A future destroyed by the past

Kim Byung-yeon
The author is an economics professor and head of the Institute for Future Strategy, Seoul National University.

Russian President Vladimir Putin is not just destroying Ukraine with his war but also the future of Russia. The country’s economy in 1990 before the collapse of the Soviet Union was 10 percent the size of the U.S. economy. By the late 1990s, it was just 2 to 3 percent of the U.S. economy due to persistent recessions and a weakening in the ruble. Russia’s economy began to rebound from the 2000s and became 14 percent the size of the U.S. economy by 2013. But the expansion stopped there. After the invasion of Ukraine, Russian talent supporting sustainable growth and foreign capital have fled the country, ruining its future. As long as Putin stays in power, they won’t return.

Ominous signs were already there. During a meeting in 2011, a president of a university in Moscow shared his concerns about the possibility of Putin — then a prime minister — returning to presidency after Dmitry Medvedev. Fearing Russia going back to autocracy, he vowed to leave the country if Putin returns to power. A year under Putin’s presidency, he indeed left Russia for good. According to the Russian Academy of Sciences (RAS), as many as 50,000 scientists left the country for research and work overseas from 2014 to 2019. They will unlikely return home after the war. An estimated 20,000 Russians abandoned their homes in the first 10 days of the war in Ukraine, according to Konstantin Sonin, a Russian-born economist at the University of Chicago.

McDonald’s has closed locations in Russia. The fast-food chain became a symbol of the arrival of American capitalism since it opened the first Russian outlet, in Pushkin Square, in January 1990. Customers lined up for hours to get a taste of the iconic Big Mac burger as well as the freedom and riches of western lifestyle. About 670 foreign companies have announced business suspensions or exits. Moscow is readying legislation enabling seizure of assets of companies under “unfriendly” country list if they leave Russia. But Russia’s future will become more bleak if such a predatory law takes effect. No company would wish to do business in Russia after their assets are confiscated.

Russian President Vladimir Putin makes a sign of the cross during an Easter service at the Cathedral of Christ the Savior in Moscow, April 24. [TASS/YONHAP]

But the problem is that there is no means to stop the war. Sanctions are not powerful. Seven Russian banks have been removed from the Swift messaging system that serves as the bloodline for global financial transactions. But financial settlements are possible through other Russian banks or China. Though foreign exchange reserves of the Russian central bank deposited at western countries have been frozen, Russia can survive for the time being on gold and Chinese yuan holdings. The country can still earn foreign currency through export of petroleum and gas. As shipments of petroleum and gas make up nearly half of Russia’s exports, earnings from them are 40 percent of government income. Despite sanctions on Russia, Western countries still have to rely on its oil and gas due to the impact on their economy. China and India who have not joined the sanctions could import more Russian energy than before.

Petroleum came to the rescue of Russia during its financial crisis. Moscow declared a moratorium on Russia’s foreign debt in 1998, but the economy rebounded sharply in the following year following the depreciation of the ruble during the final crisis and a surge in oil prices. America has been releasing strategic reserves to help contain the surging oil prices and inflationary pressure, not to mention preventing an increase in Russia’s income from fuel exports. But since some countries will not join the ban on Russian fuel imports, sanctions will have limited impact on Russia. The sanctions on Russia would have a relatively small effect compared to the ban on UN members from importing minerals from North Korea.

The fundamental force to stop the war would come from Russian citizens. But Putin’s approval rating shot up after the invasion, according to a poll by Levada Center, an independent pollster in Russia. The rating of 70 percent at the beginning of the year jumped to 83 percent in March. Of those polled, 69 percent said Russia is heading to the right direction, the most since the survey was first taken in the 1990s. Confusing today’s Russia with the Soviet Union is wrecking the country. Even though three decades have passed since Russia embraced democracy and market economics in 1992, many are nostalgic for the Soviet superpower days. Before embarking on the invasion, Putin argued for the need to restore the history of Slavs. He suppressed media outlets critical of him. The Democracy Index projects that media censorship in Russia has toughened to the level of China in 2021.

The Ukraine war must be ended militarily because sanctions and Russian people cannot stop it.
Translation by the Korea JoongAng Daily staff.