other hand, you have a massive amount of emigration. My team and I looked at figures just coming from the Central Russian Bank to come up with about seven hundred thousand people bless the country. But I've seen estimates that range around one million. That's a huge percentage of the population.
Costanschuk is one of those people. Before the war, he was working as an analyst at Russia's Central Bank.
After the words started, I decided with my wife to leave Russia, and because my wife is Spanish, we had a chance to move to Spain.
If you ask Lingos, the impact of losing people like costnshook this brain drain. It's going to compound over time.
This is painful for them because these are the future growth potential of the society. Like that's where all the innovation comes from for an aging society, especially post communist society, where huge chunk of the budget is kind of social protections, social welfare pensions. This is kind of where you're able to generate the future income to finance some of those pensions. Is more and more people retire, but those people leaving
the less innovation. I think in the long term, the prospects look very dim.
Part of what makes Lingos's job so hard is measuring the less tangible effects of sanctions, and she says one of those effects that shouldn't be ignored is Russia's injured status on the world stage.
There's an incalculable reputation lost. There is something toxic if you will. And this kind of comes from my conversations with private sector business community, financialists that you've sort of just being associated with Russia. Right, So those are some of the incalculable loss of prestige, the ability to project power overseas.
Two years out. It's easy to jump to conclusions. One common one is that sanctions failed to end the war. But Lingos and I were reflecting on those first moments after Russia's invasion back in twenty twenty two. At that time, the fear that I heard from sources that I spoke to before the sanctions came down are right as they did,
was that we need to do it now. We need to move fast, go through the weekend to get this done, because it's possible that Kiev could fall in seventy two hours and it's actually over, and that has not happened.
And I guess on the flip side, if you look at the perspective of like Russia's leaders and Putin also thought that Kiev was going to fall in a matter of days and this would be over. But now things are very different for them. They're ultimately in a situation where they're facing very painful trad there's fractures in the system, there's a lot of tension in the economic policy making apparatus, and those things aren't going to go away.
Is Russia just changed forever now?
I think policy makers in Russia, like if I put myself in their shoes, they're backed into a very uncomfortable corner. A lot is being subsumed in these goals of expansionists acquiring more territory in Ukraine, and that comes at the expense of like general welfare of the population. So is Russia forever changed? I think that as long as Putin's current leaderships prioritizes those goals above all others, then inevitably there's sacrifices right that that society is making, and there's
very increasingly, very painful trade us. And yes, I do think that we're at the point now where being able to reverse that would be I think impossible.
Thanks for listening to The Big Take DC podcast from Bloomberg News. I'm Salaiah Mosen. This episode was produced by Julia Press and Naomi Shaven. It was fact checked by Stacy Renee. Blake Maples is our mix engineer. Our story editors are Michael Shepherd, Wendy Benjaminson, and Caitlin Kenny. Nicole Deemsterboer is our executive producer. Stage Bauman is our head of Podcasts. Thanks for tuning in, I'll be back next week.