The economic blitzkrieg against Russia has failed

cc. At the 25^th St Petersburg International Economic Forum, Russian President Vladimir Putin gave a speech lasting about an hour. In the first part of his speech, he addressed the radically changing global economic situation and Russia’s role in it. In the second part, he listed very concrete plans for the further development of the Russian economy – plans that are also reminiscent of the concept of the social market economy and are designed for society as a whole. In doing so, he turned against the slogan of an autarky of the Russian economy and instead emphasised the central importance of international economic relations – but in the foreseeable future hardly with the economies of the “West”. Above all, he stressed the sovereignty of his country in questions of economic order – as well as of any other country. We are documenting excerpts of the first part of the speech.¹ The subheadings have been set by Current Concerns.

[…] When I spoke at the Davos Forum a year and a half ago, I also stressed that the era of a unipolar world order has come to an end. […] Change is a natural process of history, as it is difficult to reconcile the diversity of civilisations and the richness of cultures on the planet with political, economic or other stereotypes – these do not work here, they are imposed by one centre in a rough and no-compromise manner.
    The flaw is in the concept itself, as the concept says there is one, albeit strong, power with a limited circle of close allies, or, as they say, countries with granted access, and all business practices and international relations, when it is convenient, are interpreted solely in the interests of this power. They essentially work in one direction in a zero-sum game.

Fundamental changes

A world built on a doctrine of this kind is definitely unstable. After declaring victory in the Cold War, the United States proclaimed itself to be God’s messenger on Earth, without any obligations and only interests which were declared sacred. They seem to ignore the fact that in the past decades, new powerful and increasingly assertive centres have been formed. Each of them develops its own political system and public institutions according to its own model of economic growth and, naturally, has the right to protect them and to secure national sovereignty.
    These are objective processes and genuinely revolutionary tectonic shifts in geopolitics, the global economy and technology, in the entire system of international relations, where the role of dynamic and potentially strong countries and regions is substantially growing. It is no longer possible to ignore their interests.

Western elites “cling”
to the old order …

To reiterate, these changes are fundamental, ground breaking and rigorous. It would be a mistake to assume that at a time of turbulent change, one can simply sit it out or wait it out until everything gets back on track and becomes what it was before. It will not. However, the ruling elite of some Western states seem to be harbouring this kind of illusions. They refuse to notice obvious things, stubbornly clinging to the shadows of the past. For example, they seem to believe that the dominance of the West in global politics and the economy is an unchanging, eternal value. Nothing lasts forever.
    Our colleagues are not just denying reality. More than that; they are trying to reverse the course of history. They seem to think in terms of the past century. They are still influenced by their own misconceptions about countries outside the so-called “golden billion”: they consider everything a backwater, or their backyard.

… with bad consequences

They still treat them like colonies, and the people living there, like second-class people, because they consider themselves exceptional. If they are exceptional, that means everyone else is second rate.
Thereby, the irrepressible urge to punish, to economically crush anyone who does not fit with the mainstream, does not want to blindly obey. Moreover, they crudely and shamelessly impose their ethics, their views on culture and ideas about history, sometimes questioning the sovereignty and integrity of states, and threatening their very existence. Suffice it to recall what happened in Yugoslavia, Syria, Libya and Iraq.
    If some “rebel” state cannot be suppressed or pacified, they try to isolate that state, or “cancel” it, to use their modern term. Everything goes, even sports, the Olympics, bans on culture and art masterpieces just because their creators come from the “wrong” country.
This is the nature of the current round of Russophobia in the West, and the insane sanctions against Russia. They are crazy and, I would say, thoughtless. They are unprecedented in the number of them or the pace the West churns them out at. The idea was clear as day – they expected to suddenly and violently crush the Russian economy, to hit Russia’s industry, finance, and people’s living standards by destroying business chains, forcibly recalling Western companies from the Russian market, and freezing Russian assets.

Failure at all levels

This did not work. Obviously, it did not work out; it did not happen. Russian entrepreneurs and authorities have acted in a collected and professional manner, and Russians have shown solidarity and responsibility.
    Step by step, we will normalise the economic situation. We have stabilised the financial markets, the banking system and the trade network. Now we are busy saturating the economy with liquidity and working capital to maintain the stable operation of enterprises and companies, employment and jobs.
    The dire forecasts for the prospects of the Russian economy, which were made in early spring, have not materialised. It is clear why this propaganda campaign was fuelled and all the predictions of […] the collapse of our economy were made. This was and remains an instrument in an information struggle […] Real life has belied these predictions. […]

Stable and healthy national budget
supports the economy and facilitates aid measures

After the first five months of this year, the federal budget has a surplus of 1.5 trillion roubles² and the consolidated budget – a surplus of 3.3 trillion roubles. In May alone, the federal budget surplus reached almost half a trillion roubles, surpassing the figure for May 2021 more than four times over. Today, our job is to create conditions for building up production and increasing supply in the domestic market, as well as restoring demand and bank financing in the economy commensurately with the growth in supply.
    I mentioned that we have taken measures to re-establish the floating assets of companies. […]  I should add that we must make long-term loans for businesses more accessible. The focus must shift from budget subsidies for businesses to bank lending as a means to spur business activity. […]
    Once again, the economic blitzkrieg against Russia was doomed to fail from the beginning.

Double-edged sanction weapons

Sanctions as a weapon have proved in recent years to be a double-edged sword damaging their advocates and architects just a much, if not more.
    I am not talking about the repercussions we see clearly today. We know that European leaders informally, so to say, furtively, discuss the very concerning possibility of sanctions being levelled not at Russia, but at any undesirable nation, and ultimately anyone including the EU and European companies.
    So far this is not the case, but European politicians have already dealt their economies a serious blow all by themselves. We see social and economic problems worsening in Europe, and in the US as well, food, electricity and fuel prices rising, with quality of life in Europe falling and companies losing their market edge.
    According to experts, the EU’s direct, calculable losses from the sanctions fever could exceed $400 billion this year. This is the price of the decisions that are far removed from reality and contradict common sense.
    These outlays fall directly on the shoulders of people and companies in the EU. The inflation rate in some Eurozone countries has exceeded 20 per cent. [ …] Inflation in the United States is also unacceptable, the highest in the past 40 years.
    Of course, inflation in Russia is also in the double digits so far. However, we have adjusted social benefits and pensions to inflation, and increased the minimum and subsistence wages, thereby protecting the most vulnerable groups of the population. At the same time, high interest rates have helped people keep their savings in the Russian banking system. […]
    This is our main difference from the EU countries, where rising inflation is directly reducing the real incomes of the people and eating up their savings, and the current manifestations of the crisis are affecting, above all, low-income groups.

Long-term serious consequences
for European companies and society as a whole

The growing outlays of European companies and the loss of the Russian market will have lasting negative effects. The obvious result of this will be the loss of global competitiveness and a system-wide decline in the European economies’ pace of growth for years to come.
    Taken together, this will aggravate the deep-seated problems of European societies. […] A direct result of the European politicians’ actions and events this year will be the further growth of inequality in these countries, which will, in turn, split their societies still more, and the point at issue is not only the well-being but also the value orientation of various groups in these societies.
    Indeed, these differences are being suppressed and swept under the rug. Frankly, the democratic procedures and elections in Europe and the forces that come to power look like a front, because almost identical political parties come and go, while deep down things remain the same. The real interests of people and national businesses are being pushed further and further to the periphery.
    Such a disconnect from reality and the demands of society will inevitably lead to a surge in populism and extremist and radical movements, major socioeconomic changes, degradation and a change of elites in the short term. […]

Loss of EU sovereignty and
clouding of the global economy

The attempts to keep up appearances and the talk about allegedly acceptable costs in the name of pseudo-unity cannot hide the main thing: the European Union has lost its political sovereignty, and its bureaucratic elites are dancing to someone else’s tune, doing everything they are told from on high and hurting their own people, economies, and businesses.
    There are other critically important matters here. The worsening of the global economic situation is not a recent development. […] Moreover, it is not the result of the special military operation carried out by Russia in Donbass. Saying so is an unconcealed, deliberate distortion of the facts.
    Surging inflation in product and commodity markets had become a fact of life long before the events of this year. The world has been driven into this situation, little by little, by many years of irresponsible macroeconomic policies pursued by the G7 countries, including uncontrolled emission and accumulation of unsecured debt. These processes intensified with the onset of the coronavirus pandemic in 2020, when supply and demand for goods and services drastically fell on a global scale. […]

Massive use of the
printing press – a dangerous recipe

Because they could not or would not devise any other recipes, the governments of the leading Western economies simply accelerated their money-printing machines. Such a simple way to make up for unprecedented budget deficits.
    […] Over the past two years, the money supply in the United States has grown by more than 38 per cent. Previously, a similar rise took decades, but now it grew by 38 per cent or 5.9 trillion dollars in two years. By comparison, only a few countries have a bigger gross domestic product.
    The EU’s money supply has also increased dramatically over this period. It grew by about 20 per cent, or 2.5 trillion euros.
    Lately, I have been hearing more and more about the so-called – please excuse me, I really would not like to do this here, even mention my own name in this regard, but I cannot help it – we all hear about the so-called “Putin inflation” in the West. When I see this, I wonder who they expect would buy this nonsense – people who cannot read or write, maybe. Anyone literate enough to read would understand what is actually happening.

The real causes do not lie with Russia

Russia, our actions to liberate Donbass have absolutely nothing to do with this. The rising prices, accelerating inflation, shortages of food and fuel, petrol, and problems in the energy sector are the result of system-wide errors the current US administration and European bureaucracy have made in their economic policies. That is where the reasons are, and only there.
    I will mention our operation, too: yes, it could have contributed to the trend, but the root cause is precisely this – their erroneous economic policies. In fact, the operation we launched in Donbass is a lifeline they are grabbing at to be able to blame their own miscalculations on others, in this case, on Russia. But everyone who has at least completed primary school would understand the true reasons for today’s situation.
    So, they printed more money, and then what? Where did all that money go? It was obviously used to pay for goods and services outside Western countries – this is where the newly-printed money flowed. They literally began to clean out, to wipe out global markets. Naturally, no one thought about the interests of other states, including the poorest ones. They were left with scraps, as they say, and even that at exorbitant prices.
    While at the end of 2019, imports of goods to the United States amounted to about 250 billion dollars a month, by now, it has grown to 350 billion. It is noteworthy that the growth was 40 per cent – exactly in proportion to the unsecured money supply printed in recent years. They printed and distributed money, and used it to wipe out goods from third countries’ markets.

Enormous imbalances in the Western countries as the core of the problem

This is what I would like to add. For a long time, the United States was a big food supplier in the world market. It was proud, and with good reason, of its achievements, its agriculture and farming traditions. By the way, this is an example for many of us, too. But today, America’s role has changed drastically. It has turned from a net exporter of food into a net importer. Loosely speaking, it is printing money and pulling commodity flows its way, buying food products all over the world.
    The European Union is building up imports even faster. Obviously, such a sharp increase in demand that is not covered by the supply of goods has triggered a wave of shortages and global inflation. This is where this global inflation originates. In the past couple of years, practically everything – raw materials, consumer goods and particularly food products – has become more expensive all over the world.
    Yes, of course, these countries, including the United States continue importing goods, but the balance between exports and imports has been reversed. I believe imports exceed exports by some 17 billion. This is the whole problem.
    According to the UN, in February 2022, the food price index was 50 per cent higher than in May 2020, while the composite raw materials index has doubled over this period.

New monetary order
must focus on real values

Under the cloud of inflation, many developing nations are asking a good question: why exchange goods for dollars and euros that are losing value right before our eyes? The conclusion suggests itself: the economy of mythical entities is inevitably being replaced by the economy of real values and assets.
    According to the IMF, global currency reserves are at $7.1 trillion and 2.5 trillion euros now. These reserves are devalued at an annual rate of about 8 per cent. Moreover, they can be confiscated or stolen any time if the United States dislikes something in the policy of the states involved. I think this has become a very real threat for many countries that keep their gold and foreign exchange reserves in these currencies.
    According to analyst estimates, and this is an objective analysis, a conversion of global reserves will begin just because there is no room for them with such shortages. They will be converted from weakening currencies into real resources like food, energy commodities and other raw materials. Other countries will be doing this, of course. Obviously, this process will further fuel global dollar inflation.

Misguided economic policy of the West –
long before the operation in the Donbass

As for Europe, their failed energy policy, blindly staking everything on renewables and spot supplies of natural gas, which have caused energy price increases since the third quarter of last year – again, long before the operation in Donbass – have also exacerbated price hikes. We have absolutely nothing to do with this. It was due to their own actions that prices have gone through the roof, and now they are once again looking for somebody to blame.
    Not only did the West’s miscalculations affect the net cost of goods and services but they also resulted in decreased fertiliser production, mainly nitrogen fertilisers made from natural gas. Overall, global fertiliser prices have jumped by over 70 per cent from mid-2021 through February 2022.
    Unfortunately, there are currently no conditions that can overcome these pricing trends. On the contrary, aggravated by obstacles to the operation of Russian and Belarusian fertiliser producers and disrupted supply logistics, this situation is approaching a deadlock.
    It is not difficult to foresee coming developments. A shortage of fertiliser means a lower harvest and a higher risk of an undersupplied global food market. Prices will go even higher, which could lead to hunger in the poorest countries. And it will be fully on the conscience of the US administration and the European bureaucracy.
    I want to emphasise once again: this problem did not arise today or in the past three or four months. And certainly, it is not Russia’s fault as some demagogues try to declare, shifting the responsibility for the current state of affairs in the world economy to our country.
    […] This situation has been brewing for years, spurred by the short-sighted actions of those who are used to solving their problems at somebody else’s expense and who have relied and still rely on the mechanism of financial emission to outbid and draw trade flows, thus escalating deficits and provoking humanitarian disasters in certain regions of the world. I will add that this is essentially the same predatory colonial policy as in the past, but of course in a new iteration, a more subtle and sophisticated edition. You might not even recognise it at first.

Food supply as the most important task of the world community

The current priority of the international community is to increase food deliveries to the global market, notably, to satisfy the requirements of the countries that need food most of all.
    While ensuring its domestic food security and supplying the domestic market, Russia is also able to scale up its food and fertiliser exports. For example, our grain exports in the next season can be increased to 50 million tonnes.
    As a priority, we will supply the countries that need food most of all, where the number of starving people could increase, first of all, African countries and the Middle East. […]
    As I have said, Russia is ready to contribute to balancing global markets of agricultural products, and we see that our UN colleagues, who are aware of the scale of the global food problem, are ready for dialogue. We could talk about creating normal logistical, financial and transport conditions for increasing Russian food and fertiliser exports.
    As for Ukrainian food supplies to global markets – I have to mention this because of numerous speculations – we are not hindering them. They can do it. We did not mine the Black Sea ports of Ukraine. They can clear the mines and resume food exports. We will ensure the safe navigation of civilian vessels. No problem.
    But what are we talking about? According to the US Department of Agriculture, the matter concerns 6 million tonnes of wheat (we estimate it at 5 million tonnes) and 7 million tonnes of maize. This is it, altogether. Since global production of wheat stands at 800 million tonnes, 5 million tonnes make little difference for the global market, as you can see.
    Anyway, Ukrainian grain can be exported, and not only via Black Sea ports. Another route is via Belarus, which is, incidentally, the cheapest way. Or via Poland or Romania, whichever you prefer. In fact, there are five or six export routes. […]
    But there is also the risk that grain will be used as payment for arms deliveries. This would be regrettable.

Western refusal as the cause for the military operation in the Donbass

Friends, Once again, the world is going through an era of drastic change. International institutions are breaking down and faltering. Security guarantees are being devalued. The West has made a point of refusing to honour its earlier commitments. It has simply been impossible to reach any new agreements with them.
    Given these circumstances and against the backdrop of mounting risks and threats, Russia was forced to go ahead with the special military operation. It was a difficult but necessary decision, and we were forced to make it.
    This was the decision of a sovereign country, which has the unconditional right to uphold its security, which is based on the UN Charter. This decision was aimed at protecting our people and the residents of the people’s republics of Donbass who for eight long years were subjected to genocide by the Kiev regime and the neo-Nazis who enjoyed the full protection of the West.
    The West not only sought to implement an “anti-Russia” scenario, but also engaged in the active military development of Ukrainian territory, flooding Ukraine with weapons and military advisers. And it continues to do so now. Frankly, no one is paying any attention to the economy or well-being of the people living there, they just do not care about it at all, but they have never spared money to create a NATO foothold in the east that is directed against Russia and to cultivate aggression, hatred and Russophobia. […]

Defence of the political sovereignty and the national identity of Russia 

My point is that sovereignty cannot be segmented or fragmented in the 21st century. The components of sovereignty are equally important, and they reinvigorate and complement each other.
    So, what matters to us is not only the defence of our political sovereignty and national identity, but also strengthening everything that determines our country’s economic, financial, professional and technological independence.
    The very structure of Western sanctions rested on the false premise that economically Russia is not sovereign and is critically vulnerable. They got so carried away spreading the myth of Russia’s backwardness and its weak positions in the global economy and trade that apparently, they started believing it themselves.
    While planning their economic blitzkrieg, they did not notice, simply ignored the real facts of how much our country had changed in the past few years.
    These changes are the result of our planned efforts to create a sustainable macroeconomic structure, ensure food security, implement import substitution programmes and create our own payment system, to name a few.
    Of course, sanction restrictions created many challenges for the country. Some companies continue having problems with spare parts. Our companies have lost access to many technological solutions. Logistics are in disarray.
    But, on the other hand, all this opens up new opportunities for us – we often talk about this but it really is so. All this is an impetus to build an economy with full rather than partial technological, production, human and scientific potential and sovereignty.
    Naturally, it is impossible to resolve such a comprehensive challenge instantly. It is necessary to continue working systematically with an eye to the future. This is exactly what Russia is doing by implementing its long-term plans for the development of branches of the economy and strengthening the social sphere. The current trials are merely resulting in adjustments and modifications of the plans without changing their strategic orientation. •

¹The English version of the speech authorised by the Russian President’s Office, including the subsequent discussion, can be found at http://en.kremlin.ru/events/president/news/68669 of 17 June 2022.
²1000 roubles are currently equivalent to about 17 Swiss francs. [Editor’s note]