By Alexander Marrow
(Reuters) – The poisoning of Kremlin critic Alexei Navalny and Moscow’s involvement in political turmoil in neighbouring Belarus have put additional Western sanctions against Russia back on the agenda ahead of the U.S. presidential election.
But even if imposed, the impact of any new sanctions would likely be muted in comparison with previous efforts to punish Russia over its annexation of Crimea in 2014 and other “malign activities” that Moscow denies.
Below are some ways Russia has prepared to cope with the threat of more sanctions since the first wave in 2014.
FLOATING ROUBLE, AMPLE RESERVES
Russia has the world’s fourth-largest gold and foreign currency reserves at $591.8 billion as of Sept. 11, versus $509.6 billion in early 2014 and less than $360 billion in April 2015, its lowest point in the past decade.
The central bank’s move to let the rouble float freely in 2014 made the currency a safety valve against external shocks.
FISCAL RULE
To shield itself from volatility in prices for oil, its main export, Russia adopted the latest version of its fiscal rule in 2017. It envisages that any revenue from crude prices above $42.40 per barrel goes into state coffers. When oil prices are below that level, Russia sells foreign currency, supporting the rouble.
The World Bank has praised the fiscal rule, something that has helped Russia retain investment ratings when oil prices nosedived during the novel coronavirus pandemic.
The rule was temporarily softened to increase state spending and soothe the economic fallout from the virus.
FX EXPOSURE
Russia significantly reduced its dependency on external markets, slashing foreign debt exposure and boosting domestic borrowing, in an effort to shield itself from external shocks.
Outstanding foreign debt shrank by about 30% over the past six years to $477 billion as of mid-2020, down from $729 billion in early 2014.
Russia has also diversified its savings, cutting the proportion of its reserves in U.S. dollars to 24.5% as of end-2019 from 45.4% as of end-2013. It added the Chinese yuan to reserves in 2015, taking its share to 12.3% by end-2019. Meanwhile, the amount of gold in Russia’s coffers rose to $144.6 billion in September from $40 billion in early 2014.
DOMESTIC SOLUTIONS
Russia created its own card payment system, MIR, in 2014, fearing it could be cut off from global systems Visa and MasterCard.
Moscow also launched its own financial transactions clearing house, anticipating risks that Euroclear and Clearstream might suspend dealings with Russia, and developed its own banking messaging system as an alternative to global financial network SWIFT.
Russia has set up a national credit rating agency, ACRA, to lower its dependence on global agencies.
REDUCED IMPORT RELIANCE
Russia has become more self-sufficient in food since it banned most Western food imports in 2014 in retaliation against Western sanctions.
This ban and a weaker rouble have helped domestic food producers flourish, reducing Russia’s food imports by one third since 2013.
(Editing by Andrey Ostroukh, Robert Birsel)
