fbpx

Is Russia Ready to Weather the Post-War Storm?

Interesting observation from the FT:

None of this will give president Dmitry Medvedev sleepless nights. With record foreign reserves, oil and gas prices high and economic growth strong, Russia is well placed to weather much greater storms than this. The authorities can finance public spending, war costs included, for years to come. Also, the financial market sell-off follows a long asset-price boom, which was, in any case, running out of steam. But life could be somewhat harder for Russian policymakers as they struggle to contain rampant inflation, the top economic challenge. Also, with foreign credit costs rising, big infrastructure schemes could become more costly. With the west powerless to stop Russia’s Georgian campaign militarily or politically, there is an obvious attraction in considering economic levers instead. But the US and the European Union should resist the temptation. Even when the political interests of the west and Russia clash, as they have done in the Caucasus, their economic interests remain closely aligned. This is particularly true in the European energy market, where the EU is Russia’s biggest customer and Russia is the EU’s largest supplier. This mutual dependence is – and must remain – a powerful basis for mutual economic co-operation. Any moves to limit Russian access to international organisations should focus on political clubs such as the Council of Europe, not the WTO, where countries with very dubious political records, such as Zimbabwe and Burma, are already members.

Especially next to these two points from Slate.com:

So, two ironies: 1) Financially speaking, the United States needs Russia a lot more than Russia needs the United States, and 2) it’s likely the subprime mess will inflict greater economic damage on Russia than any coordinated Western sanctions could.