Russian government nervous as country faces economic challenges

On the St Petersburg Worldwide Financial Discussion board, a Russian MP got here as much as me.

“Are you going to bomb Iran?” he requested.

“I am not planning to bomb anybody!” I replied.

“I imply you, the British…”

“Do not you imply Donald Trump?”

“He is instructed what to do by Britain,” the person smiled. “And by the deep state.”

It was a quick, weird dialog. However it confirmed that in St Petersburg this week there was extra on folks’s minds than simply the economic system.

Take President Vladimir Putin.

On Friday, the Kremlin chief delivered the keynote speech on the discussion board’s plenary session. It centered on the economic system.

However it’s what the Kremlin chief mentioned within the panel dialogue afterwards that made headlines.

“Now we have an outdated rule,” Putin declared. “The place the foot of a Russian soldier steps, that is ours.”

Think about you are the chief of a rustic that is internet hosting an financial discussion board, looking for international funding and cooperation. Boasting about your military seizing international lands would not seem like the best technique to obtain this.

However that is the purpose. Since Russia’s full-scale invasion of Ukraine in February 2022, the state of the economic system has been secondary to the purpose of profitable the conflict towards Ukraine. That’s the Kremlin’s overarching precedence. True, Russia’s economic system has been rising, however largely attributable to large state spending on the defence sector and military-industrial advanced.

And even this war-related progress is now tapering off.

Putin did not sound overly involved.

“So far as the ‘homicide’ of the Russian economic system is worried, as a well-known author as soon as mentioned – ‘rumours of my dying are enormously exaggerated,'” the Russian president declared.

However the Russian authorities is clearly nervous.

On the discussion board, Russia’s Minister for Financial Growth, Maxim Reshetnikov, warned that the nation’s economic system was teetering “on the point of recession”.

“We grew for 2 years at a reasonably excessive tempo as a result of unused assets had been activated,” mentioned Russian Central Financial institution Governor Elvira Nabiullina. “We have to perceive that a lot of these assets have really been exhausted.”

The St Petersburg Worldwide Financial Discussion board was conceived as a shiny showcase for the Russian economic system. A number of that shine has light as a result of 1000’s of worldwide sanctions imposed on Russia over the conflict in Ukraine. Many Western corporations pulled out of Russia.

Would possibly they return?

In spite of everything, US President Donald Trump has made it clear he desires higher relations with Moscow.

“In the present day we had breakfast with the American Chamber of Commerce and many buyers got here from the US. We get a way that plenty of American corporations need to come again,” Kirill Dmitriev, President Putin’s envoy on international funding, instructed me. We spoke on the sidelines of the St Petersburg discussion board.

“I believe the American administration understands that dialogue and joint cooperation is best than sanctions that don’t work and harm your companies.”

Western companies, although, are unlikely to return in giant numbers whereas Russia is waging conflict on Ukraine.

“I believe it is clear you must have some form of an finish to the battle earlier than American corporations are going to significantly contemplate going again,” mentioned Robert Agee, president of the American Chamber of Commerce in Russia.

“Have you ever requested the Trump administration to take away some sanctions from Russia?” I requested him.

“We have been to Washington,” he replied. “Now we have made an evaluation of the affect of American sanctions on American companies. We handed that on to the administration.”

“Do you settle for that the concept of Western companies returning is controversial in mild of the conflict in Ukraine?” I requested.

“Western companies have made choices based mostly on what occurred three or 4 years in the past,” replied Mr Agee. “And it is as much as them to resolve whether or not it is the precise time to return.”

After greater than three years of conflict and mass sanctions, Russia faces powerful financial challenges: excessive inflation, excessive rates of interest, reviews of stagnation, recession. The issues within the economic system are actually brazenly mentioned and debated.

It is unclear how quickly they are going to be resolved.