What Is Russia’s Sanctions Survival Plan?

Russian President Vladimir Putin announced fresh initiatives on Wednesday to help Russian citizens cope with rising costs, unemployment, and supply challenges linked to sanctions. This is just one of the few aspects of what is Russia’s sanctions survival plan that we could see in action in the next few months.

What Is Russia’s Sanctions Survival Plan

The United States and its allies have responded harshly to the commencement of the military operation in Ukraine, imposing historic sanctions on Russia in attempt to disrupt the country’s economy and put pressure on Moscow to halt the crisis.

The country’s financial system, oil exports, and foreign exchange reserves have all been targeted among the several sanctions placed on it in the last month. Hard circumstances, on the other hand, necessitate quick responses, and Russia has come up with some.

National payment system Mir takes over for SWIFT

The SWIFT global financial communication system has been disconnected from major Russian banks, thus depriving them access to global markets. Russia, on the other hand, may now take electronic payments through Mir, the Russian alternate solution payment service, and interact with foreign banks and enterprises, circumventing Western limitations. Mir also serves as a substitute for Visa and MasterCard, who have ceased to provide foreign transaction services to Russian customers.

Domestic currency trade and new export destinations

Sanctions were also imposed on Russia’s assets in euros and US dollars, preventing the nation from trading globally. Moscow, on the other hand, is putting in place trade systems that will allow national currency payments to be made to foreign trade counterparts.

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For a long time, Russia and China have established ruble-yuan payment methods, while Turkey has declared its desire to trade with rubles. In addition, a ruble-rupee trading program for Russian oil shipments to India has been proposed. India, that had only purchased 3% of its oil supplies from Russia until just now, and Serbia have both expressed a desire to increase imports. It’s a signal that if the West proceeds to alienate Russia, Russia will have other options for exports.

Exporters ordered to dump the dollar

Russian enterprises that trade overseas have been compelled to sell 80 percent of their foreign currency revenues and exchange them to rubles in order to stabilize the ruble, that has experienced a significant fall versus other currencies this month. It is anticipated to stabilize the Russian currency and stimulate more investments in Russia rather than exporting them.

Grain export ban to secure domestic supplies

This week, Russia imposed a temporary restriction on grain exports to Eurasian Economic Union (EAEU) countries. Shipments to post-Soviet republics that share a free trade zone with Russia are subject to regulations. Armenia, Belarus, Kazakhstan, and Kyrgyzstan are among them. The goal of the policy is to preserve the domestic food market well-stocked and prevent price increases.

Interest rate hike to support the national currency

With over half of the country’s foreign exchange reserves frozen and inaccessible to sustain the ruble’s depreciation, the Russian Central Bank hiked the key rate from 9.5 percent to an unprecedented 20 percent per year late in February. The move was made to adjust for rising depreciation and inflation concerns, or merely to assist maintain price stability and safeguard citizens’ money.

Additional steps to strengthen credit institutions were also announced by the regulator, including a recommendation that banks not impose interest or penalties on loans, as well as the ability to restructure payments and take repayment vacations. The measures have aided in the stabilization of the ruble, which has now gained six days in a row against the euro and the dollar as of Thursday.

Ruble debt payments to avoid default

Russia has sanctioned two payments to bondholders totaling $117 million in US dollars, both of which are due on Wednesday. The funds come from the country’s frozen foreign accounts. The transfer must now be approved by the United States and its allies.

In the event that they do not, the Russian government has ordered that the debt be repaid in rubles at the authorized central bank exchange rate at the time of transfer. Russia will default for the first time in a century, according to Western institutions, unless the loan is reimbursed in the currency of issuance. Moscow claims that the West is attempting to orchestrate a “artificial default” since the country has the funds to pay its debts but is unable to do so.

Targeted support for citizens

President Vladimir Putin announced fresh initiatives on Wednesday to help Russian citizens cope with rising costs, unemployment, and supply challenges linked to sanctions. The measures will be aimed at protecting families with children and the elderly. He said that a resolution on raising the minimum wage, public sector salaries, and social benefits, such as pensions, would be reached in a matter of a few days.

Financial support for entrepreneurs

A draft plan to promote small and medium-sized firms in Russia has been accepted by the Russian government. Local governments have already been directed to offer assistance initiatives, such as subsidies and credits, to organizations, individual entrepreneurs, and self-employed residents.

Exporters advised to turn to domestic market

President Putin has pushed Russian exporters to feed the home market rather than cut production in reaction to sanctions. He added that import substitution initiatives have never been more vital, as they would limit costs in the country from rising, notably for gasoline, diesel, metals, and other export commodities.

Foreign businesses offered ways to stay in Russia

Faced with sanctions, a number of multinational businesses, including IKEA, Microsoft, Volkswagen, Apple, Shell, McDonald’s, H&M, and others, declared their interim exit from Russia this month. To keep such businesses afloat, plans to nationalize them were proposed. President Putin, on the other hand, stated in his speech on Wednesday that Russia will honor foreign companies’ private ownership. He has previously shown support for another idea: introducing outside management so that foreign enterprises may be operated by Russian partners. The Ministry of Economy is drafting legislation to govern the process.

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