Russian Government Feels Pressure From Western Sanctions

David Greene talks to Izabella Kaminska of the Financial Times about the sanctions the West has imposed against Russia for its moves into Ukraine. In retaliation, Russia has imposed sanctions too.

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DAVID GREENE, HOST:

We have been following news out of Ukraine, where the government in Kiev has been claiming progress in their battle with pro-Russian separatists. Over the weekend a rebel leader said his troops were receiving equipment and training in Russia; something the Kremlin has vehemently denied. But Western countries have been punishing Russia for months for stoking tensions in Ukraine. There was a first wave of sanctions in March, targeting powerful figures in Vladimir Putin's inner circle. And last month following the downing of a commercial airliner over a rebel-held area of eastern Ukraine, the west imposed broad sanctions against the defense, energy and financial sectors of the Russian economy. Russia retaliated, banning the import of many food products from the West.

Now, these decisions have the potential to affect people, not just the elite. To learn more, we've reached Izabella Kaminska with the Financial Times. She told us that pressure on Russia has led the government there to raise interest rates, propping up the Russian currency.

IZABELLA KAMINSKA: The fact that they're having to raise interest rates to keep their money in the country and to stop it fleeing is very indicative of who has the upper hand, I would say. It is a problem for the ordinary people because it affects anyone who has mortgages or loans in Russia, and because Russia is not the most equal society, it is going to be a big problem, I would say, in the future.

GREENE: Of course, we saw Russia try to gain the upper hand and they hit Europe with sanctions, these countermeasures; the biggest ban on importing many food products coming from the West. Is that hurting business in Europe?

KAMINSKA: Yeah, that's been a very big talking point here. That ban came in August - I think it was August 8 that it was initiated - and it's going to affect predominantly Russia's main trading partners in the EU, countries like Poland, Hungary, Bulgaria. They import a lot of food and produce from these countries, about 13 percent, according to Western analysts. In Poland, it's been a really big thing and there are campaigns for example, now because people are worried about all their farmers; what are they going to do with the surplus produce now that they can't sell it to Russia. So there's a campaign for example, to encourage people to eat Polish apples. So they're calling it Freedom Apples because you know, if you eat a Polish apple today, it's a way to boycott the Putin ban.

GREENE: So let me just ask you - in Germany, which is known for having a very strong economy, 70 percent of people, according to a poll, support these strict sanctions on Russia. Does that apply as well, in a country like Poland?

KAMINSKA: Support is very high because Poland has a very strong history, obviously, with Russia and the mood and the morale in Poland is always going to be in favor of the West. So anything like this is going to bring out the people and it certainly has already. You know, they're looking at different supply chains - it'll take a while to arrange them, but I think people are confident that we won't be as touched by these bans as Russia is by having us not contribute to them. The main concern in Poland and Hungary and Bulgaria is that the effects will be deflationary. But the thing about deflation is that you can manage deflation by adding money into the system much more easily. The produce is there; it just has to be consumed or diverted. In Russia the problem is inflation, they're not going to have those items. And it's very hard to like, suddenly manufacture a huge import of, I don't know, raspberries or apples out of nowhere. So that creates pricing pressure, and when you see empty shelves in the supermarkets that is really very bad for the Russian propaganda machine, I would say.

GREENE: Izabella, let me just ask you - you're suggesting that the West really has the upper hand here. And I know there is no way to get into Vladimir Putin's head and totally understand his motivations, but let's say in the coming months that the progress that the Ukrainian government has made in ending this rebellion and this pro-Russia separatist movement ends. Has enough been done here that people might point to these sanctions and say, they really played a key role in pressuring Putin?

KAMINSKA: I think they could, very well, because the sanctions really show that the U.S. and Europe, they're the ones in control when it comes the money markets in the world and the capital markets. And Russia depends as much on those capital markets as we depend on their oil. And in fact, because of increasing independence on the oil and gas front, we are gaining an upper hand like we've never had before when it comes to Russia. When you think about how Russia spends - well, how the Russian oligarchs spend their money - they don't spend that money back in Russia, they spend it in the South of France, they spend it in London. So that also leaves us with an upper hand because guess what - we can always deprive them access. And what's really sad about the situation is that Russia had this amazing opportunity to use the oil wealth it had to reinvest it in its own country and it wasted that opportunity, to a certain degree. The sanctions are going to show us to what degree they wasted that opportunity because if inflation goes up, if capital leaves the country even more than it has already, we will see that they didn't really make very impressive steps on rescuing their own economy; it was more cosmetic and it was more about empowering this more elite and allowing them to have a very privileged lifestyle in the West.

GREENE: Izabella Kaminska is a reporter for the Financial Times. She joined us on the line from London. Izabella, thank you very much.

KAMINSKA: Thank you, it was a pleasure.

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