New report shows how corporate exodus has already wiped out decades of post-Cold War growth

In the past six months, Russia has bolstered its economic security after Western countries overtook Russia with sanctions over its invasion of Ukraine.

Despite the action, the rake in the Kremlin continues billions in oil and gas revenue, Who helped the ruble rally to become the world’s best performing currency this year.

But all is not well with the Russian economy.

Western sanctions and widespread corporate exodus from Russia since February 24 have ravaged the Russian economy, according to a new report by Yale University researchers and economists. Associate Dean for Leadership Studies. It is now clear that the Kremlin’s “finance is in much, much more distress than has been traditionally understood” and that massive “trade retreats and sanctions are devastatingly crippling the Russian economy, The researchers wrote.

deteriorate

until 4 august, over 1,000 companiesincluding US firms such as nike, ibm, and Bain Consulting, has scaled down its operations in Russia. Although Some businesses have stopped, The Yale report says massive corporate exodus represents 40% of Russia’s GDP and reverses 30 years of foreign investment.

The international withdrawal is turning into a major crisis for the country: a decline in foreign imports and investment.

Russia has plunged into a technical crisis as a result of its isolation from the global economy. It’s having trouble securing critical technology and parts. “The domestic economy is largely dependent on imports in industries … with few exceptions,” the report said. Western export controls are massive Stopped the flow of imported technology From Smartphones for data servers and networking equipment, keeping its tech industry under stress. Russia’s largest internet company, Yandex—the country’s version of Google—is shortage of semiconductor chips It needs its own server.

At the same time, Russia’s “domestic production has come to a complete standstill – with no ability to replace lost businesses, products and talent,” the Yale report said. Russian manufacturers and producers are unable to fill the gaps left by the collapse of Western imports. For example Russia’s telecom sector now expects to depend on China, India and Israel. Supply of 5G equipment.

In the weeks following the invasion of Ukraine, the Kremlin largely prevented a “full-scale financial crisis” by taking quick and drastic measures, such as restricting the movement of money out of the country and implementing a 20% emergency interest rate hike. Laura Solanko, senior advisor to the Bank of Finland Institute for Emerging Economies in Transition, an organization that researches emerging economies, Told Good luck last month. The ruble also bounced back from March lows, when it was valued at less than a US cent.

Yet Russia’s financial markets are among the worst performing in the world this year, the report said. “Putin is apparently resorting to unsustainable, dramatic fiscal and monetary interventions to address these structural economic vulnerabilities,” which has led to a government budget deficit The researchers wrote, for the first time in years and even with the continued influx of petrodollars, the Kremlin’s foreign reserves were depleted. The Russian government is subsidizing businesses and individuals to cushion any economic shocks caused by the sanctions. This “inflated level of fiscal and social stimulus” on top of military spending is “simply unsustainable for the Kremlin”, the report said.

And the ruble’s recent dramatic turnaround does not indicate a strong Russian economy, but indicates something even worse: a clear collapse of foreign imports. Sergei Guriev, scientific director of the economics program at Science Po in France, and a research fellow at the Center for Economic Policy Research, a London-based think tank, previously Told Good luck That it represents a “very bad” situation for the nation.

The EU is now phasing out Russian energy, which could affect the Kremlin’s oil and gas profits. Such a scenario would seriously affect the finances of the Kremlin, as Western countries have accumulated half of their $300 billion in foreign reserves.

Heading towards economic oblivion

Russia’s precarious economic situation means it faces even more serious, long-term challenges ahead.

The report said the sanctions are not intended to cause an immediate financial crisis or economic collapse, but are a long-term tool to undermine a country’s economy while isolating it from global markets. And sanctions are doing exactly the same for Russia.

The country is losing its richest and most educated citizens because its economy is in shambles. Most estimates say at least 500,000 Russians have fled the country since February 24, the report said, adding that “the vast majority are highly educated and highly skilled workers in competitive industries such as.” Many wealthy Russians fleeing are taking their money with them. One guess is that 20% of Russia’s ultra-high-net-worth individuals Left this year. The Yale team wrote that in the first quarter of 2022, official capital outflows were $70 billion, according to estimates from the Bank of Russia – but that figure is likely to be “grossly short” of the actual amount leaving the country. ,

Despite Putin’s increase in minimum wage and pension income, Russian citizens are also becoming poorer. a former Putin aide forecast That as the war continues, the number of Russians living in poverty will double and perhaps even triple. Russia “has not yet seen the worst,” said Russian political scientist Ilya Matveev, Told Good luck last month.

“As long as allied countries remain united in maintaining and increasing sanctions pressure against Russia, there is no way out of economic oblivion,” the researchers wrote.

This story was originally featured on fortune.com

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