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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Hey Sarah here today on The Big Take, We're bringing

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Speaker 2: you an episode hosted by my colleague Sliah Mosen. She

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Speaker 2: covers policy, politics and power and hosts the DC version

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Speaker 2: of the show, The Big Take DC. You can find

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Speaker 2: it and follow wherever you get your podcasts. I'll be

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Speaker 2: back tomorrow.

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Speaker 3: In February twenty twenty two, Russian forces stormed across the

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Speaker 3: border into Ukraine and triggered one of the greatest military

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Speaker 3: crises in Europe in nearly eight decades. America, in over

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Speaker 3: thirty of its allies joined together to impose the harshest

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Speaker 3: economic sanctions any nation has ever experienced. The goal was

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Speaker 3: to punish President Vladimir Putin and to drain the resources

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Speaker 3: that kept his war going in those first few months

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Speaker 3: of the war. Those sanctions aimed at Russia also hit

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Speaker 3: the wallets of Americans. When the US banned Russian oil imports,

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Speaker 3: gasoline costs jumped twenty percent. President Joe Biden told the

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Speaker 3: American public at the time that this was the price

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Speaker 3: they had to pay to combat Russia's aggression.

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Speaker 2: The decision today is not without cost.

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Speaker 3: Here at home, Foodin's war is already hurting American families

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Speaker 3: at the gas pomp. Back then, polls showed that most

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Speaker 3: Americans said it was worth it. They were willing to

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Speaker 3: pay more for gas if it meant stopping the war.

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Speaker 3: But two years have passed and the war is still

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Speaker 3: going on, and while gasoline prizes have fallen, America has

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Speaker 3: spent tens of billions of dollars on aid to Ukraine

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Speaker 3: and is debating more, and the White House has announced

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Speaker 3: new substantial sanctions. Today on the show, as US lawmakers

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Speaker 3: debate more aid to Ukraine and as the White House

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Speaker 3: unveils new sanctions tied to the death of Alexei Navaldi

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Speaker 3: and the anniversary of the war, we take stock of

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Speaker 3: US led sanctions on Russia. Two years out, we'll hear

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Speaker 3: from the US Treasury Department's first ever Chief Sanctions economist.

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Speaker 4: Sanctions have been very effective and god things up making

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Speaker 4: this very painful process for Russia. It's ultimately changed the

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Speaker 4: structure of the Russian economy.

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Speaker 3: And another economist, one who was working at Russia's Central

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Speaker 3: Bank when the invasion happened.

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Speaker 1: I remember how Jenetiellen said in March twenty tiny two

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Speaker 1: s as the sanctions will devastate Russian economy. But well,

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Speaker 1: two years later, I can definitely say that the Russian

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Speaker 1: economy is very much alive.

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Speaker 3: What did all of these sanctions add up to and

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Speaker 3: where do they leave the US and Russia? Now from

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Speaker 3: Bloomberg's Washington Bureau, this is the Big Take DC podcast.

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Speaker 3: I'm Saliya Moosim. Let's go back to February twenty fourth,

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Speaker 3: twenty twenty two, those first hours after Russia invaded Ukraine.

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Speaker 5: I can remember walking around seeing, you know, pictures of

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Speaker 5: Ukrainian men, women, children huddling in underground platforms were falling.

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Speaker 5: Kiev was supposed to fall in days, and I think

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Speaker 5: the world had never seen anything like this since World

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Speaker 5: War Two. You know, this was a land war on

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Speaker 5: the European continent.

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Speaker 3: That was Bloomberg's Dan Flatley. He covers US sanctions. Just

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Speaker 3: days after the invasion, the US, European allies and others

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Speaker 3: announced sweeping financial restrictions on Russia.

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Speaker 4: As an outside observer, I'd say kind of very important

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Speaker 4: moment and the history of imposition of sanctions just in

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Speaker 4: terms of how coordinated and multilateral a lot of the

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Speaker 4: activity was and how swift it was imposed.

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Speaker 3: That's Rachel Lingos. At the time Russia invaded Ukraine, she

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Speaker 3: was an outside observer, but now she works inside Treasury

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Speaker 3: as its chief sanctions economists. Her job is to analyze

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Speaker 3: whether American sanctions are working, which is a tough thing

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Speaker 3: to measure. Data from targeted countries is often unreliable, so

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Speaker 3: she has to piece together information from tons of different sources.

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Speaker 3: But she told told me that the key to measuring

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Speaker 3: the efficacy of sanctions is identifying their goals. Back in

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Speaker 3: February twenty twenty two.

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Speaker 4: Two prongs. One is to deny Russia the ability to

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Speaker 4: acquire weapons and technology they need to prosecute this war

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Speaker 4: in Ukraine, and number two, to reduce the revenues made

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Speaker 4: available to President Putin to fund this war.

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Speaker 3: One of the first things America and its allies did

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Speaker 3: was to cut Russia off from a body called SWIFT.

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Speaker 3: It stands for the Society for Worldwide inter Bank Financial Telecommunications,

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Speaker 3: but it's easier just to think of it like the

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Speaker 3: GMAIL of the banking system. It's a way that banks

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Speaker 3: around the world transfer money in a secure way.

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Speaker 5: Cutting Russia off of SWIFT was seen as something that

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Speaker 5: would never ever happen. Because the financial system is dependent

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Speaker 5: on transparency and making sure that everybody's talking to each other.

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Speaker 5: So it was sort of seen as kind of one

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Speaker 5: of the red lines that the US ended up crossing

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Speaker 5: along with its allies.

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Speaker 3: And what did it mean for Russia.

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Speaker 5: For Russia, it basically meant no access to the worldwide

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Speaker 5: financial system, at least no easy access.

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Speaker 3: It was one of the first indicators of just how

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Speaker 3: much these policies that were meant to squeeze Putin would

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Speaker 3: involve the rest of the world. Another one of those

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Speaker 3: signs was that pain at the pump that Biden described.

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Speaker 3: The US and its allies sanctioned countless Russian individuals, businesses,

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Speaker 3: and even yachts, and banned imports of Russian oil that

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Speaker 3: limited gasoline supply and hiked up prices in the US.

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Speaker 3: But the interconnected nature of the global economy also worked

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Speaker 3: to America's favor. Countries like Russia don't keep all their

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Speaker 3: money in local banks or national currency. They saw a

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Speaker 3: good chunk.

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Speaker 5: Of it abroad, and essentially, because it's in dollars and

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Speaker 5: because it's in euros, the Japanese yen, and other currencies,

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Speaker 5: the G seven was able to basically say we're locking

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Speaker 5: this down and you don't have access to it anymore,

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Speaker 5: which is really almost without precedent in the modern era.

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Speaker 3: In other words, the US and its allies that made

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Speaker 3: up the Group of Seven essentially cut the Russian government

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Speaker 3: off from hundreds of billions of dollars of its own money.

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Speaker 4: I believe it was the Sunday after the invasion actually

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Speaker 4: that nearly half abound three hundred billion of these foreign

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Speaker 4: exchange reserves were suddenly immobilized.

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Speaker 3: So in those first few days, the US led the

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Speaker 3: world in immobilizing Russia's reserves, cutting it off from swift,

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Speaker 3: and sanctioning hundreds of people, businesses, and entities.

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Speaker 4: I think all in all, thirty countries fifty percent of

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Speaker 4: global GDP had some measures that they imposed on Russian.

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Speaker 3: So what did all of this do to the Russian economy?

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Speaker 4: I think it's important to kind of take a look

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Speaker 4: at the framing of where the Russian economy was kind

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Speaker 4: of prior to that moment in February twenty twenty two,

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Speaker 4: the Russians had built up a really sizable fiscal buffer

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Speaker 4: over many years of fiscal discipline. They were coming out

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Speaker 4: of COVID, and the expectations was that their economy would

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Speaker 4: grow anywhere between two point five to three point five

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Speaker 4: percent that year, and then you have a steady drum

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Speaker 4: beat of sanctions and different sectors, you know, different financial institutions,

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Speaker 4: not just the United States, but other allies and partners.

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Speaker 4: So what was the impact on the Russian economy? Well,

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Speaker 4: I think we can immediately point to the collapse and

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Speaker 4: imports around eleven percent overall for that year, and then

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Speaker 4: there were massive capital outflows as well, and I think

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Speaker 4: that according to the IMF's latest projections published earlier this month,

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Speaker 4: there's ultimately a contraction of about one point two percent

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Speaker 4: of GDP that year.

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Speaker 3: So Russia's economy shrunk. But as Lingus told me, that

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Speaker 3: doesn't mean Russia and its citizens weren't able to find

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Speaker 3: ways around the sanctions.

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Speaker 4: It's kind of like analogous to having a rock and

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Speaker 4: like putting it in a stream of water. You know,

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Speaker 4: over time, like water is going to find a way

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Speaker 4: around the rock. So in terms of how the authorities respond,

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Speaker 4: while they were able to stem some of that bleeding

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Speaker 4: by imposing a set of very draconian capital controls to

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Speaker 4: try and prevent money from continuing to leave the country.

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Speaker 3: Like raising interest rates to stabilize the plummeting ruble and

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Speaker 3: limiting bank withdrawals in Western currencies.

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Speaker 4: And they provided capital from the Central Bank to support

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Speaker 4: the financial sector and use their National Wealth Fund, which

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Speaker 4: is their sovereign wealth fund, to also help support their economy.

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Speaker 5: I think the reality is that Putin has found a

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Speaker 5: way around the sanctions.

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Speaker 3: My colleague Dan Flatley, again, it's.

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Speaker 5: Not as though the entire Russian financial system has been

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Speaker 5: cut off from the world. There are loopholes. Putin's able

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Speaker 5: to get a lot of the technology into the country

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Speaker 5: through the help of allies like China. He's able to

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Speaker 5: get weapons from Iran and North Korea, and he's able

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Speaker 5: to basically get his oil out still under the price cup.

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Speaker 3: Wealthy Russians found loopholes too. They started buying up Bulgari

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Speaker 3: watches and other luxury items as a way to maintain

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Speaker 3: their savings, even as the ruble rapidly lost its value.

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Speaker 3: I wanted to talk to someone who'd seen the impact

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Speaker 3: of sanctions from inside Russia, so I caught up Dennis Kostenschuk.

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Speaker 3: He's an economics editor for an independent Russian media outlet

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Speaker 3: called The Bell, from where he sits crunching the numbers

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Speaker 3: in Russia's economy. Costinchuk isn't so impressed by US sanctions

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Speaker 3: two years into the war.

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Speaker 1: Honestly, it seems to me that sanctions have run their course.

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Speaker 1: It is hard to say that Rasian economy is devastated

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Speaker 1: at this moment, because a week ago the Russian Statistical

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Speaker 1: Agency dropped its numbers about the growth of Russian economy.

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Speaker 1: So in twenty twenty three is the Russian economy grew

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Speaker 1: by three point six percent.

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Speaker 3: Russian factories were able to keep up manufacturing. They just

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Speaker 3: got their raw materials from new sources.

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Speaker 1: Last year, I made a research and found that Russia

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Speaker 1: increased imports from neighbor countries by almost forty percent in

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Speaker 1: the first half of twenty twenty three compared to the

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Speaker 1: same period in twenty twenty two. So Russian companies just

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Speaker 1: buy all the components they needed from the neighbor countries

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Speaker 1: like Armenia, Kazakhstan, Uzbekistan, Georgia and Seoul.

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Speaker 3: Bloomberg Is reported that Russia actually managed to import over

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Speaker 3: a billion dollars worth of American and European microchips last

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Speaker 3: year for use in war technology. That's because the chips

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Speaker 3: went through neighbor countries, so they weren't blocked by sanctions

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Speaker 3: that would require additional export controls. But Treasury's Linga says

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Speaker 3: it's not so simple. Just because the Russian economy is

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Speaker 3: growing does not mean that all GDP growth is created equal.

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Speaker 4: The initial reaction is like, oh, things are looking so resilient.

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Speaker 4: But I think for when you start to get into

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Speaker 4: the data and kind of like what's driving GDP, these

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Speaker 4: are where these distortions really start to emerge.

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Speaker 3: Coming up. We dive into the data to see how

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Speaker 3: these sanctions have reshaped the Russian economy and find out

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Speaker 3: how America and its allies feel about the sanctions now.

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Speaker 3: In January, the International Monetary Fund revised its projections for

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Speaker 3: Russia's economic growth this year. It said, actually, we think

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Speaker 3: it's going to be more than double what we predicted

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Speaker 3: back in October. That may make Russia sound strong and

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Speaker 3: US led sanctions weak, But Rachel Lingos, the chief sanctions

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Speaker 3: economist at Treasury, says that Russia's GDP growth last year

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Speaker 3: was driven by military production.

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Speaker 4: There's been this fundamental shift in the whole structure of

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Speaker 4: the economy. It's very much driven now by military spending.

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Speaker 4: This is a third of Putin's proposed budget now for

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Speaker 4: this year, one hundred billion dollars. That's a seventy percent

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Speaker 4: increase over the prior year.

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Speaker 3: That comes at the expense of investing in social welfare.

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Speaker 4: Things that make people's quality of life better Russia Consultavane.

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Speaker 3: Russian economic analyst Dennis costenschook again in.

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Speaker 1: The ideal world of reals of war as a state

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Speaker 1: good to invest this money to build a civilian infrastructure,

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Speaker 1: to invest this money in science, to invest this money

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Speaker 1: in healthcare. But in this case Russia had a lot

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Speaker 1: of money just to invest this money into the war.

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Speaker 3: All that investment in war at the expense of investing

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Speaker 3: in people. Let's take it a toll.

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Speaker 4: There's been this severe brain drain. Not only is there

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Speaker 4: this horrible loss of life of kind of prime age

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Speaker 4: workers that have been drafted and are just dying. On

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Speaker 4: the other hand, you have a massive amount of emigration.

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Speaker 4: My team and I looked at figures just coming from

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Speaker 4: the Central Russian Bank to come up with about seven

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Speaker 4: hundred thousand people bless the country. But I've seen estimates

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Speaker 4: that range around one million. That's a huge percentage of

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Speaker 4: the population.

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Speaker 3: Costanschuk is one of those people. Before the war, he

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Speaker 3: was working as an analyst at Russia's Central Bank.

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Speaker 1: After the words started, I decided with my wife to

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Speaker 1: leave Russia, and because my wife is Spanish, we had

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Speaker 1: a chance to move to Spain.

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Speaker 3: If you ask Lingos, the impact of losing people like

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Speaker 3: costnshook this brain drain. It's going to compound over time.

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Speaker 4: This is painful for them because these are the future

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Speaker 4: growth potential of the society. Like that's where all the

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Speaker 4: innovation comes from for an aging society, especially post communist society,

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Speaker 4: where huge chunk of the budget is kind of social protections,

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Speaker 4: social welfare pensions. This is kind of where you're able

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Speaker 4: to generate the future income to finance some of those pensions.

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Speaker 4: Is more and more people retire, but those people leaving

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Speaker 4: the less innovation. I think in the long term, the

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Speaker 4: prospects look very dim.

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Speaker 3: Part of what makes Lingos's job so hard is measuring

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Speaker 3: the less tangible effects of sanctions, and she says one

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Speaker 3: of those effects that shouldn't be ignored is Russia's injured

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Speaker 3: status on the world stage.

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Speaker 4: There's an incalculable reputation lost. There is something toxic if

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Speaker 4: you will. And this kind of comes from my conversations

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Speaker 4: with private sector business community, financialists that you've sort of

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Speaker 4: just being associated with Russia. Right, So those are some

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Speaker 4: of the incalculable loss of prestige, the ability to project

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Speaker 4: power overseas.

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Speaker 3: Two years out. It's easy to jump to conclusions. One

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Speaker 3: common one is that sanctions failed to end the war.

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Speaker 3: But Lingos and I were reflecting on those first moments

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Speaker 3: after Russia's invasion back in twenty twenty two. At that time,

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Speaker 3: the fear that I heard from sources that I spoke

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Speaker 3: to before the sanctions came down are right as they did,

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Speaker 3: was that we need to do it now. We need

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Speaker 3: to move fast, go through the weekend to get this done,

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Speaker 3: because it's possible that Kiev could fall in seventy two

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Speaker 3: hours and it's actually over, and that has not happened.

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Speaker 4: And I guess on the flip side, if you look

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Speaker 4: at the perspective of like Russia's leaders and Putin also

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Speaker 4: thought that Kiev was going to fall in a matter

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Speaker 4: of days and this would be over. But now things

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Speaker 4: are very different for them. They're ultimately in a situation

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Speaker 4: where they're facing very painful trad there's fractures in the system,

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Speaker 4: there's a lot of tension in the economic policy making apparatus,

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Speaker 4: and those things aren't going to go away.

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Speaker 3: Is Russia just changed forever now?

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Speaker 4: I think policy makers in Russia, like if I put

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Speaker 4: myself in their shoes, they're backed into a very uncomfortable corner.

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Speaker 4: A lot is being subsumed in these goals of expansionists

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Speaker 4: acquiring more territory in Ukraine, and that comes at the

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Speaker 4: expense of like general welfare of the population. So is

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Speaker 4: Russia forever changed? I think that as long as Putin's

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Speaker 4: current leaderships prioritizes those goals above all others, then inevitably

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Speaker 4: there's sacrifices right that that society is making, and there's

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Speaker 4: very increasingly, very painful trade us. And yes, I do

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Speaker 4: think that we're at the point now where being able

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Speaker 4: to reverse that would be I think impossible.

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Speaker 3: Thanks for listening to The Big Take DC podcast from

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Speaker 3: Bloomberg News. I'm Salaiah Mosen. This episode was produced by

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Speaker 3: Julia Press and Naomi Shaven. It was fact checked by

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Speaker 3: Stacy Renee. Blake Maples is our mix engineer. Our story

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Speaker 3: editors are Michael Shepherd, Wendy Benjaminson, and Caitlin Kenny. Nicole

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Speaker 3: Deemsterboer is our executive producer. Stage Bauman is our head

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Speaker 3: of Podcasts. Thanks for tuning in, I'll be back next week.