Economic Security

WILL RUSSIA’S RECESSION GO BEYOND ITS BORDERS?

By Delphine d’Amora

The St. Petersburg Times

Published: December 24, 2014 (Issue # 1843)

Russia’s economic woes are likely to cause problems far beyond its own borders, especially in Belarus and Central Asia.
Photo: Alexander Belenky / for SPT

As the clouds of recession gather over Moscow, Russia isn’t the only one preparing for a storm.

Russia’s economic crisis announced itself to the world last week, when the collapse of the Russian ruble sent spasms through currency markets across Central Asia and Eastern Europe.

Some post-Soviet neighbors have already taken action to insulate themselves. Belarus on Monday temporarily closed all over-the-counter currency exchanges, adding to a 30 percent commission on purchases of foreign currency announced last week. Kyrgyzstan has also closed down private exchange offices in an effort to protect its currency.

Switzerland was the first European country to act, last week placing a negative interest rate on deposit accounts in an attempt to protect the Swiss franc’s exchange rate from capital fleeing Russia and other emerging markets.

Further afield, the European banking system is looking on warily, as some of its member nations have substantial Russia exposure.

As low oil prices, Western sanctions over the crisis in Ukraine and systemic internal problems push Russia into a likely recession next year, neighboring economies will have their own host of economic difficulties to contend with.

Here are the countries that will feel the heat of Russia’s economic crisis in 2015.

Eurasian Economic Union

Two countries stand out for their close economic and political ties with Russia: Belarus and Kazakhstan, who earlier this year signed an agreement to create the Eurasian Economic Union with Russia.

Although the union is widely viewed as a power play by Russia, the two post-Soviet neighbors have undeniably strong ties with the Russian economy.

About half of Belarussian GDP is tied to the Russian economy via trade, remittances and banking assets, the European Bank of Reconstruction and Development (EBRD) said in a report in September.

According to Belarus’ Foreign Ministry, Russia accounts for more than 40 percent of Belarussian exports and more than half of its imports.

This high exposure leaves Belarus vulnerable to declining consumer spending power in Russia, a weakness that has already taken its toll.

See more at: http://www.sptimes.ru/story/41513