Tag Archives: Sanctions

sanctions: the evidence

In my recent post about the Canadian House of Commons defence committee’s report on Ukraine, I complained that the committee had recommended strengthening sanctions against Russia without producing any evidence that sanctions were an effective tool in changing Russian behaviour. As luck would have it, I have acquired a copy of a recent report which analyzes the effect of sanctions on the Russian economy. I thought, therefore, that I should share the report’s conclusions with you.

Before doing so, it’s first necessary to point out that damaging the Russian economy isn’t the ultimate point of sanctions. If sanctions are to have any meaningful purpose, then that purpose has to be to change Russian behaviour, specifically vis-à-vis Ukraine, given that Ukraine was the pretext for the sanctions. That said, sanctions aren’t going to make Russia change its behaviour if they don’t damage the Russian economy. Coercion has to hurt if it is to coerce. No pain, no gain, as it were. So are they hurting?

The report I have in hand is entitled ‘What difference have sanctions made and is that about to change?’ It was published in September by Macro Advisory Eurasia-Russia Consulting which describes itself as ‘the leading independent macroeconomic and political strategy firm specialising in the Eurasia region, including Russia and the CIS states.’ The report concludes that, ‘it is impossible to say categorically that sanctions have either significantly contributed to the economic decline [in Russia since 2014] or that they have helped the economy survive what would otherwise have been a more severe recession.’ However, the report’s authors tend more towards the latter option, saying that ‘sanctions helped in many respects.’

According to the report, the Russian economy was slowing down even before 2014. The major cause of the subsequent recession was the collapse in the oil price. The impact of sanctions was very small. However, sanctions did affect the way that the Russian government responded to the oil-price-driven recession. Following the global financial crisis of 2008, the government reacted by spending large amounts of its reserves on propping up the ruble, and also by increasing government spending more generally in a type of Keynseian counter-cyclical strategy. In 2014, it abandoned this policy. Instead it allowed the ruble to become a free-floating currency, while it also exercised a tight monetary policy designed to drive down inflation.

The report’s authors credit this latter strategy with preventing the post-2014 recession from becoming as deep as many feared it would be. They write:

Sanctions removed, or made more difficult, the soft options of borrowing and spending … The combination forced the state to be much more fiscally disciplined and more flexible with monetary policy. The ruble free float would not have happened without sanctions. … the decision to stop supporting the currency was the single most important action taken by the government and one of the key reasons why sectors, such as agriculture, have become more competitive and started to grow. … [Therefore] it can be argued that the 2014 sanctions actually helped Russia avoid a steeper recession and a more severe financial crisis.

The report says also that the sanctions forced the oil and gas sector to become more efficient, resulting in an increase, not a decrease, in production after 2014. In general, says the report,

Russia is in good financial shape. … Russia is the sixth-lowest indebted nation and has the sixth-largest financial reserves. … As a result of the sanctions, Russia was forced to repay $250 bn of external debt between 2014 and 2016. That represented 12.5% of pre-devaluation GDP and 25% of post-devaluation GDP. Not many countries in the world could have done that and still avoid a catastrophic crisis. It shows the resilience in the macro-economic and social-political system.

What then of the future?

On this Macro Advisory is a little more cautious. It claims that a lot depends upon the effects of the latest sanctions legislation passed by the US Congress. With this legislation, Congress has effectively seized control of sanctions from the president. Given past experience (e.g. with Cuba, Iran, and the Jackson-Vanik amendment which imposed sanctions against the USSR), the likelihood is that the existing sanctions against Russia will remain for a very long time, regardless of what happens with US-Russia relations more broadly. The new legislation is disturbing, moreover, because it contains stipulations which could be used to dramatically increase sanctions against Russia in the future. This possibility creates a degree of uncertainty which deters foreign direct investment (FDI) in Russia. Currently FDI in Russia is rising again, but that could easily change. A much harsher sanctions regime is possible, and that, says the report, could have a negative effect on the Russian economy.

The report lays out three possibilities. The first involves a relaxation of sanctions by European powers. The second sees sanctions remaining as they are. The third envisages much tighter US sanctions. The report assesses that in the first scenario, growth in Russian GDP will pick up to 3.0% by 2020, accelerating to 4.5% by the end of Putin’s final term in office in 2024. In the second scenario, growth will gradually rise to 3.0% by 2022 and remain roughly constant at that level thereafter. In the third scenario, growth will drop to 0.8% by 2020 before increasing to 2.3% by 2024.

Personally, I suspect that scenario two is the most likely – things will continue on much as they are. If the authors are correct, therefore, we should expect that, barring some external shock such as another global recession, during Putin’s final term in office the Russian economy will experience steady if not extremely rapid growth, ending up with three years of 3.0% growth per annum. That’s not enough to catch up with the West, but it’s not bad either, and certainly sufficient to put a noticeable amount of extra money in Russians’ pockets. If that’s really true, then economically speaking Putin’s last years will be a moderate success from an economic point of view.

Of course, these are all just projections and, as we know, economists often get their projections wrong. Nevertheless, none of this is good news for those who think that sanctions are an effective tool against ‘Russian aggression’ or who imagine that the collapse of the ‘Putin regime’ is just around the corner.

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What’s the objective, and how does this help achieve it?

Today the Canadian government announced that it had added Ukraine to the Automatic Firearms Country Control List, which is a list of countries deemed to be permitted destinations for the export of firearms. This does not necessarily mean that Canadian companies will immediately start exporting weapons to Ukraine, but it does mean that they are now allowed to do so.

Ukraine, of course, is hardly short of firearms. It’s hard to see what difference a few from Canada will make. Nevertheless, one can see this as another victory for Canada’s Ukrainian lobby, coming just a day after the House of Commons Standing Committee on National Defence issued a report on Ukraine which included a recommendation to add Ukraine to this list. The report drew heavily on statements by Ukrainian officials, the president of the Ukrainian Canadian Congress, Paul Grod, and some other Canadian-Ukrainian activitists such as Taras Kuzio and Lubomyr Luciuk. The fact that the government acted on one of its recommendations within a day must be something of a record for speed.

There’s a lot wrong with the standing committee’s report, which you can read here. I won’t bother listing all its problems, but they include a poor understanding of the origins and nature of the war in Donbass, and an extremely one-sided perspective on all issues relating to Ukraine and Russia. But that’s not what I want to talk about here. What concerns me is the detachment of the policy recommendations from any clear objective, and the lack of evidence to support the recommendations.

When presenting any policy proposals, what one needs to do is first explain one’s objective, and second explain how the recommended policies will help one to achieve the objective. If the objective isn’t credible, and if the policies won’t help one achieve it, then the recommendations are worthless. In this case, the defence committee report recommends, among other things, that:

  • Canada expand its training and support of the Ukrainian army.
  • Increase its commitment to the OCSE monitoring mission in Donbass.
  • Advocate for a ‘peacekeeping mission in Ukraine that respects its territorial integrity’.
  • ‘Provide lethal weapons to Ukraine … provided that Ukraine demonstrate that it is actively working to eliminate corruption.’
  • Add Ukraine to the Automatic Firearms Country Control List.
  • Encourage cooperation between Ukrainian and Canadian defence industries.
  • Assign members of the Canadian Armed Forces to Ukraine’s cyber-security operations.
  • Expand sanctions against Russia.

My question to the committee is this: ‘What is this all meant to achieve?’ The report doesn’t actually lay out any objectives, so we can’t tell whether these recommendations are relevant or how one could measure their success. This is a pretty serious failing.

About the only place where there is a hint of the committee’s idea of what it hopes for is a section entitled ‘Conflict Resolution and Prevention in Ukraine’. In that section, we are told that , ‘Canada and the international community are trying to find peaceful solutions to the conflict in Ukraine’ So, the committee wants to promote peace in Ukraine. But what does the committee think a peaceful solution would look like? That’s not clear, as the report doesn’t say. But it does cite Paul Grod as follows:

Mr. Grod noted that, as long as Russia is not prepared to ‘have a resolution and stop the ongoing conflict and military aggression,’ Minsk II will never be implemented. In his opinion, Minsk II is ‘stale-dated’ and the ‘simple way’ to ‘bring peace and stability’ to Ukraine is ‘to force Russia’s hand to remove their military, their equipment, and their financing of the separatists’ in the Donbas region; Russia must agree ‘to stop the war in Ukraine.’

In other words, the objective is the total surrender of rebel Donbass, and the chosen means of achieving this end is ‘to force Russia’s hand’ – i.e. coercion.

This is dumb. It’s dumb because it is totally unachievable. The rebels in Donbass aren’t just going to give up. The report says that the rebels have 35,000 men under arms. I have never heard of an undefeated army of that size simply deciding one day that they’ve had enough and will lay down their arms to their enemies and put themselves at their mercy. It won’t happen. The report seems to think that everything depends on Russia, and that if Russia can simply be coerced sufficiently it will abandon Donbass. It won’t. Russia won’t stop supporting the rebels without receiving something extremely tangible in return. Complete Ukrainian victory of the sort apparently favoured by the defence committee is a fantasy.

The report says that, ‘Witnesses told the Committee that Canada and the international community must stand together in trying to find a peaceful solution to the armed conflict in Ukraine.’ So, if a peaceful solution can’t take the form of the total surrender of Donbass, what could it take the form of? The only two alternatives are: a) a negotiated peace settlement, and b) a complete ceasefire, perhaps enforced by peacekeepers, dividing the sides and in effect freezing the conflict. Will the report’s recommendations help achieve either of those?

The answer is no. A negotiated settlement would have to take the form of something like Minsk II, but unconditional support of Ukraine of the sort proposed by the committee doesn’t provide any incentives to Kiev to change its current policy of refusing to enact the Minsk provisions. The report’s recommendations merely encourage Kiev to carry on its current course. The recommendations therefore undermine peace, not promote it.

As for the frozen conflict option, the Canadian recommendations are equally irrelevant. The report spends a lot of time talking about a potential peacekeeping operation. This is absurd. There is currently no peace to keep. In any event, the committee totally supports the Kiev government’s line on what a peacekeeping operation should consist of – forces deployed throughout the rebel republics, including on the border with Russia. Neither the rebels nor Russia will ever agree to this. It’s pointless proposing it. Insisting on this formula serves only to rule out the possibility of an alternative which could actually stop the killing – a peacekeeping force along the front lines. By rejecting this latter formula, the Canadian committee is once again working against peace, not in favour of it.

What we see here, therefore, is a stubborn refusal to choose achievable objectives combined with recommendations which are in any case detached from any objective, and without the provision of any evidence that the recommendations can help produce successful results. The committee, for instance, favours increased sanctions versus Russia without providing any data which shows that sanctions have in any way altered Russian behaviour in a desired way, justifying the decision solely on the basis of unbacked assertions by certain interested parties. This is not ‘evidence-based policy.’

There was a time when Canada was seen as a peacekeeper and an ‘honest broker’ in international relations. Alas, those days are in the past.

Grandstanding

Yesterday the Canadian Senate passed the lengthily-titled Act to provide for the taking of restrictive measures in respect of foreign nationals responsible for gross violations of internationally recognized human rights and to make related amendments to the Special Economic Measures Act and the Immigration and Refugee Protection Act, more commonly known by its ‘short title’, Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law).

The Act gives the government of Canada the authority to seize, freeze, or sequestrate the property of a foreign national in the event that the said foreign national does any of the following things:

(a) is responsible for, or complicit in, extrajudicial killings, torture or other gross violations of internationally recognized human rights …

(b) … acts as an agent of or on behalf of a foreign state in a matter relating to an activity described in paragraph (a);

(c) … is responsible for, or complicit in, ordering, controlling, or otherwise directing, acts of significant corruption. …; or

(d) … has materially assisted, sponsored, or provided financial, material or technological support for, or goods or services in support of, an activity described in paragraph (c).

On the face of it, this is all very fine. If people are responsible for “extrajudicial killings, torture, or other gross violations of internationally recognized human rights,” or for “acts of significant corruption,” then why should Canadians tolerate them? Aren’t sanctions against them a perfectly reasonable response?

It’s hard to argue against that. If one does, one appears to be saying that “gross human rights violations” and “significant corruption” are perfectly fine, which of course they’re not. So what could possibly be wrong with this Act?

Continue reading Grandstanding

Straight shooting from the UK

The Bow Group, ‘the United Kingdom’s oldest conservative think tank’, is as ‘Establishment’ an institution as one could hope to find. Its board includes prominent former Conservative cabinet ministers such as Norman Tebbit and Geoffrey Howe as well as right-wing academics like philosopher Roger Scruton. I was intrigued, therefore, to hear its chairman, Ben Harris-Quinney, announce last week that, ‘the theory of neo-liberal interventionism is bankrupt.’

The context of Harris-Quinney’s remarks was the publication of a new Bow Group report entitled ‘The Sanctions on Russia’. In the report’s introduction, editor Adriel Kasonta declares:

Given that many people in Ukraine actually consider themselves to be Russian, and that the justifications for sanctions may have shifted, it appears necessary to revise our approach to what could be considered one of the greatest challenges of the 21st century. We might do worse than explore for [sic] a peaceful solution to this crisis, engaging EU member states and Russia in a meaningful and inclusive dialogue.

Continue reading Straight shooting from the UK

Cheesy liberals

I have written some unkind words before about Russia’s liberal opposition. Let me be clear: this not because I am illiberal, or think that Russia wouldn’t benefit from having a more liberal order. Far from it. Rather, my criticisms derive from my sense that the people who publicly represent what is called ‘liberalism’ in Russia do a very bad job of it, in part because they give the impression of not liking their own country very much and preferring all things foreign. This makes many of their compatriots dislike them and what they stand for. Consequently, they harm the process of liberalization from which Russia would benefit.

Today’s New York Times contains a classic example: an article by Masha Gessen complaining that because of the Russian government’s counter-sanctions it’s impossible to buy proper Western European cheese in Russia any more – all that’s available is disgusting Russian muck. But not to worry, because Masha’s rich friends are able to pick up the good stuff at the Caviar House & Prunier Seafood Bar in the departure lounge of Heathrow airport’s Terminal 4, which is apparently doing a roaring trade in cheese for travelling Russians.

Who are these people who are still able to take holidays in Europe despite the depressed ruble, and furthermore are able to afford the extortionate prices of the shops in Terminal 4? Not your average Russian, one can be certain. Gessen’s article seems to me quite extraordinarily out of touch. It also overflows with the sensation that everything Russian is awful (for instance, ‘the reappearance of Soviet-era cheese, with its unparalleled blandness and waxlike texture’), while everything Western is superior. This is perfectly expressed in the following passage:

‘It’s my first time in Europe after all that’s happened,’ the journalist and filmmaker Inna Denisova, a critic of the annexation of Crimea, wrote on her Facebook page in February. ‘And it’s exceedingly emotional. And of course it’s not seeing the historic churches and museums that has made me so emotional — it’s seeing cheese at the supermarket. My little Gorgonzola. My little mozzarella. My little Gruyère, chèvre and Brie. I held them all in my arms — I didn’t even want to share them with the shopping cart — and headed for the cash register.’ There, Ms. Denisova wrote, she started crying.

If you want to know why Russian liberals languish at about one percent in the opinion polls, you have your answer right there.

Sanctioning Eurasianism

As I mentioned in a previous post, I’m not a great fan of the theory of Eurasianism. I also think that its philosophical influence on modern Russia is exaggerated. The Canadian Department of Foreign Affairs, Trade and Development (DFATD) seems to disagree, for this week Eurasianism became the latest target of Canadian sanctions against Russia.

On Monday (29 June), DFATD announced that since ‘the actions of the Russian Federation constitute a grave breach of international peace and security that has resulted or is likely to result in a serious international crisis’, the Governor General, ‘on the recommendation of the Minister of Foreign Affairs’ had added three individuals and 14 organizations to the list of those sanctioned by Canada. The three individuals are Eurasianist philosopher Aleksandr Dugin, and two of the leaders of the Eurasian Youth Union, Pavel Kanishchev and Aleksandr Kovalenko. The same Eurasian Youth Union then leads the list of newly sanctioned organizations.

So what has Canada got against Eurasianism?

The first mystery is the timing of the sanctions. Nothing special has happened in Russia or Ukraine in the past few weeks, so there doesn’t seem any obvious reason to impose more sanctions on Russia right now. The only explanation I can come up with is domestic politics. Strange though it may seem, there are at present some rumblings of disapproval in the Canadian Ukrainian diaspora about Canadian government weakness vis-à-vis Russia. Prime Minister Stephen Harper has not approved sending weapons to Ukraine, and he has also resisted throwing Russia out of the SWIFT bank transfer system. Opposition Liberal leader Justin Trudeau, by comparison, has said that if his party wins October’s election he will support the expulsion of Russia from SWIFT. Perhaps Harper feels a need to shore up his support among Canadian Ukrainians.

But even if this is so, why pick on the Eurasianists? Dugin, his Eurasian Party and its youth wing, the Eurasian Youth Union, are on the nutty fringes of Russian politics, and enjoy a tiny, tiny percentage of popular support (well below one percent – too low to register in opinion polls). Sanctioning the Eurasianists isn’t going to induce anybody in the Russian government to change its policy towards Ukraine, or its policy on anything, quite frankly. It is a particularly futile act.

I imagine that the policy making process went something like this: Prime Minister Harper summoned Foreign Minister Robert Nicholson and told him to find some new names to add to the sanctions list; Nicholson then summoned a senior bureaucrat and told him to recommend something; senior bureaucrat asked junior underling for some ideas; junior underling did some research, and made the mistake of reading works like Anton Barbashin and Hannah Thoburn’s Foreign Affairs article ‘Putin’s Brain: Alexander Dugin and the Philosophy Behind Putin’s Invasion of Crimea’, which among other things contends that, Dugin’s brand of Eurasianism ‘is proving to be a strong contender for the role of Russia’s chief ideology.’

There has been a lot of this sort of stuff in the past couple of years. For instance, as well as ‘Putin’s Brain’, Dugin has been described as ‘Putin’s Rasputin’. According to the Center for Security Policy, ‘The influence of Dugin on Russia geopolitics and military strategy is self-evident … it is clear that the Russian government has taken his Foundations of Geopolitics as a blueprint for their foreign policy.’ This is, I think it is safe to say, an enormous exaggeration. As Gordon Hahn has pointed out, ‘Dugin’s aggressively political, imperialistic and neo-fascist Eurasianism is a far cry from Putin’s purely economic project of creating a united free trade and customs union under the “Eurasian Economic Union.” Thus, in June Dugin was fired from his position as chair of the Department of the Sociology of International Relations in the International Relations Department at MSU [Moscow State University], effective and implemented in September. Moreover, Dugin is not an advisor to Putin.’

Still, it is not altogether impossible that our junior underling, not being very well versed in Russian philosophy, didn’t understand this, and just went with what he’d read in Foreign Affairs. Deciding on this basis that the Eurasianists really were a powerful force in Russia, he wrote a little memo to the senior bureaucrat suggesting their names. Senior bureaucrat then recommended them to the minister who, probably not having the slightest clue who they are (apart from the fact that they are obviously bad people) signed on the dotted line.

There is, though, an alternative, simpler explanation. Junior underling looked up American sanctions against Russia and discovered that the United States had listed Dugin, his fellow Eurasianists, and the Eurasian Youth Union back in March of this year. On the principle that what is good enough for America is good enough for Canada, he proposed them as targets.

One can debate whether Canadian sanctions against Russia are a good idea, but at least everybody ought to agree that if Canada is going to take action it should be action which is effective. That means if we are going to impose sanctions, we should aim them at people and organizations who are actually important, and against whom pressure might actually have some desirable impact.

Mind you, if the desired effect doesn’t have anything to do with changing Russian policy, and is only about appeasing domestic voters by appearing to ‘Do Something’ while actually doing very little, then, as the saying goes, ‘Mission Accomplished’.