Economist Buklemishev called sanctions against Russia a new word in history

– In Russian society, the idea that the overall negative impact of Western sanctions on our economy is insignificant is prevailing. State officials for the most part demonstrate optimism, and the population does not seem to be sounding the alarm. Yes, it’s kind of hard, but overall we manage. To what extent is this behavior justified?

— In the economy, much depends on the expectations of citizens. The formation of a positive attitude in society is one of the tasks of leaders responsible for economic policy in the country. This, if you like, is included in their professional duties, is an integral part of the model of behavior in public. Moreover, there are things that are ideologically unacceptable: panic moods are banned today, inside state structures they are punished in every possible way. And it’s impossible to think one thing all the time and say another: someday you either start to say what you think, or vice versa. The second option often works for us.

— What is the real economic situation in Russia? What is happening now with GDP, trade, consumer demand, industrial production?

– The output indicator for basic types of economic activity, calculated by the HSE Development Center, decreases in May by 7.3% compared to December 2021 (in May 2015 it decreased by 4.4% compared to December 2014). In May, wholesale trade fell below the December mark by 18.7%, industrial output – from 4% to 7%, according to estimates of various think tanks. In general, very complex processes of deep structural transformation are taking place, which are far from complete. It is obvious that the Russian economy is already different, its place and role in the world have changed dramatically, it is largely excluded from the global commodity and especially financial turnover. Everything goes to its qualitative simplification, as well as to compression in volumes. And the most regrettable thing is that we can’t get off this trajectory: the country will not return to the February point, lost forever.

— As American researcher Nicholas Mulder writes, the current sanctions against Russia are unparalleled. Until now, the world has known two options: either these were large-scale sanctions that were applied against small economies such as Iran and Venezuela, or targeted sanctions against large ones (for example, against the Russian Federation in 2014-2015). Today, the eleventh largest economy on the planet, which is also an important supplier of raw materials to global markets, has been subjected to comprehensive, “conveyor” sanctions.

– Indeed, a completely new word in history. The main target of all the previous sanctions policy of the West, which it pursued at different times, was the trade sector of a particular country. In the situation with Russia, such goals cannot be counted. This is finance, and industry, and transport, and science, and sports, and culture, and anything. Moreover, the sanctioning coalition itself is incredibly broad: it involves not only governments, but also public associations, as well as private companies, including international brands that have irrevocably decided to curtail business in Russia, even after decades of quite successful work. This coalition is unprecedented both in terms of total power and the degree of influence on socio-economic processes.

– In March, the Central Bank managed to quickly stop the signs of a macroeconomic shock through strict currency restrictions, not allowing inflation to run rampant, but in the end giving rise to a kind of “illusion of normality”. Does it not carry the grain of long-term systemic problems, the severity of which will increase over time? What to do with the actual non-convertibility, with the non-market nature of the ruble exchange rate?

— I agree, those financial victories turned out to be largely pyrrhic. The current exchange rate of the ruble is feverish, divorced from life and does not reflect any market realities. And, in my opinion, it testifies precisely to a deep failure, and not to success. What is happening now is nothing but a contraction, a collapse of the economy, which should be reflected in completely different values ​​of market indicators. One side of the trade is almost completely disabled, the other continues to function at the very least. As a result, we have a skewed, distorted foreign exchange market. It’s like trying to measure the temperature with a toy thermometer indistinguishable from a real one: the procedure seems to be the same, but it will not work to find out if a person is sick and how much.

— Different sanctions have different timing and horizon of consequences for the economy. There are immediate financial measures (freezing foreign exchange assets, blocking correspondent accounts of banks), there are trade and logistics restrictions, there is a ban on the import of modern technologies, there is a withdrawal of investors and Western brands from the country. Which of all this is doing our economy the most damage?

– It is impossible to single out one thing, the problem lies precisely in the complex, total nature of the sanctions, which affect all aspects of life simultaneously and cumulatively. It is impossible to use financial assets normally or to trade in a civilized way. In this game, we do not have the right to the first move. They make a move against us, we adapt to it, come up with something, build some kind of scheme. And from the other side, a new move follows, then another and another, ad infinitum. We are constantly in the position of reacting. This story will continue. Production will be closed, trade with countries that, according to the West, are helping Russia to circumvent sanctions will be curtailed or minimized.

What industries have been hit the hardest so far?

Let’s start with the people though. Those who find it difficult to relocate – geographically and professionally – from one place to another. Those who are strongly attached to one field of activity or to one enterprise that feeds their families. In this sense, a sad fate befell the inhabitants of single-industry towns. For example, in Tikhvin, an ancient town three hours away from St. Petersburg, the city-forming enterprise, a car-building plant, opened exactly ten years ago, has been idle for the third month. The workers were sent home with part of their wages. Many people collect and sell mushrooms and berries to survive. And there are many such stories in the country. Here, the work of more than a dozen airports in the south of Russia was forced to be suspended – in Anapa, Krasnodar, Rostov, Voronezh, Gelendzhik and other cities. But these are huge economic complexes with thousands of employees, this is about 8 million passengers, whom the aviation industry will miss before the end of the year. Where to go to the carriers of specific skills, accustomed to a certain level of prosperity? And it is clear that even if a Russian owner comes instead of a foreigner and fixes something, it will not be the same. And demand, and management, and results are not the same.

In addition, the more complex the production is, the more it is exposed to all sorts of risks, in particular, the loss of some important components, like in the automotive industry or aviation. Today, all premium sectors and services are also suffering. The crisis is hitting incomes, people are starting to give up some things, simplify consumption. And in fact, a normal economy begins where there is a demand for something more complex, interesting, optional.

– If we talk about the general population, what awaits them? What will happen to real wages, incomes, quality of life?

— In general, nothing good. However, qualified specialists will be more in demand in the new conditions. They might even make more money. When the market shrinks, the “cream” of productive assets and labor remains afloat. Many of my friends say that they have no free time at all. Additional volumes of labor have fallen on this category of workers, since entire sectors of foreign business have fallen (and are falling), huge niches have opened up on the market. Due to the sharp reduction in imports, the structure of shuttle deliveries began to take shape and gain mass scope. Naturally, all these chains of “parallel imports” will be crooked, and the goods entering the country through them will be of lower quality and more expensive for consumers. Naturally, a certain number of people will feed near them, whose standard of living may increase. But for the average person working in the private sector, life will become harder, if only because of the contraction in the overall demand for goods and services. In such a situation, state employees will also get it, since systemic efficiency and total income in the economy will decrease.

“Meanwhile, the country’s windfall profits from raw material exports are only growing so far. An oil embargo from the EU has not yet been introduced, and there is no talk of gas at all. At the same time, China and India, subject to discounts of 25-30%, buy Russian oil in gigantic volumes. Can the economy find a new foothold in the face of its main “allies” – oil and gas?

– Pay attention: the infrastructure of pipeline oil and gas supplies to Europe was built for decades – both by the Soviet Union and Russia. Now she is close to the state of suspended animation. Switching this export to the East, transferring all European volumes there is a task from the realm of fantasy. The much smaller Power of Siberia main gas pipeline oriented to China is still only 40% full. All these “eastern” routes are much more complex, lengthy and expensive, they still need to learn how to sustainably service and finance them. This is also a huge range of issues waiting to be resolved. As for the prospects for an oil embargo, judging by the mood of the European Union, it is not far off.

— Sanctions have led to a sharp reduction in imports. How powerful is this challenge, what will be its long-term consequences for the economy of our country?

– Among the current tactical threats, this is perhaps one of the most unpleasant. But it is much worse that Russia is rapidly losing all sorts of high-quality assets. And not only idle infrastructural ones, but also those connected, for example, with the production of the latest car models. In parallel with the process of primitivization of the economy, human capital is leaving the country. The brain drain, especially of well-educated youth and professionals from the collapsing high-tech sector, is gaining momentum. Many sit on their suitcases and, as soon as they receive a good offer, they will immediately leave, because they have nothing to do in Russia.

– To what extent were the hopes for help from China, India, and other “friendly” countries justified?

— From March to May, revenue from Russian energy exports to India increased by almost 5 times compared to 2021 levels. For China, growth was more modest, but also quite decent (+55% in May compared to May 2021). Part of the turnover of imports from Europe was transferred to Turkey. In other areas – for the most part decline. Many contractors are afraid to deal with deliveries to Russia. After the introduction of “post-Crimea” sanctions by the West in 2014-2015, Russia began to import some prohibited goods in a roundabout way, but in a rather limited range. And today we need everything at once. And it is a mystery to me how deliveries of various high-tech imported equipment will be organized under the current conditions.

And the issue of infrastructure is very important. Remember, last fall, Russian Far Eastern ports were overstocked, when they simply could not handle the increased volume of transit container traffic. Since then, nothing has fundamentally changed: the transport and logistics network has not been expanded, and the number of equipped border crossings is limited. Potentially, we can talk about infrastructure projects worth many billions of rubles, they need to be built, financially and technically docked with each other.