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Experts Debate Effect of Sanctions On Russia

Experts Debate Effect of Sanctions On Russiai
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Jim Randle
May 22, 2014 10:58 PM
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Western nations are warning Russia that they will toughen economic sanctions if Moscow interferes in Ukraine's election on May 25th.  Economic analysts are divided on what impact sanctions have had so far on Russia's economy and the actions of its leaders.  Some say sanctions frighten off investors and hurt the economy.  Others say those sanctions have already kept Moscow from pushing harder into Ukraine.  And still others are skeptical that sanctions will have much impact.  

Pro-Russian activists have been working to take over parts of eastern Ukraine, using tactics similar to those that helped Moscow annex Crimea.
Western nations are already using sanctions to punish Russia for seizing Crimea and to discourage any possible Russian invasion of other parts of Ukraine.

U.S. Secretary of State John Kerry says economic sanctions could get much tougher.

"If Russia or its proxies disrupt the election, the United States and those countries represented here today in the European Union will impose sectoral economic sanctions," said Kerry.

Russia's vital oil and natural gas industry could be one target of stronger sanctions.  That would be a big change from sanctions that have so far been aimed just at people in Russian President Vladimir Putin's inner circle.

John Chambers, of the Standard and Poor's financial services company, says sanctions worry investors because they increase uncertainty.
 
"There's already been an impact on the Russian economy.  You see that in the financial markets. You see that in the outward portfolio flows," said Chambers.

Uncertainty makes it hard for investors to assess risk, prompting them to take money out of the country.  Without capital to buy and build things, the economy can stall or even shrink.  

Russia’s economy already had problems, making it hard to judge the impact of sanctions, according to Columbia University Professor Tim Frye, who spoke via Skype.

“There are lots of underlying negative trends in the Russian economy that have dramatically slowed growth in the last couple of years.  At the margins, sanctions may be increasing some economic uncertainty, but they are not having a broad economic impact yet," said Frye.

An economist who once advised the Russian and Ukrainian governments says sanctions could get “a lot tougher.”  

Anders Aslund, of the Peterson Institute for International Economics, says that sanctions may have kept Moscow from taking stronger military action against Ukraine.

 "It is not obvious, but I think they [the sanctions] have worked.  What we have seen is that the Russian action in eastern Ukraine looks as if it is faltering, and one of the factors behind it is sanctions," said Aslund.

Aslund says Russia’s economy will shrink rather than grow this year, at least, in part, due to sanctions.

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