Friendly fire

Russian business has completely lost access to international capital markets

In recent days, there has been a lot of idle talk about the introduction of economic sanctions against Russia by foreign states. Some expect these sanctions with some apprehension; others, on the contrary, believe that they do not threaten them personally and the country. And it seems that the first steps of the US and the European Union confirmed the point of view of the optimists - nothing terrible really happened, even the almost predetermined expulsion of us from the G8 did not take place. Should we be afraid of these sanctions at all?

As a rule, economic sanctions are announced not so much in order to punish a certain state for its deeds, but in order to prevent any harmful actions on its part in the future. However, when the target of the sanctions behaves in a markedly irrational manner, such measures, while designed to be perceived as normal, may not have the expected impact, only exacerbating political stress and reducing the chances of a future settlement. In addition, in anticipation of actions against themselves, many have time to take preventive measures in advance, similar to what the Bank of Russia, it seems, just did when it moved its US Treasury bonds to an offshore depository.

Finally, economic sanctions are also ineffective because they usually hit everyone - both the guilty and the right - indiscriminately, affecting the most vulnerable segments of the population as painfully as possible, and in addition, they harm individuals and corporations of the very states that apply such toughening. The severity of the situation for the governments initiating the sanctions is even more aggravated if retaliatory measures are introduced. Indeed, the political weakness and unscrupulousness of their Western counterparts were well known to the Kremlin from the experience of the 2008 Georgian crisis. It is not obvious that the politicians of the leading states will muster enough courage to put into effect measures that are really tangible for the Russian leadership this time as well.

But the whole problem is that other, very tough sanctions against our country are already in force, but it is not very clear to whom and how to respond to them - after all, this mechanism was launched not by some kind of world behind the scenes, but by the Russian authorities themselves.

The steps taken unanimously by all its branches on the annexation of Crimea - no matter how you evaluate them from the point of view of the "civilizational choice" - could not but lead to an increase in domestic and foreign political tensions and, accordingly, to a serious reassessment by the markets of country risks, that is, all kinds of threats associated with Russia as such. The country factor, in turn, is an indispensable component of the risk profile of all other domestic economic entities.

In other words, one fine March morning in 2014, without exception, all Russian business woke up more risky, instantly losing a fair amount of its former market value. Moreover, he has completely lost access to international capital markets, as potential creditors and investors are now unable to understand what can be expected from the Russian authorities tomorrow - the deployment of troops in the southeastern regions of Ukraine, promised by one of the presidential advisers of a massive default on foreign obligations or something else? Even if we assume that the markets will reopen soon (which is not a fact at all), the increased level of country risk will not disappear anywhere and will remind of itself with additional losses for Russian borrowers and issuers.

Under these conditions, it is clearly not worth relying, as the government did not long ago, on an increase in the investment activity of business. Rather, on the contrary, rationally thinking entrepreneurs will continue to withdraw money from the high-risk zone with renewed vigor, as a result of which capital flight in the first quarter may exceed the figures of the entire last year. And the lack of private investment, like nothing else, dooms the Russian economy to deepening stagnation and degradation. And ordinary people, including those who sincerely welcome the “return of Crimea” at hastily gathered rallies, will not stay away from these sanctions: the purchasing power of their income is already suffering as a result of rising prices and the accelerated depreciation of the ruble, directly caused by the aggravation of country risks.

So is it worth being seriously afraid of Western economic sanctions? It is unlikely that we have enough of our own ...