It has been evident for some considerable time that whereas the United States and Britain have had incompetents managing the Federal Reserve Bank, the Bank of England, the US Treasury and HM Treasury, who dithered while the rate of inflation climbed inexorably and now make transparent excuses that everything and everyone else were somehow responsible but themselves for the mess we are in with steeply rising inflation, the Russians lucked out because they had Elvira Byullina in charge: the Paul Volcker of Russia, who took no prisoners.
From the very beginning Byullina took drastic action against accelerating inflation even before the invasion of Ukraine, anticipating a rate of interest up to 20%, to the point that mortgage borrowers in Russia were complaining loudly at the high level of payment in prospect. She offered to resign after the invasion and Putin refused the request. Members of the Duma threatened not to continue her in office but Putin overruled them. So he has clearly not lost all his capacity for sound judgement.
Because she took drastic action to save the rouble as soon as the currency markets took revenge for the war against Ukraine, forcing exporters to hand over 80% of their foreign currency earnings to the Central Bank on receipt, she is now sitting pretty and able to ease up on requirements so that exporters can hang on to half their earnings without exchanging them for roubles and cut the rate of interest to 9.5%. The success of this policy makes the impact of foreign sanctions all the less, particularly as the EU and UK’s much vaunted sanctions on Russian oil are delayed to the end of the year and the delays in sanctioning Russian gas continue to mire the whole business in confusion.
The disastrous policies pursued by the US and UK governments in continuing to print vast quantities of money well after the peak of the Wuhan Virus panic, and unforgivably subsidising US mortgage backed securities at a time when the housing market was already too high, proved that common sense in economics had given way to political opportunism among those charged with financial responsibility. And that same lack of judgement has produced a blanket policy of sanctions against Russia that, while no doubt emotionally satisfying, is an economic disaster for the West; Western Europe in particular.
The awkward and widely unacknowledged fact is that, as a leading producer of commodities, and not just energy resources, Russia has immense bargaining power vis-a-vis the West. Russia’s vulnerabilities, on the other hand, lie in the need for high technology imports, indeed even lower technology imports (skins for garlic sausage, for example, and aircraft parts), to keep its industries functioning.
Perhaps the West should concentrate on closing the leakages for exports there rather than worrying about Russian foreign exchange earnings. Sanctions, to work, have to be run with a view to comparative advantage, and with the West in an economic mess due to poor stewardship and political opportunism it will hurt itself rather more than Russia by acting out of emotion rather than reasoned calculation in these matters.