Date: 2025-01-04 Page is: DBtxt003.php txt00027558
RUSSIA
IMPACT OF WAR ECONOMY
Anders Aslund: Why economic collapse will force Putin to end the war in Ukraine in 2025
IMPACT OF WAR ECONOMY
Anders Aslund: Why economic collapse will force Putin to end the war in Ukraine in 2025
Original article:
Peter Burgess COMMENTARY
Peter Burgess
- 0:00
- on the one hand Putin says sanctions only make us stronger and then he says
- immediately afterwards please end the sanctions uh which of course is
- completely contradictory so the sanctions are biting and my argument is
- that they take away two to 3% of growth each year and what I particular focus on
- is the financial sanctions Russia is running out of financial reserves it has
- now about $40 billion of liquid reserves available and that will run out
- uh sometime uh in a year's time approximately hello and welcome to front
- line for times radio with me, Kate Gerbeau, and this time we are talking to a former Diplomat and leading specialist on East
- European economies especially Russia and Ukraine Anders asland is a senior fellow
- at the Stockholm free world Forum a former fellow at the Atlantic Council he was an adviser to the Russian government
- 1:03
- between 1991 and 1994 and the Ukrainian government between 1994 and 1997 and
- he's written many books including Ukraine what went wrong and how to fix it and Russia's crony capitalism the
- path from market economy to kleptocracy Anders great to have you on front line thank you for joining us
- thank you in an article this month you set out your assessment of Russia's War
- economy it days and numbers is even in the title of that article before we get into the detail can you just give us an
- overview of the general understanding by commentators of the Russian economy and
- the challenges it faces my uh understanding uh which is the statistics is that the Russian
- economy has grown by 1% a year since 2014 and when Russia started its war
- against Ukraine and uh West sanctions started and uh you see a big
- 2:04
- difference now in understanding of the Russian economy U we have an official
- growth rate of 3.6% uh for last year I think that is
- bunk it's incorrect and the reason is that when you look where does the growth
- come it comes entirely from the military and related uh sectors and what is the
- military sector it's state Enterprises that are selling to the state and they
- set their own prices so I think that we have a hidden inflation there of 2
- 3% each year so therefore what we are seeing is not a grand growth but near
- stagnation in the Russian economy and then we had a massive uh reallocation of
- resources uh to to the military this is uh at best stagnant but probably not
- 3:03
- sustainable so you obviously have a great understanding and an analysis of
- the economy and um if you compare it to the kind of things that you read out there and the general understanding how
- accurate is it uh when you look at other analysts and what they're saying well
- they're taking the official statistics uh uh as the face value and previously
- that has been accurate to do so but now the Russian Ministry of economy has
- control over the statistical office and they can do whatever they want and previously they
- were quite accurate now we have no reason to believe that that they are accurate and you can see strange things
- that Russia is now an inflation of 9% but they have a central bank interest
- rate of 19% a real interest rate of 10% is completely abnormal and I would
- 4:04
- argue that we have 2 3% hidden inflation that explains these
- numbers when the reality is so different to the actual truth what do you think the Kremlin wants the world to
- believe well you hear two things from the Kremlin all the time on the one hand
- Putin says sanctions only make us stronger and then he says immediately
- afterwards please end the sanctions uh which of course is completely
- contradictory so the sanctions are biting and my argument is that they take
- away two to 3% of growth each year and what I particular focus on is the
- financial sanctions Russia is running out of financial reserves it has now about $40 billion of liquid reserves uh
- available and that will run out uh
- 5:03
- sometime in a year's time approximately how is this actually being felt inside Russia
- itself strangely very little what is happening now both in
- Ukraine and Russia is that you don't really see a war economy everything is
- available in the shops there are no price controls inflation is a bit higher than before but not um remarkably so so
- life goes on everything is available in the shops uh restaurants and and cafes
- are working as as before so the strange
- thing is that it isn't felt what I hear from my Ukrainian friends that is that
- the only thing that really makes the Russians react that's when they don't have electricity so therefore the
- ukrainians have bombed a lot of power stations in you in Russia because then
- 6:03
- people get get upset if you take now in the summer if they didn't have air
- conditioning in the South uh that that's tough if they can't uh get elevators
- functioning in the highrise building that's also unpleasant so these are the
- things that disturb people not that the economy is not
- growing you mentioned sanctions they've been place since 2014 and have been tightened since 2022 how effective have
- they been and what do you think has been most effective uh most effective so far has
- been that Russia cannot borrow anything abroad uh its foreign depth has uh
- Fallen by more than half since 2013 and Russia cannot borrow money for
- example from China the Chinese are very afraid of lending money to Russia
- 7:02
- because then they would become subject to us sanctions and um this means that
- Russia has to live on its own resources and thanks to the West having Frozen
- $300 billion do of Russian Central Bank Reserves these assets are not available
- for the Russian government so they only have what they have at home at the
- national uh welfare fund and that is running out so my argument here is that
- this money will run out next year if Russia only has a tiny budget deficit of
- 2% of GDP so Russia does not have that many resources and then Russia has the
- choice cut what public expenditures because they can't raise more money they
- can't borrow significant amounts of uh money so then they have to cat and what
- 8:03
- will they cat expenditures on the population probably or on the military well
- perhaps what effect is all of this actually having on Russia's ability to project influence and power it means
- that Russia is no longer a superpower it is a very limited power
- and that's the main thing that we need to take out of this
- discussion you you right that the only sectors that are growing are the military and its related infrastructure
- how is that impacting the rest of the economy and the lives of ordinary people you're saying that actually at the moment things are available in the shops
- and they are available but presumably this cannot go on indefinitely now we are seeing for
- example o production of Western cars has stopped in Russia and this uh uh it
- 9:00
- hurts uh the most developed parts of Western Russia St
- Petersburg in particular and airplanes uh all the airplanes Russia
- have essentially are boeings and air bus and they can't fly without uh Reserve
- parts and you can't get those parts legally you can get quite a lot
- illegally but it costs a lot and it's difficult and more or less they are
- running out so this means that uh Russia's developed economy is uh
- gradually not fast but gradually uh declining and uh this will hurt the
- economic growth and we are seeing about 1 million well educated young Russians
- mainly 20 and 30 year old people have left Russia mainly in 2022 because they
- 10:01
- were afraid of mobilization and these were most of all
- software Engineers that are not fleeing for example to to the United States but
- basically to everywhere where they can get a work permit these are highly
- qualified sensible young people if Putin tries to mobilize again he will
- encounter a s a similar thing so therefore Putin is now trying to
- entice young Russian men to go to the military for very high uh assigning
- bonuses so in Moscow and St Petersburg a young Russian man can get
- $60,000 just for signing up for the military which shows how desperate this
- situation is so you three big uh uh checks on the Russian economy first the
- 11:01
- finances that have emphasized second uh the technology because the
- technology uh controls from the West are functioning and they are getting tougher
- and tougher and the third is demography people don't want to fight for
- Putin and how has the population exus and and the pressure to supply soldiers
- to the front line actually impacted Society uh here it's uh strange that there is
- not more uh reaction probably 200,000
- Russian uh young men have died on the front in Ukraine and probably uh at
- least 400,000 have been injured perhaps more and we see very little of public
- reaction because the Russian repression is so hard when people for just a
- 12:02
- statement can be sentenced to 25 years in prison and quite often for eight
- years in prison even to like something on a social network you can get eight
- years in prison for that in Russia so therefore Putin has managed to keep um
- all popular uh dissatisfaction uh under control so
- far you say people don't want to fight for Putin but he's still managing to supply the soldiers how long do you
- think that will be able to be sustained for
- basically they are just raising the the cost until they get a sufficient number
- of soldiers both Ukraine and Russia are now mobilizing 30,000 men each month and
- they have problems reaching the targets but they do how how much is Russia spending on
- 13:00
- the war in Ukraine uh you see different uh uh
- numbers 8 or 10% of GDP I prefer the higher one that's 190 billion uh dollars
- and uh Ukraine spends 100 billion dollars a year including the the Western
- Military Support they're incredible figures and you met the head of Ukraine's military intelligence in ke uh
- C about three weeks ago is that right uh he told you that he'd received
- intelligence at the cremelin the Kremlin will sue for peace at the end of 2025
- because the money will run out do you think this is credible of course he has an interest in
- saying that but I do think that it's credible because it's what I calculate
- myself knowing that Russ Russia has about $40 billion left
- in its liquid part of the reserve fund now and it needs $40 billion a year to
- 14:07
- finance a budget deficit of 2% of GDP so if if it is uh preparing or considering
- if that's true that it's considering to to sue for peace in 2025 what do you expect to see uh politically between now
- and then and also what it might try to achieve on the battlefields and in the war
- itself well uh on the battlefield what is important for Ukraine is to isolate Crimea and we
- are very close to to doing that and this is an important development that uh reserves
- too little attention partly because it's a piece by piece and if uh
- Ukraine uh gets the right to use us attacks or a German Taurus uh uh misses
- then they can easily take out the catch bridge to to Crimea and then crimeia is
- 15:07
- isolated so it's not far from doing that if Ukraine does that put Putin will be
- in a very poor situation at home
- and that is what's important what Putin clearly hopes for is not what is
- happening in the war he is not going to make any breakthrough he might take
- another little village in the eastern part of Ukraine it doesn't change
- anything he cannot take any significant Town these towns that we are talking
- about now proc pukar for example had 60,000 inhabitants before the Russians
- had completely destroyed it and the ukrainians still hold it so these are small towns that you hear in in the the
- 16:00
- news what Putin is hoping for is that Donald Trump his close friend will win
- the US presidential election so basically between now if it
- is to sue for peace between now and 2025 it's a waiting game for for the kemin is
- it yeah I think so yeah Russia cannot as it looks now
- win on the battlefield as long as the us provides uh
- sufficient financial and Military Support to to Ukraine and it does until
- the end of this year next year it's still an open book will the
- US uh give a new supplemental budget to
- Ukraine if camela Harris wins the elections probably the US will quickly
- uh quietly do that at the end of this in the lame duck session of Congress if
- 17:05
- Trump Wills wins that will not happen what pressures is the Kremlin
- facing and keeping the supplies of arms weapons and soldiers to the front line it it turns out that uh they don't
- have news themselves so they have to rely up on North Korea so this uh head
- of a Ukrainian Military Intelligence General budanov when
- asked what is most important in terms of deliveries to Russia he said North Korea
- after that comes nobody after that comes nobody so it's North Korea millions of
- artillery shell that are important for Russia and that also shows how
- vulnerable it is so Ukraine has now uh bombed at least three big deliveries of
- 18:04
- uh North Korean Munitions hundreds of thousands
- of of artillery shells uh and this is
- coming back to your question if Ukraine gets the right to bomb F in take the
- railways between Siberia and Russia uh there are only a few Railway bridges
- that have to be taken out there so bomb them send out
- partisans and bomb them this is what the Ukrainian Military Intelligence wants to
- do how how effective do you think that permissions for use of those Western
- weapons for longrange bombing in into Russia could be in terms of damaging and inflicting a decisive economic blow
- against Russia I don't think that it's the economic blow it's more of a psych
- 19:05
- psychological that people feel that they are actually in war because until now
- ordin Russians have not felt that they are in war you might have heard the
- reactions when ukrainians broke into Russian territory in the cor region and
- people say why are they attacking us we haven't done anything so this was the order russan russan
- reaction ordinary Russians don't recognize that they that is Russia is
- pursuing a war against Ukraine and that Ukraine has right to defend it itself so
- but I always use one simple fact here German military production peaked in
- July 1944 after the whole country had been bombed by the Allies for quite some time
- 20:03
- so we should not hope that bombing the
- war itself will um stop the
- economy you said that um that the Russian population in general isn't feeling the war at all what difference
- did you do you think it will make if they do you will have two reactions the first
- reaction as we have seen in kusk is that the support for the war increases I was at Oxford when the
- Forkland War started and I was amazed to see all the British students immediately
- standing up and supported this war that nobody had thought of even as a
- possibility just before this is the normal reaction of Any Nation but then you get people who
- say what are we actually doing this doesn't make sense and here we would rather look to the top Elite uh who are
- 21:08
- really deciding what is happening in Russia and we will not know what they
- think because if they think something bad about Putin they would not say it
- because then they would be out you believe that that getting the longrange permissions to strike deep
- into Russia coupled with an extra $50 billion a year from Frozen Russian assets could secure victory for Ukraine
- can you describe how you see that going yeah so first Ukraine needs this
- money in order to get its economy functioning the Ukrainian economy is actually growing by
- 4% this year and it did last year as well so it's functioning surprisingly
- well and um uh so this is what you need the money for and you need more arms so
- 22:01
- you need longdistance U missiles particular the German and US
- ones the British Storm Shadow are very useful but they are
- not as long distance as the American and the
- German missiles and then to cut off Crimea I think that Crimea is central
- for ukra Ukrainian Victory and for Russian Victory it would be uh to wear
- Ukraine down War of Attrition leading to some coup or government change in
- Ukraine and it would be a very humiliating War when I was in KF now
- three weeks ago a typical line was that uh time is ending we are dying quite
- fast or Victory or not to
- 23:04
- be these are the the choices the ukrainians say so it's nobody who says we should stop fighting and negotiate
- it's rather that if we stop fighting then we're dead um are you able to tell us a bit
- more about what you did in ke and what your the purpose of your visit was hey I was there for an annual conference that
- uh Yalta European strategy conference with about two 300
- people that is organized by Victor pin one of the biggest Ukrainian businessmen
- and he has done this for 20 years now so I go to that every year and he always
- have President prime minister and half the cabinet participating and a lot of
- uh interesting ukrainians and uh and the
- 24:00
- foreigners and how was how was the atmosphere how was the mood and what did you take away from it if I use one word
- EMB bited so another quote was why are only
- ukrainians fighting if we are fighting for freedom and democracy why are we
- alone and uh people are very irritated
- that the they uh are not allowed uh to attack Russians Russian military targets
- uh every everywhere uh but at the same time they don't see any way out but to
- continue fighting so while people are ever sadder they are
- also feeling that there's no other way out but one thing uh there are now
- 50,000 UK Iranians that have lost arms or legs so you see a lot of people with
- 25:06
- who are disabled uh on on a more positive note
- um that 35 billion euros um which is going to be loaned to Ukraine that the E
- EU has agreed on now um using profits and Frozen aets to pay back those loans
- as I understand it how much of a difference and how quickly will that be allocated and how can you see it being
- used I think that this is very important and uh it's difficult to say but I would
- presume that they will do it very fast the European commission which is in
- charge of it is very pro-ukrainian as urel fion
- shows so well and they can do this quite fast because the one big problem is
- 26:01
- Victor Orban of Hungary and he can't block this it's been an ingenious way of
- getting around that block hasn't it yeah fortunately V has some decisions that
- can be made with qualified majority and this is one of
- them U and this would be very important then of course the next question is uh
- uh can efficient arms be bought for this
- and here the good uh answer is that Ukraine has no capacity to produce arms
- mainly drones uh for2 billion a year so
- it's much more now that Ukraine needs the money uh to uh support its own arms
- production so it's not necessary for European countries to give arms in in
- 27:01
- the same way as previously a lot has happened since you
- wrote your book um Ukraine what went wrong and how to fix it in 2014 you argued for a sound strategy to contain
- corruption in Ukraine otherwise you said it might cease to exist what do you what
- did you mean back then and how optimistic are you today that the necessary forms will secure its
- survival uh I think that a lot has been already so when I wrote that book
- Ukraine came 142 out of 180 countries on
- transparency International's corruption perception index now Ukraine has crept
- up to 104th Place which is of course still on the lower half but it's a
- substantial Improvement and Corruption normally takes quite some time to uh
- sort out and to measure the alternative which was very stock in 2014 that was
- 28:05
- Victor yanukovich who wanted to deliver
- Ukraine to Putin and get the suitable amount of money himself that's
- the purist definition of treason and tell me about uh the
- progress that you've seen then on corruption and getting rid of it from from which has been endemic in Ukraine
- uh what I consider the main thing is transparency and digitization you can
- now get lots of different permits online you don't have to talk to any bureaucrat
- any longer that's extremely important uh and public officials have to declare
- their incomes and uh their wealth and they have done so in
- a great detail then it is a number of
- 29:02
- Institutions that have been set up in order to fight anti-corruption a special
- anti-corruption police special anti-corruption prosecutor special uh
- anti-corruption court and an agency that uh sorts of
- different roles in order to uh reduce corruption so a lot has been done and
- one of the most important factors is that Ukraine has very good investigative
- journalists so whenever something is uh done there is some journalist who
- reveals what is going on who has made how much money and fortunately Ukraine
- has not a terrible liable legislation so journalist there to publish by name and
- with numbers what various officials have done
- 30:02
- and some are being sentenced but often they manage to get get away but still
- they they cannot stay in a public uh policy position if they have been re
- revealed to be so corrupt so the transparency sorts it
- out Anders as I said in the introduction you're an economic adviser to the Russian government in the immediate wake
- of the collapse of the Soviet Union can you briefly describe how Putin's crony capitalism works and as your book
- describes it and how long can it actually keep
- working well uh Putin has completely changed the system what we were trying
- to build in the early 90s it was a normal market economy and with have a
- private ownership what uh was missing was uh the
- political democracy that was not our work all the reformers were Economist and the legal
- 31:04
- system was also missing because there were no um lawyers who were re reformers
- so what Putin has done is that he has taken control over the state companies
- and he has renationalized substantially and more importantly has moved uh a lot
- of assets to his close friends and we can presume that Putin is
- approximately half owner of most of these companies and uh he has
- accumulated an enormous offshore wealth as we know uh in several different ways
- the Panama papers fors assessments of uh the wealth
- of four cins of his are have become billionaires in Russia and um
- five childhood friends have become billionaires so Putin is spreading his
- 32:04
- wealth on many people so that he can secure it and the money is basically
- coming from State companies most of all from one company gas prom the state
- control guess Giant and um Putin and his friends take out 10 to 15 billion
- dollars from gas prom each year and therefore it's very important that gas prom is now making a loss there's no
- money to take from gas prom any longer so this is a big blow to Putin and his
- close Circle and what impact that has we don't really know and as asland it's
- been great speaking to you thank you so much for joining us on Frontline you've been watching Frontline for times radio
- with me kateo if you'd like to support us you can subscribe now or listen to times radio or go to the times.co . UK
- my thanks for our to our producer today Lou syes and to you for watching bye for now