G. Skaistė The Guardian: russia is lying about its economic power: sanctions work and more are needed
Minister of Finance Gintarė Skaistė, along with seven other ministers of finance of the European Union, noted in a commentary to the British daily The Guardian that russia, actively conducting information warfare, was lying about its economic power: sanctions work – and more is needed.
“Putin and his authoritarian regime are spreading the false narrative that russia’s economy is strong and its war machine is not undermined by Western sanctions. This is a lie. There are more and more signs that the russian economy is creaking, but the real situation is masked by huge state spending on the military industry, which supports GDP growth. However, it is not a long-term and sustainable source of growth. Unlike the history that Russia would like to tell, sanctions against the war machine are effective and necessary”, – says G. Skaistė and ministers of finance of Sweden, Denmark, Estonia, Finland, Latvia, the Netherlands and Poland.
According to the ministers, the sanctions changed the geography of russia’s foreign trade and restricted its access to priority war commodities. According to russian customs information, the country’s export revenue decreased by about a third in 2022 - 2023. The pressure on the aggressor will be further aggravated by the 14th package of sanctions adopted by the EU in June, which includes the measures on liquefied natural gas and the russian shadow fleet transporting sanctioned russian oil around the world.
The Guardian's publication highlights that the Kremlin's war factories are operating at their highest capacity at a time when the country faces enormous labour shortages. There are reports that, as a result, Putin has approved the replacement of imprisonment with forced labour. The situation in the labour market leads to rising production costs, while the weakening rouble raises import prices and contributes to rising inflation, despite the efforts of the russian central bank to fight it with high interest rates.
The ministers note that for many russians Kremlin's economic policy should create a deja vu feeling when returning to the Soviet tactics: capital control, export bans and heavy investments only in the military industry.
“To finance the war, russia used liquid funds from the National Welfare Fund. Bloomberg estimates show that since the russian invasion of Ukraine, the size of the Fund has almost halved as the country sacrifices its future prosperity to continue the war in Ukraine. Export bans on petrol and sugar were introduced to ensure domestic supply. A strict capital control was imposed to prevent the outflow of private funds from the country, and the rouble would be a rescue from free fall. Nevertheless, there are reports of further large-scale capital outflows from the country. What could be misunderstood as "promoting" russia's growth is actually the beginning of economic re-sovietisation”, the situation in russia illustrated G. Skaistė with colleagues EU ministers.
Extensive market control, high public expenditure financed by the expropriation of private property, and the reorientation of the economy towards the military industry without any consideration of the socio-economic well-being of the population are characteristics of the current russian economy.
“History clearly shows that this is not a successful long-term strategy. Short-term overheating of the economy, fuelled by high investment in the military industry and very limited access to technology, will dampen productivity growth and lead to stagnation in the private sector, aggravated inflation and increasing pressure on russian households. In order to cover the future deficit, V. Putin will have to use monetary financing, thus more increasing inflation and further depleting cash reserves. If V. Putin follows this path, the long-term damage to the russian economy will be huge”, says G. Skaistė and other 7 EU ministers of finance in the publication.
The ministers of finance of Lithuania, Sweden, Denmark, Estonia, Finland, Latvia, the Netherlands and Poland are unanimous in saying that currently the G7 agreement on the USD 50 billion loan to Ukraine, which will be financed by profits generated by frozen russian assets, must be implemented as soon as possible. Undoubtedly, it is necessary to further maintain the support for Ukraine, to provide more weapons and ammunition. It is also necessary to broaden the scope of sanctions against russia, especially in sectors such as energy, finance and technology, and to reduce the possibility of sanctions circumvention, for which it is particularly important to work towards the unification of the sanctions regime also for Belarus.
Read more about the publication in the British newspaper The Guardian here.