OPINION
Market Rating Before FOMC MeetingJan 31
Market Note: Economic Consequences of the War in Ukraine
Russian Foreign Minister Sergey Lavrov, who has accepted the interview offer of very few Western news organizations since the beginning of Russia's invasion of Ukraine, answered the questions of BBC’s Steve Rosenberg.
Since Russia's attack on Ukraine 4 months ago, thousands of civilians have died, cities have been destroyed and millions of Ukrainians have been forced to flee their homes. But on Thursday, Sergey Lavrov said that things are not as they seem; "We did not invade Ukraine," he said. "We launched a special military operation because there was no other way we could tell the West that adding Ukraine to NATO was a crime." Lavrov repeated the Kremlin's official statement that there were Nazis in Ukraine. Russian officials claim that the Russian army cleared Ukraine of the Nazis.
Initially, it was feared that Russia's quick move would achieve victory in a short time, but this was followed by the withdrawal of Russian forces from Kyiv and an effective Ukrainian resistance. Now, Russia has concentrated its forces in the region to occupy the eastern part of the country. So how will this war that has been going on for more than 100 days affect the economy?
The World Bank warned that economies that have already been damaged by the coronavirus may enter recession due to the impact of the Ukraine war. And the World Bank President David Malpass said that underdeveloped countries in Eastern Europe and Asia are facing a "great recession", with the risk of stagflation (high inflation and low growth) increasing. "The war with Ukraine, the restrictions imposed in China due to the coronavirus, the disruptions in the supply-demand chain, high inflation and low growth rates are hitting the economies," said David Malpass. The only durable solution is a Russia reconciled to Ukraine’s political independence and territorial integrity. And reparations are the last thing needed to achieve that. They would mean additional hardship for a Russian population already experiencing hardship. With the economy on course to contract by 10-20% this year, it is not as if Russia is getting off scot-free.
There are still other arguments against reparations. The legality of seizing frozen Russian assets is unclear. Western governments could pass enabling legislation, although they might then be seen as bending the law to their convenience. The United Nations could create a commission with the power to seize those assets, though countries such as China, imagining that they might one day be targeted, would oppose the step. Either way, seizing Russia’s foreign assets will cause other governments to think twice before investing abroad.
The central point, though, is that the demand for reparations would make it harder to imagine a Russia reconciled to Ukraine’s independence and territorial integrity. With a hostile Russia at its doorstep, it will be more difficult for Ukraine to stay safe, much less to sustain sound and stable economic growth.
Since Russia's attack on Ukraine 4 months ago, thousands of civilians have died, cities have been destroyed and millions of Ukrainians have been forced to flee their homes. But on Thursday, Sergey Lavrov said that things are not as they seem; "We did not invade Ukraine," he said. "We launched a special military operation because there was no other way we could tell the West that adding Ukraine to NATO was a crime." Lavrov repeated the Kremlin's official statement that there were Nazis in Ukraine. Russian officials claim that the Russian army cleared Ukraine of the Nazis.
Initially, it was feared that Russia's quick move would achieve victory in a short time, but this was followed by the withdrawal of Russian forces from Kyiv and an effective Ukrainian resistance. Now, Russia has concentrated its forces in the region to occupy the eastern part of the country. So how will this war that has been going on for more than 100 days affect the economy?
The World Bank warned that economies that have already been damaged by the coronavirus may enter recession due to the impact of the Ukraine war. And the World Bank President David Malpass said that underdeveloped countries in Eastern Europe and Asia are facing a "great recession", with the risk of stagflation (high inflation and low growth) increasing. "The war with Ukraine, the restrictions imposed in China due to the coronavirus, the disruptions in the supply-demand chain, high inflation and low growth rates are hitting the economies," said David Malpass. The only durable solution is a Russia reconciled to Ukraine’s political independence and territorial integrity. And reparations are the last thing needed to achieve that. They would mean additional hardship for a Russian population already experiencing hardship. With the economy on course to contract by 10-20% this year, it is not as if Russia is getting off scot-free.
There are still other arguments against reparations. The legality of seizing frozen Russian assets is unclear. Western governments could pass enabling legislation, although they might then be seen as bending the law to their convenience. The United Nations could create a commission with the power to seize those assets, though countries such as China, imagining that they might one day be targeted, would oppose the step. Either way, seizing Russia’s foreign assets will cause other governments to think twice before investing abroad.
The central point, though, is that the demand for reparations would make it harder to imagine a Russia reconciled to Ukraine’s independence and territorial integrity. With a hostile Russia at its doorstep, it will be more difficult for Ukraine to stay safe, much less to sustain sound and stable economic growth.
