Putin Acknowledges Impact of Sanctions on Russian Economy

“Our economy will need deep structural changes in these new realities, and I won’t hide this—they won’t be easy; they will lead to a temporary rise in inflation and unemployment,” Mr. Putin said in televised remarks on Wednesday before a video meeting with Russian government officials.

The impact of sanctions has reverberated across Russia, leading to factory closures, job losses, a doubling of interest rates and a decline of the ruble. Inflation has galloped ahead of the central bank’s target. Russia is at risk of defaulting on its debt.

Mr. Putin said the West’s effort to organize an “economic blitzkrieg” against Russia had failed, but warned there would likely be further attempts to step up pressure on Russia.

Referring to an exodus of Western companies from Russia in recent weeks, Mr. Putin held out an olive branch to those multinational companies still doing business in his country.

“We value the position of those foreign companies that, despite the inexcusable pressure from the U.S. and its vassals, continue to work in our country,” he said. “Going forward, they will definitely receive additional opportunities for development.”

In a virtual address to Congress on Wednesday, Ukrainian President Volodymyr Zelensky referenced Pearl Harbor and Sept. 11 in a repeated call for a no-fly zone, and asked the U.S. to escalate sanctions and other economic penalties on Russia. Photo: J. Scott Applewhite/Press Pool

The remarks came as Ukrainian President

Volodymyr Zelensky

spoke to the U.S. Congress, urging lawmakers to further ratchet up economic pressure on Russia for the invasion. He also called on legislators to pressure American companies in their districts that are still doing business with Russia to stop.

Mr. Putin pledged to carry out a raft of measures to offset the pain of the sanctions on Russians, including increased payments to pensioners and state employees, a hike in the minimum wage and financial assistance to businesses. The purchasing power of ordinary Russians has been deeply eroded after Western sanctions triggered a sharp devaluation of the ruble.

But Mr. Putin stopped short of endorsing Soviet-style price controls. He also said Russia’s central bank wouldn’t resort to printing money to meet the government’s spending needs.

Coordinated U.S. and European Union sanctions have hammered the Russian economy, cutting off much of Russia’s financial system from the rest of the world and choking off the flow of many imported goods. Western companies ranging from

Boeing Co.


McDonald’s Corp.


Volkswagen AG

have pulled back from Russia, either to comply with sanctions or because of public anger over the war in Ukraine.

In his remarks on Wednesday, Mr. Putin blasted one of the West’s main financial weapons against Russia—freezing the assets of Russia’s central bank held in North America and Europe. That prevented Moscow from using much of its stockpile of $630 billion in reserves to prop up the ruble.

“Now everyone knows that financial reserves can simply be stolen,” Mr. Putin said. He called the freezing of Russia’s central-bank assets illegitimate and warned it would lead countries around the world to store their reserves in tangible assets such as gold, land and raw materials instead of financial assets.

Since Russia attacked Ukraine in late February, the ruble has lost about 18% of its value against the dollar, according to FactSet. It had been down more than 40% earlier this month before recovering losses.

Russian consumers have reported price increases and shortages of some goods in stores. The country’s statistics agency said on Wednesday that consumer prices rose by 2.09% in the week ending March 11, bringing the increase since the start of the year to 5.62%. That easily exceeds the 4% target set by the central bank for the entire year.

Meanwhile, a cutoff of components from Western suppliers has threatened to halt production across a swath of Russian industry. During the video meeting with Mr. Putin on Wednesday, the leader of Russia’s Tatarstan region said production at truck maker Kamaz, which employs tens of thousands of people in his region, could fall by 40%.

Russia could also be on the cusp of defaulting on its debt for the first time since 1998. The Russian government was required to pay $117 million in interest payments on two dollar-denominated government bonds Wednesday. Russia’s finance minister said the payment had been made and appeared to be tied up at the U.S. bank where Moscow holds its dollars. The U.S. Treasury Department countered that sanctions didn’t prevent Russia from servicing its debt.

Russia’s central bank is set to meet Friday to discuss possible interest-rate changes. At its last meeting on Feb. 28, just as Western sanctions were beginning to bite, the central bank more than doubled its benchmark rate to 20% to make holding the ruble more attractive and cushion its expected fall.

Write to Alexander Osipovich at alexander.osipovich@dowjones.com

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