2024-07-19 01:22:29
“Without an inflow of dollars, Russia will collapse within a year.” Economist Yury Gorodnichenko, whom some Ukrainians call a “legend”, came up with a solution that could stop the war in Ukraine. “The most effective would be sanctions that would affect the Russian energy sector and reduce its income from gas and oil – a complete embargo on Russian energy,” the economist said.
“I mean the Western sanctions fever. The sanctions were sharply criticized by Vladimir Putin, for example, in October 2022 | Video: Reuters
According to Gorodnichenko, who is now at the University of California at Berkeley, the West made a mistake by gradually introducing sanctions. “The Russian economy did not collapse thanks to the strategy of a thousand cuts, and now Ukraine does not have time to wait for the Russian economy to finally collapse. The philosophy should be different – to introduce the maximum possible restrictions at once and weaken them a little only at the moment when they are effective,” he described for the economic Economic Truth website.
When the G7 countries came up with sanctions and curbed oil prices, it was not effective enough, according to Gorodnichenko. “Russia had enough time to adapt by creating its shadow fleet, which exports oil despite sanctions. About 90% of Russian oil exports go through two main routes: the Baltic and the Black Sea,” explained a leading Ukrainian economist.
“If these routes were closed, it would be difficult for Russia to reorient its export flows. Denmark controls the exits from the Baltic Sea and Turkey from the Black Sea. The political will to ‘close’ these seas is the last thing left,” he added.
Raising taxes in Ukraine is also key, says Gorodnichenko. “The world has provided Ukraine with substantial international aid, but this will eventually decrease and force the country to rely more and more on its own resources. It is critically important that Ukraine has the highest level of central bank reserves in history,” he said.
“Ukraine has already raised consumption taxes, but plans to raise other direct and indirect taxes to cover another 500 billion hryvnias (over 300 billion crowns) of budget spending needed for the war,” he added, adding that there is too much uncertainty in the attacked country because of the war and macroeconomic stability is the basis of victory.
According to him, the prospect of a steady flow of aid is becoming increasingly hazy. The European Union has still not agreed on how to provide Ukraine with a promised loan of $50 billion from frozen Russian assets.
In February 2022, the Central Bank of Ukraine introduced foreign exchange restrictions to prevent capital outflows. Less than a year ago, it began easing restrictions and launched the so-called policy of managed exchange rate flexibility.
Businesses can pay interest on foreign loans and pay for import-export operations, but Gorodnichenko warned that this may not take long due to uncertainty. “Money always runs away from countries where there is war,” Gorodnichenko told RBC-Ukraine. “On the other hand, the country will need foreign currency if the world cuts financial aid,” he concluded.
Reportage: At any cost. The Russian “meat grinder” near a key city is getting out of control (full article with video here)
“Everything is on fire.” Ukraine fights for Torecko, a key city for Russian logistics | Video: Radio Free Europe