As it tries to punish Moscow for its intervention in Ukraine, the White House asserts that the sanctions it has imposed have had a "significant impact" on Russia's economy, but their real effect so far, according to economic specialists, appears to be more psychological than tangible.
White House officials have pointed to the fall of the Russian ruble and Moscow stock markets as evidence of the success they have had in pressuring the Kremlin. Yet the ruble and Russian markets fell before President Obama began imposing sanctions. Today, in fact, both the ruble and the markets are slightly stronger than they were before the first sanctions were announced.
Russia's economic downturn predated any action by the United States or Europe and, to some extent, predated the Ukraine crisis.
Specialists said the volatility surrounding Ukraine has clearly aggravated Russia's economic problems by sapping international confidence, punishing its credit standing and increasing investor wariness, but it is not clear how much of that stems specifically from the sanctions.
Just this week, the International Monetary Fund lowered its growth projection for Russia for the year to 0.2 percent and declared that the country is in recession, citing the uncertainty of the confrontation with the West. But the fund's top Moscow official attributed the slowdown as much to the fear of more sweeping sanctions that may be imposed in the future as to the impact of the limited measures taken to date.
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That uncertainty may represent the real impact of sanctions, according to experts and Obama administration officials. In addition to the shrinking growth projections, Russia recently had its credit rating downgraded to just above junk status, and investors are demanding higher interest rates to hold Russian bonds.
Administration officials said it would be a mistake to assume those negative developments are unconnected to sanctions simply because only a relative handful of Russians have been targeted by them. The president's threat to escalate with sanctions against whole sectors of the Russian economy has been an important factor, too, the officials said.
"One of the purposes of sanctions is to create uncertainty and to create the expectation in the marketplace that worse could be coming," said David S. Cohen, the Treasury Department under secretary who oversees sanctions. "That uncertainty has led the market to punish the Russian economy."
President Obama's approach to sanctions has generated a fierce debate in Washington. The president argues that his measured strategy has sent a potent signal while preserving a united front with hesitant European allies and holding more powerful sanctions in reserve in case President Putin orders a full-scale invasion of eastern Ukraine.
Some lawmakers and Russia specialists in both parties, however, argue that his approach has been too measured. "If they named two or three big financial institutions, that would have had a big impact," said Steven Pifer, a former ambassador to Ukraine, who is now at the Brookings Institution. "They say they don't want to shoot all the bullets at once. They could have shot some more bullets and still had plenty in reserve."
The current American sanctions target 30 government officials and business leaders, as well as some of their companies. While some small Russian banks will have to stop taking Visa or MasterCard, the sanctions have not stopped major transactions or projects by those targeted. It is not clear whether the targets even have assets in the United States to freeze.
Beyond the targets themselves, large companies like Exxon Mobil, Boeing, Royal Dutch Shell, Siemens and BPhave done nothing to curtail operations in Russia. The chief executives of Shell and Siemens even met separately with President Putin in recent weeks, making clear business will continue, although Shell has since added that it will hold off starting new projects for now.
Exxon Mobil and BP are partners with Rosneft, the Russian state oil company led by Igor I. Sechin, who is on the American sanctions list, but both companies can continue working with Rosneft because Rosneft itself was not targeted.
Just this week, the Austrian energy company OMV made a pipeline deal with the Russian company Gazprom while Germany said it would not block the sale of RWE's oil and gas unit to the Russian billionaire Mikhail Fridman.
"The sanctions news has had little additional impact," said Christopher J. Weafer, a founding partner in Macro Advisory and a longtime financial analyst in Moscow. "But most investors are staying away from Russia for now. They are waiting until there is a clearer picture of the trend in the economy and the effect on earnings over this year and longer."
At a meeting in Moscow this week that included American Embassy officials and business representatives, there was little clarity about what was allowed under the current sanctions, and some executives concluded that they would err on the side of caution, an attitude that could effectively enhance the impact of sanctions. One participant said American officials recommended that chief executives not attend an economic forum in St. Petersburg this month that is important to President Putin.
Russia's economy was already slowing last fall. The Moscow government shifted from a stimulus spending strategy to a money supply strategy to try to reduce borrowing rates as a way to increase business activity.
The ruble started to depreciate sharply in January, long before Russia intervened in Ukraine, but the annexation of Crimea accelerated the drop as well as capital flight. Russia's central bank intervened by raising key rates to control the slide in the ruble. By the time President Obama imposed his first sanctions on March 17, the fall of the ruble and markets had stabilized. The ruble, trading at 36.57 to the dollar before the sanctions, improved to 35.64 to the dollar on Thursday. The Micex stock market index closed at 1,237.43 the Friday before the first sanctions and was up to 1,306.01 on Thursday.
Goldman Sachs estimated capital flight out of Russia at $50 billion before President Obama's sanctions.
Obama administration officials said the expectation of sanctions had already been factored into the market by that point, and they noted that even President Putin had said the sanctions were causing damage, although he said the impact was "of no critical character."
Timothy M. Frye, director of the Harriman Institute at Columbia University, said the Russian economy was declining even without sanctions. "But it's wrong to say that sanctions are not having any impact in Russia and that the Russian government can easily ignore them," he said.
Still, Frye said President Putin can now shift blame. "The sanctions do give the Russian government an excuse, a scapegoat for the poor economic performance," he said. Russian officials are already saying its tough economic times "are due to the West's nefarious activities, when in reality the underlying problems are Russia's bad governance."
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