Russia’s limited response to avoid economic suffocation

Ruble plunge, panic at Moscow financial center, escape of foreign companies, extension of line of automated teller machines … In addition to Russia, western sanctions in response to the Ukrainian invasion are increasingly influencing Meanwhile, Moscow made a series of decisions this Friday on measures to minimize its financial impact.Russian parliament, Duma expects in this text “To increase the stability of the Russian economy and protect its citizens from sanctions.”

Therefore, the government may raise pensions and minimum wages. “If necessary”. A small business inspection moratorium could also be introduced in 2022, and for IT companies, it could be introduced by the end of 2024. The text also introduces a simplified system for purchasing medicines and an expanded list of medicines.

Expansion of amnesty for Russian capital abroad

The law also provides for a simplified “buy-back” procedure, that is, a buyback by a company of its own shares. Stock prices of Russian companies have fallen sharply and can be bought back at low prices for consolidation if not wiped out. The law also provides for the suspension of debt repayment of citizens and SMEs in 2022. This is a measure already introduced at the beginning of the coronavirus pandemic.

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Finally, there are plans to extend the capital amnesty that has been in place for several years so that Russians can return their property and capital held abroad without risking prosecution. However, Western sanctions now target Russian capital and assets in many countries where assets are frozen, especially oligarchs, making it currently difficult to apply these measures.

The Central Bank of Russia had already enforced capital restrictions, such as the obligation of Russian exporters to convert 80% of their income into rubles and the prohibition of Russians sending money abroad. The provisions also allow companies to modify candidates proposed to the board of directors. This is a measure reminiscent of the controversy related to foreigners that exists in the advisory bodies of many large Russian groups.

Russian economy is in a difficult environment

Asked during his daily press conference on Friday, Kremlin spokesman Dmitry Peskov said “Currently, the economy is in an aggressive environment. The economy is concerned with all of us, the well-being of all citizens, and the blow is directed towards our economy, which must be mitigated and minimized. This is what the government and the president are paying attention to right now. “Did he declare?

Over the past week, the Russian economy has been shaken terribly, especially by the surprising measures of the West aimed at freezing foreign assets of the Central Bank of Russia. The purpose is to limit access to reserves for orders of $ 650 billion, more than half of which are denominated in dollars, euros and pounds sterling. This financial fire has allowed central banks to support the ruble so far, but this is no longer possible. In fact, the Central Bank of Russia has stopped currency intervention due to Western sanctions.

This unprecedented sanctions on central banks, coupled with the decoupling of certain Russian banks from the Swift interbank messaging service, following a selective approach that should not (excessively) penalize Russia’s gas and oil exports. ..

Implementing Swift’s alternative solutions is possible because they inevitably take a lot of time to implement, especially to protect the exchange. Swift’s strength is certainly based on the confidence that all banks have in this messaging system.Even the Kremlin admitted on Monday “The reality of the economy has changed a lot.”

In the middle of the week, two international payment giants, Mastercard and Visa, robbed some Russian financial institutions of their payment networks. Specifically, all eligible banks issuing Visa or Mastercard cards will no longer be able to guarantee a small number of international transactions on behalf of the international cardholder. Already in April 2014, both companies stopped servicing the target banks and blocked the use of payment networks.

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Following this precedent, the Russian government, under the responsibility of the Russian Central Bank, has accelerated the establishment of its own domestic payment card system, Mir (“world” in Russian). This system acts as a clearing system for processing card transactions, but only for domestic transactions. However, the global ambitions of this payment card have not been achieved. Few countries accept this payment method.

Russia tries to look at China, but …

Russia is looking to China to avoid suffocation. And especially for its gas exports, Europeans want to resolutely turn away from this Russian energy source, which provides most of the needs of the continent.

Today, Russia meets 20% of China’s natural gas demand, some of which is supplied in the form of liquefied natural gas (LNG), especially by rail. In 2020, Russia supplied China with 420 billion m3, compared to 170 billion m3 in 2013. Therefore, the amount will continue to increase over the next few years, with Russia’s gas exports to China in 2020 accounting for only 5% of the total, compared to 72% in Europe. OECD countries. Finally, Russia also supplies oil to China, which accounts for 20% of total exports.

Chinese investors have also recently purchased shares in companies related to the supply chain. Russia By betting on increased trade between the two countries after Western sanctions targeting Moscow. These companies are part of the so-called “China Business Concept Index”.Russia“This includes container shipping companies, port operators, etc. According to financial data from specialist company iFinD, the index has skyrocketed by more than 20% since February 28th.

Among the stocks that have benefited from this move is Jinzhou Port. 600190.SSA company in Liaoning Province in the northern part of the country, RussiaDuring six consecutive sessions on the Shanghai Stock Exchange, prices accounted for 10% of the maximum permissible value.

“Investors Russia We will strengthen our cooperation with China, which has brought about value of concern, especially in logistics. “Ade Chen, Manager of Cantonese Fund Investment in Guangzhou, explains.

Asian Infrastructure Investment Bank suspends activities in Russia

But diplomatically, Beijing is quite cautious about Russia’s military invasion of Ukraine. If you do not blame, we will not support it.China, already a major export destination RussiaNational banking officials said Wednesday that they would not participate in Western sanctions.

But the strictness of Western sanctions sounds like a warning signal to China, which seeks to force Taiwan to reintegrate if necessary.

This Thursday night, the Asian Infrastructure Investment Bank (AIIB), China’s response to the World Bank’s supremacy of international finance, has ceased operations with Russia and Belarus.Given the situation in Ukraine “For the best interests of the bank”, AIIB “We have decided to suspend all (its) activities related to Russia and Belarus.”She said in a statement on Thursday.

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