Amid looming Western sanctions, Russia stress-tests its economy

The Russian authorities seem to be seriously considering the possibility of tough Western sanctions, which are being prepared in an even of an invasion of Ukraine.

According to the news outlet The Bell, Russian state-owned companies and large banks carried out a series of exercises to assess the consequences of the sanctions, including the shutdown of SWIFT and foreign software, a ban on the supply of chips and other high-tech equipment to Russia.

Top managers of the main sectors of Russian economy and financial institutions reported on the results of the inspection at government meetings, which were held by First Deputy Prime Minister Andrey Belousov, three sources close to the Russian government told the newspaper.

Among the state-owned companies, there were the Russian Post, the national airline Aeroflot and Russian Railways.

The results were disappointing. "Everyone was upbeat while reporting, but between themselves they admit, it’s a catastrophe," the source told The Bell.

In particular, if restrictions are imposed on the conversion of the Russian ruble into the U.S. dollar, euro and the British pound, Russian banks will "definitely have a problem with the refinancing the foreign debt," warned one of the interlocutors.

According to the Russian Central Bank, as of January 1, the foreign debt of Russian credit institutions amounted to $ 79.8 billion, and over the past year it has grown for the first time in 7 years - by $ 7.7 billion.

The total foreign debt of the economy has reached $478.1 billion , of which $62.5 billion is a direct public debt (loans and bonds issued directly by the government).

Technology sanctions are just as problematic, though officials and bankers are hoping for help from China, particularly Huawei.

"In terms of infrastructure, we only count on Chinese contractors, specifically on Huawei" a source at one of the major banks told The Bell. According to him, no one insists, but this is a recommendation that "should be taken into account in the current conditions."

As for SWIFT, the Russian financial system is helpless. The national analogue - Bank of Russia's system for transfer of financial messages (SPFS) launched in 2016 - will be able to handle only domestic payments, while cross-border operations will be practically paralyzed, experts of the Russian Institute of International Finance believe.

The fact is that only a few foreign banks became members of the SPFS, and there will be no one who can service cross-border payments. Hopes for China’s help in this case didn’t materialize. Only one Chinese bank, the Bank of China, joined the Russian interbank payment system.

Private Chinese companies have always complied with the US sanctions, and it is hardly worth expecting that this time it will be different, warns the head of the Russian International Affairs Council Andrey Kortunov.

"China's state-owned companies, of course, will continue to work with Russia. But Chinese business does not want trouble in American market, it is much more important for private Chinese business. It's a different volume, a different relationship. This is a pure business, nothing personal," the expert explained.

  SWIFT, Russia, Sanctions