Expert’s view on U.S. sanctions imposed on Russia

May 5th, 2014

alya-gusevaIn November 2013, then-President Viktor Yanukovich, under Russian pressure, announced his country would suspend trade & association talks with the EU and renew economic ties with Russia. The announcement triggered three months of protests which led to the removal of Yanukovich as president. As the crisis continued, unrest spread to eastern Ukraine and protests turned increasingly violent. Actions by Russian President Vladimir Putin, including the invasion of Ukraine and the annexation of Crimea, led the United States and the EU to impose sanctions on Russia.

Boston University professor Alya Guseva is an economic sociologist with interests in the market formation, particularly the development of new financial and consumer markets in emerging economies of Eastern and Central Europe. In the following Q&A with Professor Voices, Professor Guseva explains what the sanctions mean along with their impact on the credit markets in Russia.

Professor Voices: Who is included on the sanctions list?

Alya Guseva: A total of 45 individuals and 18 companies are currently on the U.S. sanctions lists related to the Ukrainian crisis, 34 are Russian citizens and the rest are Crimean officials and two Ukrainians, including the ex-President. Many of the people and companies are from Putin’s close entourage. EU’s sanctions list only consists of 48 individuals, no companies, and unlike the American list, all of those people have been directly or indirectly involved in the annexation of Crimea or the separatist violence in Eastern Ukraine. Canada and Japan also composed their own lists.

Sanctioned individuals are subject to travel bans and the freezing of their foreign assets. For companies this can mean they are excluded from international interbank lending, and banned from collaboration or trade with the U.S. So any negotiations over future deals between a sanctioned company and foreign partners are off the table. The U.S, has also imposed restriction on high-technology defense-related exports to Russia. Currently, only a small number of Russian companies are subject to the U.S. sanctions (a couple of smaller banks, for instance, and none of the state-controlled giants like Sberbank or Gazprom), but if the list expands, it would be interesting to see what happens to foreign investments in Russia.

PV: Have the sanctions imposed against Russia for their intervention of Crimea worked?

AG: It depends on what we mean by “work.” If the sanctions were intended to make Russia back out from Crimea, or deescalate the situation in Eastern Ukraine, then no. Tensions, violence and separatist actions only intensified. Russia is not leaving Crimea, but instead is actively trying to integrate it. However, if the sanctions are punitive and intend to teach a lesson, or, as Obama put it, more mildly, to “change Russia’s calculus,” then yes, the sting of sanctions is starting to be felt, at least since the latest installment which were announced on April 28. The sanctions may not be changing Putin’s rhetoric, but there are certainly signs that particular individuals, companies or industries are already feeling the heat.

Bank Rossiya, dubbed the bank for the Russian elites and the first bank to be put on the sanctions list, has experienced the changes firsthand. Its cardholders’ Visas and Mastercards were blocked in retail locations, both in Russia and abroad. Cardholders could only access their deposits through ATMs (the majority of cards in Russia are debit cards). As a result, the bank has been inundated with customers trying to withdraw their cash, and is now urging its depositors to convert their hard currency deposits into rubles, or move them to another bank. Not only did the sanctions affect Rossiya’s (and other sanctioned banks) Visa membership as well as their ability to (cheaply) borrow dollars abroad, but something as straightforward as their use of American office technology may be jeopardized too. If Microsoft, Oracle or Hewlett Packard fully abide by the sanctions, it is not clear how Rossiya or other companies on the sanctions list could survive as 21st century organizations.

PV: How did Russia respond to these sanctions?

AG: The Russian government has used the sanctions as a way to refocus the economy on domestic production and away from imports and global integration. For example, the Parliament has recently passed an amendment to the law on the national payment system that would require Visa and Mastercard to keep security deposits in Russia’s Central Bank equal to the 25% of the card system’s daily turnover (Visa claimed the required sum is larger than Visa’s annual profit in Russia). Under the new amendment, if Visa and Mastercard block their Russian cards again, they would be charged a fine, 10% of the security deposit for each day the cards are blocked.

Additionally, Russia has announced it is moving forward with creating a national payment system on the basis of a domestic card balance. Currently, 85% to 90% of all cards issued by Russian banks have a Visa or a Mastercard logo. But building a new card system is not trivial, so even the resolve of a state as powerful as the Russian one may not be sufficient. This is what I discuss in my recent book Plastic Money: Constructing Markets for Credit Cards in Eight Postcommunist Countries.

PV:  The U.S. sanctions on Russia have so far targeted oligarchs within Putin’s inner circle. Have these sanctions been hard enough or should there be more large-scale economic sanctions against the country?

AG: There have been other suggestions from prominent members of American power elites. An ex-ambassador of the U.S. to Ukraine Steven Pifer has recently suggested that the sanctions have not been expansive enough. Instead of a few names, the list should be expanded to dozens of names of both oligarchs and politicians, including their family members, and particularly their children who have been studying (and partying!) abroad. A group of U.S. Republicans proposed extending sanctions to whole Russian industries like energy or banking (but other diplomats warn that this can lead to global recession). The U.S. so far has been moving slowly, proving Russia with ample opportunities to back out of Eastern Ukraine and signal a change in policy. Besides, the U.S. does not want to act alone in applying sanctions, and is actively seeking the support of the Europeans. EU has much closer economic ties with Russia, and European governments have been much more careful in applying their sanctions in fear of jeopardizing their economies.

PV: Historically, are sanctions that continue over an extended period of time successful?

AG: Again, if the goal is to isolate the country or destabilize it economically, extended sanctions can be quite successful.

Contact Guseva at 617-358-0639 or aguseva@bu.edu.

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One Comment on Expert’s view on U.S. sanctions imposed on Russia

  • Europe and America should add the names of people that comprise in the sanction list 。

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