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Russia is the largest country in the world, covering more than one of eighth of Earth’s inhabited land area: 17, 075, 200 km2. It currently has an unemployment rate of 5.8% and the Russian GDP is five times lower than that of the US. Additionally, in comparing Russia with the US, the former has overall, lower population and productivity. Why is the United States doing better in these terms? The US has been on the economic market longer than Russia (only 25 years). The Russian Federation has just started creating its economy and accordingly developing its way of living.

Russian foreign trade is decreasing and operating with low export diversification (exports from Russia: European Union 30%, Asia 20%). We have to consider how much of an effect sanctions have on Russia – and also, more importantly, the fact that the deficit of the general government budget stands at -3,5%. Moreover, gas exports have decreased from 40% in 2015 to 35% in 2016; however, we have to bear in mind that this is not because of sanctions but because of the decrease in oil prices in the global market.

The Russian Federation has one of the lowest levels of bank loans in comparison with European Union member states, the United States, Japan and Canada. In addition, they have one of the highest indexes of non-bank loans of all. Germany has the most bank loans.

In 2009, one year after the global financial crisis, GDP growth fell from 5.2 to -7.8, and exports from 0.2 to -1.5. Now, we can observe important GDP growth to -3.7 and consumption -5.4; these values were created after the sanctions from the European Union.

Russian’s investment in the World economy is only 3,8%, compared to Germany (18.9%), the Republic of Korea (5.8%), Taiwan (4.2%), Saudi Arabia (7.0%) and other economies (12.7%). Russia is trying to foster greater innovation and can easily influence huge enterprises through taxation.

To understand banking theory, we have to take account of three pillars. Firstly, the “TBTF” theory (it stands for “too big to fail”), that huge corporations and financial institutions have to be supported by government, because if they fail it would have a disastrous effect on the global economy. Secondly, “SIFI”, meaning “systematically important financial institution mega-regulator”. In Russia’s case, there is a central bank which is the mega-regulator, regulating dealers, and brokers with its tools with the k-rate discount rate, … but we have to bear in mind, that it this different for each country. Thirdly, there are shadow banks, which have similar services and products as banks without recognition as such; they collect money and invest funds in different fields.

The leading grouping in the international banking system is the USA and UK. In this group, there are no financial-industrial groups; they have effective banking legislation, the highest level of competition in the banking system, and their secularisation of assets is the highest in the world. They have the leading position because banks from the USA and UK were established and begun to do business abroad first. However, this situation is not good for other banking systems that we will consider. Secondly, we have countries with high levels of banking development including Germany, France, Italy and Switzerland. Their banks are generally universal, but they have high competition in the banking system. However, their banking legislation is too complex and over-regulated. These two sectors are the main ones, of course; next, we have the hypertrophic pattern in China, Turkey and Islamic banking. The most stable banking systems are those of Sweden, Norway and Canada.

The Current Russian Foreign Policy

Current Russian foreign policy includes an attempt to integrate post-Soviet countries with Asia countries. This was begun by the creation of a custom union and the subsequent launch of a common market in 2015. The objective is to achieve more freedom of capital, goods, services and labour. However, following the economic crisis, unifying Russia in economic terms has become a more complicated matter. Furthermore, foreign investors in Russia prefer to invest in the trade sector, which is not good for Russian Federation as it is not their favoured sector in which to allow foreign investment. In addition, in the automobile industry, companies such as Nissan, Toyota and Volkswagen import their cars to Russia at the cost of production within the country. Most important to note is that Russia has a cheaper workforce to draw upon than is the case in other countries, which is favourable to the production and export of goods.

We know that Russia is subject to sanctions from the European Union. Let us consider some basic facts about the sanctions. We currently have an arms and related materials embargo, export/import restrictions, financial sanctions and freezing of assets. There are also smart sanctions, which are targeting elites and individuals such that they can easily change the behaviour of the state. The most damaging sanctions for Russia are financial prohibitions.

Far Eastern countries are not willing to cooperate with Russia to a great extent in economic terms. Regarding the crisis over EU sanctions, Russia can adopt some techniques and be better prepared than other countries. Russia also needs to change its foreign and domestic policy and try to establish a better financial policy to achieve greater innovation, as it is mainly through innovation that growth in the market economy is made possible.

*Discussion with Professor Ivan Surma, Professor Ivan Surma, Associate Professor of the Department of State Governance and Security at the Diplomatic Academy of the Ministry of Foreign Affairs of Russia; Member of the Expert Committee on the Financial Market of the Russian State Duma. The discussion covered modern strategic analysis in International Relations and was held at Moscow, Russian Federation. It was provided by the Diplomatic Academy at the Ministry of Foreign Affairs of Russia (presentation/lecture during the certicate atDiplomatic Academy of the Ministry of Foreign Afairs of the Russian Federation, Moscow, Russia, 03 August 2016).