RT, 3/17/22

The launch of the military operation in Ukraine has drawn the ire of the US and its allies, who have hit Russia with unprecedented sanctions in order to destabilize the country’s economy and pressure Moscow into ending the conflict. Among the many penalties imposed on the country over the past month, its financial system, energy exports, and forex reserves have been targeted. However, hard times call for prompt response measures, and Russia has come up with a few.

1. National payment system Mir takes over for SWIFT

Major Russian banks have been cut off from the SWIFT global financial messaging system, effectively denying them access to international markets. However, Russia can now accept electronic transfers via Mir, the Russian alternative payment system, and work with foreign banks and businesses, bypassing Western restrictions. Mir also provides an alternative to Visa and MasterCard, which have stopped providing international transaction services to Russian clients.

2. Domestic currency trade and new export destinations

Sanctions also targeted Russia’s holdings in euros and US dollars to deny the country the ability to trade internationally. However, Moscow is setting up trade mechanisms to enable national currency payments with foreign trade partners. Russia and China have had ruble-yuan payment mechanisms for a while, and earlier this month, Turkey expressed its willingness to trade in rubles. Also, a ruble-rupee trading scheme has been announced for Russian oil exports to India. India, which until now bought only 3% of its oil imports from Russia, has been eager to boost purchases, as has Serbia. It is a sign that Russia has alternatives for exports if the West continues to isolate the country.

3. Exporters ordered to dump the dollar

In order to support the ruble, which has suffered a sharp decline against major currencies this month, Russian businesses that trade abroad have been ordered to sell 80% of their foreign currency earnings and convert them to rubles. It is expected to stabilize the national currency and encourage more investments in Russia instead of moving them abroad.

4. Grain export ban to secure domestic supplies

Russia has temporarily banned grain exports to the countries of the Eurasian Economic Union (EAEU) this week. Restrictions cover shipments to post-Soviet states that share a free customs zone with Russia. They include, Armenia, Belarus, Kazakhstan, and Kyrgyzstan. The measure aims to keep the domestic food market well stocked and prices from soaring.

5. Interest rate hike to support the national currency

With nearly half of the country’s forex reserves frozen and unavailable to support the depreciating ruble, the Russian Central Bank urgently raised the key rate late in February from 9.5 to a record 20% per annum. The step was taken to compensate for the increased devaluation and inflation risks, or simply to help maintain price stability and protect citizens’ savings from depreciation. The regulator also launched additional measures to support credit institutions and recommended that banks not charge interest and penalties on loans, as well as allowing the restructuring of payments and repayment holidays. The moves have helped to stabilize the ruble, which has recorded six consecutive days of gains against the euro and the dollar, as of Thursday.

6. Ruble debt payments to avoid default

Russia has authorized two payments to bondholders totaling $117 million due on Wednesday in US dollars. The money comes from the country’s accounts frozen abroad. It is now up to the US and its allies to approve the transfer. If they do not, the Russian government has ordered that the debt be paid in rubles at the official central bank exchange rate at the time of transfer. Western-based institutions insist that unless the debt is paid in the currency of issue, Russia faces its first default in a century. Moscow insists that the West is trying to engineer “an artificial default” since the country has the money to pay its debts, to which it is being denied access.

7. Targeted support for citizens

On Wednesday, President Vladimir Putin ordered new measures to support Russian citizens amid rising prices, unemployment, and supply issues tied to sanctions. The steps will focus on protecting families with children and elderly citizens. He said a decision to increase the minimum wage, salaries in the public sector, and social benefits, including pensions, will be made in a matter of days.

8. Financial support for entrepreneurs

The Russian government has approved a draft plan to support small and medium-sized businesses. Local authorities have been instructed to provide organizations, individual entrepreneurs, and self-employed citizens with support measures, including subsidies and credits.

9. Exporters advised to turn to domestic market

President Putin has urged Russian exporters not to reduce production in response to sanctions, but to supply the domestic market. This will keep prices within the country from surging, including for gasoline, diesel, metals, and other export goods, he said, adding that import substitution projects have never been more important.

10. Foreign businesses offered ways to stay in Russia

Facing sanctions pressure, a number of foreign companies this month announced their temporary withdrawal from Russia, including IKEA, Microsoft, Volkswagen, Apple, Shell, McDonald’s, H&M, and others. Proposals were made to nationalize these enterprises to keep the businesses running. However, in his address on Wednesday, President Putin said Russia will respect private ownership of foreign firms. Earlier, he voiced support of another idea – to introduce external management, so foreign firms could be run by partners in Russia. The Ministry of Economy is developing a bill to regulate the procedure.

I thought I’d give readers some insight on what I’m hearing from a few contacts  in Russia about sentiment regarding the war and the sanctions. My contacts are in western Russia, southern Russia and Siberia.

According to their collective observations, though there are disagreements among some, there is general support for Putin so far in his “special military operation,” but it is tinged with sadness.  It’s not a chest-thumping kind of support. While they understand the threat of NATO expansion and the Neo-Nazi elements of the Ukrainian government and militias, they also don’t want to see regular Ukrainians get hurt.  It is a neighboring country and many Russians have family or other ties to Ukraine.  As one contact told me:

“But the worst thing that worries everyone is that people are being killed on both sides. People are dying, and it’s terrible.”

With regard to the sanctions, thousands of people who worked for western companies or relied on western clients for their income have been hurt. However, there is currently no shortage of food or other essential items and no panic.  But prices for food have gone up, along with imported goods.  Among many, there is a sense that only the top 20% of Russians will be significantly affected – those who travel overseas, have assets abroad, and buy imported luxury items.

Here is what one contact told me:

“The fact that large companies like McDonald’s, Starbucks and foreign retailers like IKEA have left the Russian market is not considered by Russians as something terrible. We have such a saying – a holy place will never be empty. Russian companies will take their place sooner or later. The bad thing is that all social networks are closed – Instagram and Facebook are recognized in Russia as extremist organizations due to the fact that they allow and provoke their subscribers to publish appeals to kill Russians. Nowadays they are more and more resembling a garbage dump. Sure, that means that we will be isolated from the whole world, which is bad. Besides air travelling abroad is closed.”

Another contact said:

“As for the sanctions, things are calm, everyone is making the adjustments necessary. Of significance, at this point, they are mostly technical, moving to Telegram, using Mir cards instead of GooglePay, getting off Facebook because of Meta deciding to adjust their moderator criteria.. Helpful information is rapidly exchanged such as getting a Chinese Union Pay card that is accepted in 171 countries.   Three weeks in and costs are going up but shelves are full. This is nothing like what happened in the 90s, this is a different country.”

One contact, however, suggested that some Russians fear that the sanctions could eventually have devastating consequences, and that this provided both crisis and opportunity.

The majority of my contacts also expressed concern at the extreme xenophobia being encouraged against Russians in the West.  One contact commented about the rhetoric on western media and social media:

“Dehumanization of adversary is known to be a prelude to military actions. It is one of the telling signs of the coming hot scenario.”

Another observed how she felt the west was making things worse with its actions and rhetoric:

“By the way, visas to America have already stopped being issued more than 2 years ago, long before the war in Ukraine started. It was vivid that Russophobia began [in the U.S.] very long before these events. We came to the USA at [a peace activist’s] invitation in 2018 and even then the degree of hatred for Russians was off the scale, so it was clear at least to me how it would all end….Everyone realizes that it is necessary to stop the war ASAP, instead of inciting or provoking it which is happening now. Just watch your Mass Media to find the proof to my words.”

The sides are reportedly still far apart on the status of Crimea and the DPR/LPR.

by Max Seddon, Roman Olearchyk, Arash Massoudi, Financial Times, 3/16/22

Ukraine and Russia have made significant progress on a tentative 15-point peace plan including a ceasefire and Russian withdrawal if Kyiv declares neutrality and accepts limits on its armed forces, according to three people involved in the talks.

The proposed deal, which Ukrainian and Russian negotiators discussed in full for the first time on Monday, would involve Kyiv renouncing its ambitions to join Nato and promising not to host foreign military bases or weaponry in exchange for protection from allies such as the US, UK and Turkey, the people said.

Read full article here.