<Elderly people crowd outside the post office to receive their pensions in the Crimean capital Simferopol, on March 28, 2014 (AFP Photo/Dmitry Serebryakov)>
Russia has started counting the cost of seizing Crimea from Ukraine to its already stuttering economy, anxiously hoping that the West will refrain from implementing a second wave of sanctions that would cause even greater damage.
Moscow, already excluded from the G8, is planning for at least economic semi-isolation from the world for the next years with President Vladimir Putin this week saying Russia should create its own credit card system.
Western sanctions have so far only imposed visa bans and asset freezes on senior officials — some close to Putin — but the fear of further action hurting the wider economy is already causing damage with the stock market down 6 percent in March.
The most immediate hit has been on capital outflows which are estimated by economists and officials to have surged to $60-70 billion for the first quarter, more than for all of 2013 combined, as investors took fright at the uncertainty.
-Knowingly paying the price-
Russian Economy Minister Alexei Ulyukayev last week became the first top official to admit the Crimea intervention would badly hit GDP, slashing to ribbons the government’s previous 2014 growth estimate of 2.5 percent.
He said growth would be a measly 0.6 percent in 2014 if capital flight was around $100 billion for the full year, a figure that some economists see as wildly optimistic given the current trends.
The economy would contract by 1.8 percent if capital flight reached $150 billion for the year due to a projected eight percent decline in investment, he added, echoing a prediction by the World Bank.
“The key discussion on the market now is whether Russia can maintain a positive growth rate, or will it slide into decline,” said economist Natalya Orlova at Alfa Bank.
Alexei Kudrin, the long-serving finance minister who resigned in 2011 but is known to retain Putin’s trust, said that Russia was knowingly paying a colossal economic cost for a political decision.