Russia is embarking on the path of a war economy

The well-known Russian economist Vladislav Inozemtsev assessed the situation caused by the Russian special operation in Ukraine:

“The Bank of Russia (so far the main victim on the Russian side) has actually completely dismantled the system of control over banks and borrowers: many regulations are canceled, a fictitious system of asset valuation is introduced, under which banks may not re-evaluate cheaper collateral; in fact, it is forbidden for non-residents to withdraw from Russian assets (on Wednesday they were not even paid an OFZ coupon, which is akin to a selective default). The Bank of Russia can delay the execution of financial transactions for six months, and the authorities offer citizens to look for salvation from inflation in gold: the VAT on the purchase of investment bars, which always seemed to me meaningless, is canceled (it is strange that only now) - this will reduce costs when investing in metal and can make it an interesting object for investments (there are now more than 2.3 thousand tons of gold in the reserves of the Central Bank for $145.4 billion at the current value).

The government, for its part, is also doing everything possible - and also in the financial and regulatory scheme. Businesses are offered tax holidays (especially attractive for farmers and businesses in the field of information technology), which in the latter area can be extended to three years and even affect personal income tax; promised a moratorium on scheduled inspections; announced the intention to inject about a trillion rubles of investments into the Russian stock market from the National Wealth Fund. One gets the impression that the entire financial sector in Russia has come into motion - but this, in my opinion, can only partially relieve the growing tension.

The difference between the current crisis and the previous ones lies in the fact that the dollar, the default on government securities and even problems with stock quotes look deeply secondary. The main topic that is now coming to the fore is purely industrial. Russia is significantly dependent on imports, and not so much cosmetics and expensive clothes, but production components, spare parts and materials for industry and the service sector. Western and not only companies are leaving the country, and in a month or two we will have to think, for example, about at least temporarily transferring car factories to assemble at least Chinese cars if we do not want to completely destroy this sector. It is completely unclear what to do with aviation, because even in "domestic" aircraft, the share of imported parts is prohibitively large. And so on - the list is almost endless; we received from Europe not only medicines, but even hatching eggs and seeds.

The government should now act very unconventionally, and the main question is whether it knows how to do it. For years, it was believed that the most important thing is to allocate money. But not now. Even if you pour a trillion or two trillion into the dead stock market, this will not save him (back in December, the total capitalization of Russian companies exceeded 60 trillion rubles, and now trading in Russian shares on foreign sites has been stopped, since many are not worth a cent), but if and save, what will it change? The main question now is whether the authorities can not only provide cheap loans, but effective results. It seems to me that only the future will show..."