Because the arguments of Porro and Travaglio on anti-Russian sanctions do not hold up
Before endorsing theses intended to add grist to the invaders' mill, some commentators should take a closer look at the contextual data to evaluate the sanctions against Russia. Gianfranco Polillo's analysis
It is a more than discreet fascination that Vladimir Putin continues to exert on some Italian opinion leaders . “Russia, the data confirms: the sanctions don't work “ , Nicola Porro headlined on January 1, in his blog . And Il Fatto Quotidiano : “Russia's productive activity expands also in December. The country's PMI index shows the highest value in the world”. In short, the old theses of producing "more butter and more guns", which was characteristic of the theories of imperialism, still resonate among the golden towers of the Kremlin.
PORRO'S THESIS ON THE EFFECTIVENESS OF SANCTIONS ON RUSSIA
As proof that the sanctions, at least so far, have not worked, or rather have worked little, Nicola Porro reports a study by Robin Brooks, chief economist and former chief of Goldman Sachs. Which, however, seems rather to describe how Russia was able to survive against the measures taken by the West. Rather than hinting at the best of all possible worlds. The basic observation is the strong current account surplus of the balance of payments. Grown dramatically after the invasion of Ukraine.
The most recent forecasts of the Russian central bank indicate a current account surplus of 198.4 billion dollars for the first three quarters of 2002, against 75.2 in the corresponding period of the previous year. A demonstration of how war, at least until a few months ago, was a good deal. From this point of view, according to Brooks, the sanctions have had little impact. Some banks were sanctioned, which also suffered substantial losses, but were immediately replaced by others, which saw their turnover increase enormously. The best way to punish Putin, then – this is the recipe indicated – is to sanction all the banks, leading to a total embargo on Russian exports.
The greatest delays, however, occurred on the price cap: imposing a ceiling on the prices of supplies would have made it possible to considerably reduce the currency flow in favor of Gazprom. In any case, exports to China would have increased, but given the differential in their selling prices, they would not have been able to compensate for the losses accrued on the more profitable western markets. Naturally, these delays have a name and a surname. They were above all a consequence of the resistance of Greek shipowners, fearful of losing orders relating to the logistics of transporting oil. from which Russia receives the largest revenue. In 2020, oil exports yielded 72.5 billion dollars, against 25.6 for gas and 6.7 for LPG.
A boon destined to end? Maybe yes, Brooks always notes, oil futures , after the price cap , are collapsing. While the risk of a global recession is growing, which would accentuate all the difficulties of Russian autarky. Partly already evident. With the passing of the quarters – we add – the strong surplus of the trade balance, compared to the corresponding period of 2021, has progressively decreased. It was more than three times as much in the first quarter, to be reduced to one and a half times in the third.
WHAT THE DAILY FACT WRITE ABOUT SANCTIONS TO RUSSIA
On the opposite side – that of Il Fatto Quotidiano – the accent is placed on the great dynamism of Russian SMEs. The S&P Global Purchasing Managers' Index (Pmi) which monitors the orientations of company purchasing managers, albeit slightly down in December, would still be "the highest figure among that of the countries monitored." The drop in exports, a consequence of the sanctions imposed, would be “for now offset by the increase in production and domestic demand. In this trend” the production of armaments could also play a role but, at the moment, the Russian economy shows no signs of collapse”. On the contrary: one might say.
BECAUSE THE TWO ANALYSIS NOT CONVINCING
In what are the analyzes as presented not convincing? In the fact that both tend to validate the thesis that focusing on any internal difficulties in the Kremlin, in the hope of reaching a just peace, is more or less a waste of time. There is no reason that Zelensky resigns himself – Alessandro Orsini, sadly known for his pro-Putin sympathies, would say – against brute force. And it doesn't matter if the teaching of history almost always demonstrates the opposite. In the specific case, however, our opinion leaders , before endorsing theses intended to add grist to the invaders' mill, should look better at the context data, to see whether or not they are consistent with the sentiment of the reported analyses.
If everything were gold that glitters, for example, the ruble would not have depreciated against all other currencies inherent in the main states with which Russia trades. Since early December, the loss in value has averaged over 16.5 percent. In turn, foreign exchange reserves would not have decreased by almost 50 billion dollars (from 630.5 to 581.7) with a decrease equal to 7.75 percent. Clear sign of macroeconomic difficulties of a certain weight. Above all, however, the central bank's major concerns regarding the persistence of an inflation rate that is difficult to contain would be unjustified.
This last argument deserves additional reflection. Russian SMEs show the results illustrated by Il Fatto Quotidiano , for the simple reason that they have been called to a substitute role. They had to compensate for the lower imports obtained as a result of the embargo resulting from the sanctions. Decisions that have often interrupted the flow of production, making it impossible to deliver the finished product, as in the case of the automotive sector. An attempt has been made to remedy these interruptions with a greater native production. Which, however, has led to a strong increase in employment, in a market that has become increasingly asphyxiated, due to compulsory conscription, which has subtracted human resources from the economy and the flight abroad of many young people. Rigidities that have increased wages and consequently the rate of inflation. Which, in turn, led to a reduction in foreign exchange reserves and the devaluation of the ruble. This is how that inflationary spiral has started, which is the most evident sign of that economic and social malaise, which partial analyzes are unable to register.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/sanzioni-russia-tesi-porro-travaglio/ on Tue, 03 Jan 2023 07:01:08 +0000.