Russia's Latest 'Time Bomb' Sparks Fear, But It's Not What You Think

University of Chicago economist Konstantin Sonin has issued a stark warning about the future of Russia’s economy. The ongoing conflict in Ukraine, he says, is setting the stage for a major economic crisis in Russia.

What Happened: The ongoing Ukraine war has forced Russia to tighten its grip on its economy, leading to the disintegration of key market institutions, says Sonin.

He cites Russia’s imposition of export restrictions on vital commodities in response to Western sanctions as an example of this disintegration.

These shifts have led to significant price increases by some companies, while others, like Heineken, have had to sell their Russian operations for nominal sums. Russia has also taken steps to prevent companies from leaving the country.

Sonin wrote about this in an op-ed for Project Syndicate. He also notes that the Kremlin is funding the war by “borrowing from the future,” with cuts to crucial public spending programs and a rise in military spending.

“Even more important, Putin’s borrowing from the future takes the form of a gradual, yet pervasive dismantling of the market institutions that the Russian people paid such a high price to acquire during the reforms of the 1990s,” Sonin wrote in the op-ed.

Also Read: Kim Jong Un’s North Korea Outranks China As Russia’s Top Ally In Ukraine Conflict, Says Military Intelligence Chief

“​​Investing massively in military production and simultaneously dismantling market institutions may strengthen Putin’s hand in the short term, but it sets a time bomb under longer-term economic development,” Sonin added in his article.

Despite the economic pressure, Russia’s GDP is expected to grow by 3.2% this year, thanks to Moscow’s substantial war spending, reports Business Insider.

“Whenever the Ukraine war ends and Russia returns to international trade (beyond raw materials), all the nationalizations of recent years will come back to haunt it. Putin’s war not only imposes on today’s Russians a worse life than they otherwise would have had. It also condemns future generations,” he said in the post.

Why It Matters: However, Sonin foresees a difficult economic future for Russia. He warns that the nationalizations of recent years will have long-term effects once the Ukraine war ends and Russia re-enters international trade.

Other forecasters have echoed Sonin’s concerns, pointing to declining long-term economic health indicators and a significant worker shortage in Russia.

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