Russia's economy, its financial markets and the ruble are sinking like a stone.
And "the only way for Russia to put in place an economic and financial floor and embark on a sustainable recovery is . . . to start a meaningful re-engagement with the West," Mohamed El-Erian, chief economic adviser to Allianz, writes in an article for the
Financial Times.
If President Vladimir Putin fails to do that, "he will be economically signing Russia up to a higher probability of an economic depression and hyperinflation."
Russia's economy won't truly recover without an end to Western sanctions, El-Erian argues, noting that it "is unlikely to occur unless Mr. Putin durably de-escalates tensions over Ukraine by changing political course." However, he will probably "give the impression of wishing to de-escalate tensions over Ukraine but take no substantive steps to this end."
Under that scenario Russia would eventually run into trouble, El-Erian writes. "It would only be a matter of time before the currency is again subject to considerable depreciation pressures, fuelling capital flight, withdrawal of bank deposits and advanced import purchases ahead of an ever-increasing probability of draconian capital and payments controls."
The ruble has plunged 46 percent against the dollar so far this year.
Meanwhile, Steve Forbes, editor-in-chief of Forbes Media, says Russia's strategy to buoy its currency is hopeless.
"The key thing is whether the Russian central bank knows how to defend the ruble. It is very simple to do," he tells
Newsmax TV's "America's Forum." What the central bank needs to do is buy rubles and then keep them out of circulation, Forbes says.
"But what Russia has done so far is to pump the rubles they bought back into the domestic economy."
So the money supply isn't shrinking. "If you want to defend the ruble, you've got to reduce the supply," Forbes says. "They've got ample resources to reduce the supply. But the real enemy for Putin here is not a lack of resources, it is ignorance."
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