Commentary on Political Economy

Monday 28 February 2022

 ‘The damage is done’: Russians face economic point of no return

Shoppers and business people express despair and disillusion as sanctions cause run on rouble

Russia-Ukraine crisis: live news

A shopper holds a sheaf of roubles at the Danilovsky market

Andrew Roth and Pjotr Sauer in Moscow

Mon 28 Feb 2022 18.17 GMT

As markets opened in a panic on Monday, many Russians rushed to local cashpoints in Moscow to retrieve their savings before the damage got any worse.

“It said they had dollars so I came here immediately,” said Alexei Presnyakov, 32, pointing to an app for Russia’s Tinkoff Bank, indicating he could withdraw hard currency. About 20 people were queued in line. “Yesterday [the rate] was 80 [to the dollar]. Today it’s 100. Or 150.”

People stand in line to withdraw money from a cash machine in St Petersburg, Russia

Russia’s central bank doubles interest rates and closes stock market as rouble plunges

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“I just made a spontaneous decision today that I would ask [out of work] and go around until I took out all my money,” he said. “Before it was worth zero.”

Within minutes, however, the word traveled down the queue: the dollars were gone.

Nearly half the queue walked off. “Who needs roubles?” one woman said sarcastically as she walked away.

From shopping malls to corporate boardrooms, Russians were trying to find their footing on Monday in what the Kremlin described as the “altered economic reality” that the country was now facing following sanctions on Russia’s Central Bank and other key financial institutions. There were signs that something extraordinary was taking place: the Moscow Exchange, Russia’s largest stock market, has halted trading until 5 March.

With its reserves frozen, the Central Bank announced it would more than double its main interest rates to 20%, the highest this century, and force major exporting companies, including large energy producers like Gazprom and Rosneft, to sell 80% of their foreign currency revenues, effectively buying roubles to prop up the currency rate.

People stand in line to withdraw money from a cash machine in St Petersburg, Russia

Russia’s central bank doubles interest rates and closes stock market as rouble plunges

Read more

But that did little to calm the frayed nerves at the Metropolis Mall in Moscow, where there were signs that Russians were rushing to turn their cash into consumer goods before prices leapt up. At an M.Video, a popular electronics store, one employee said that rouble prices for iPhones were “the same for now” but that “they could change any minute.” “I’d buy now,” he said.

If there was shock on the streets, then the mood among the business community was even more dour. Several owners of mid-sized companies said that the invasion and subsequent isolation of Russia had made their businesses unprofitable overnight.

One, the owner of an advertising services company with 100 employees, said that he was about to announce to his employees this afternoon that he is leaving the country for Armenia with his wife and two sons.

“I’m going to tell them that we are going into a crisis that we have never experienced before,” he said. “It’s like flying on a plane with no engines or the engines are on fire.”

His company, which handles contracts for international brands like Pepsi and automakers like Volkswagen, was booming as recently as January 2022, a record month for them. Now many of those brands were pulling out of the Russian market and his business was shrinking “immensely”.

Another business owner with hundreds of employees in the food and beverage and tourism industries felt that he was completely in the dark about the future under Vladimir Putin.

“We have no fucking clue what he will do next,” he said. “No one in the business community has a clue any more. Everyone is so depressed. I have experienced so many economic crises here, the pandemic being the latest.

“But there was always a reason to keep on fighting for your business,” he said. “Now, I don’t see the light at the end of the tunnel any more. Even if peace is achieved, the damage is done. How do we reverse it?”

There was a sense on Monday that this crisis was passing the point of no return, as Russian bombers began flying over Ukraine and rocket artillery began firing on populated districts of Kharkiv, a city of more than one million people.

Even top Russian business people, including the powerful oligarchs, appeared to be unsettled by the instability ushered in by the invasion, as well as the extraordinary measures being taken to prop up the rouble.

Oleg Deripaska, the billionaire businessman, had called for peace “as fast as possible” in a Telegram post on Sunday. On Monday, he went after the Central Bank decision to hike rates, taking aim at longtime rival Elvira Nabiullina, the head of the Central Bank.

“A hiked rate, the mandatory sale of foreign currency … this is the first test of who actually will be responsible for this banquet,” Deripaska wrote. “I really want clarifications and intelligible comments on the economic policy of the next three months.”

By the evening, the answer was even more draconian measures, including strict limits on transfers of money abroad. Those were announced after a funereal meeting between economic officials and Vladimir Putin, who declared that the sanctions had been imposed by the western “empire of lies”.

For many Russians, who felt themselves to be European by the food they ate and the way they lived, it’s clear that Monday marked a moment when the war came home.

“I think people are going to feel scared to spend money,” said the entrepreneur who owns restaurants and tourism companies. “We have left communism 30 years ago, we got accustomed to having a lot of comforts that are also seen in the West. All of that progress can be gone. We are no longer a member of the international community.”

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