Newest US sanctions against Russia hit an economic nerve

A woman walks past paintings of the Kremlin and Red Square on a street in Moscow on July 10, 2018, on the eve of the Russia 2018 World Cup semi-final football match between Croatia and England. (AFP)
Updated 13 August 2018
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Newest US sanctions against Russia hit an economic nerve

  • If sanctions are expanded even further to target Russia’s top state-controlled banks, it would amount to a “declaration of economic war”
  • In 2014, both the US and EU introduced sanctions that restricted Russia’s access to global financial markets and to equipment for new energy projects

WASHINGTON: Russia typically brushes off new US sanctions. Not this time.
The Trump administration announcement of export restrictions in response to accusations Moscow used a nerve agent to poison a former Russian spy in Britain sent the ruble tumbling to a two-year low and drew a stern warning from its prime minister. While the initial sanctions may have a limited impact, a second batch expected within months could hit the Russian economy much harder and send already tense relations into a tailspin.
If sanctions are expanded even further to target Russia’s top state-controlled banks, freezing their dollar transactions — as proposed under legislation introduced in the Senate this month — it would amount to a “declaration of economic war,” Russian Prime Minister Dmitry Medvedev said Friday.
So much for President Donald Trump’s hopes for better relations with Moscow.
On his watch, the US has imposed a slew of sanctions on Russia for human rights abuses, meddling in the US election and Russian military aggression in Ukraine and Syria. For the most part, they have punished Russian officials and associates of President Vladimir Putin rather than targeting broad economic sectors.
In 2014, both the US and European Union introduced sanctions that restricted Russia’s access to global financial markets and to equipment for new energy projects. Those measures were punishing, but the sanctions announced by the Trump administration this past week could be even worse.
The restrictions were triggered under US law on chemical weapons following a formal US determination that Russia used the Novichok nerve agent to poison former Russian spy Sergei Skripal and his daughter in the English city of Salisbury in March.
The first tranche, due to take effect Aug. 22, will deny export licenses to Russia for the purchase of many items with national security implications. Existing sanctions already prohibit the export of most military and security-related items, but now the ban will be extended to goods such as gas turbine engines, electronics and calibration equipment that were previously allowed on a case-by-case basis. The State Department said it could potentially affect hundreds of millions of dollars in trade.
“It’s a significant step, but not an overwhelming one,” said Daniel Fried, a veteran State Department official who served as chief US coordinator for sanctions policy until he retired last year.
The penny could drop, though, in three months’ time.
Russia has 90 days to “provide assurances” that it will not use chemical weapons in the future and allow inspections. If Russia does not comply, Trump will be obligated to impose a second set of sanctions, applying restrictions on at least three from a menu of options: opposing multilateral bank assistance to Russia, broad restrictions on exports and imports, downgrading diplomatic relations, prohibiting air carrier landing rights and barring US banks from making loans to the Russian government. That could do significantly more economic harm and have a lasting, destabilizing effect on the currency and stock markets.
Senior Russian lawmaker Vyacheslav Nikonov said a second set of sanctions may be inevitable and predicted it would pitch relations to new low. The relationship is already routinely described as at its worst since the Cold War.
“They are demanding that Russia (accepts) an obligation to refrain from any further use of chemical and bacteriological weapons, which amounts to our acknowledgement that we have used it. But we haven’t,” he said.
Things could get even worse if the Defending American Security from Kremlin Aggression Act, which a bipartisan group of senators introduced Aug. 2, makes its way through Congress. It would target Russia’s state-controlled banks and freeze their operations in dollars, which would deal a heavy blow to the Russian economy. The prospects for the legislation becoming law remain uncertain.
Medvedev warned the US that such a move would cross a red line and would warrant a Russian response by economic, political or “other means” he did not specify. His tough tone was a departure from past nonchalance from Putin and his lieutenants over the impact of Western sanctions on the Russian economy.
Vladimir Vasilyev, a researcher with the Institute of the US and Canada, a government-funded Moscow think tank, said US-Russian ties were now approaching “the point of no return with no prospect for improvement” in sight.
Fried said that in addition to uncertainty over sanctions, Moscow’s strong response this time is likely also being fueled by larger inconsistencies in US policy toward Russia. While Trump has hankered for closer ties with Putin, the government he leads has been far less accommodating.
“Whatever deal the Russians had or thought they had or thought they could get from President Donald Trump, they’re not able to get it from Trump’s administration,” Fried said.
The State Department denied inconsistency in US policy and maintained that sanctions were aimed at encouraging improved behavior from Russia. “We’d like to have a better relationship with the Russian government, recognizing that we have a lot of areas of mutual concern,” spokeswoman Heather Nauert said.
Congress has a less diplomatic view.
Trump has repeatedly come under fire from lawmakers, including from his own Republican Party, for his conciliatory statements on Russia, particularly at his joint press conference with Putin at their summit in Helsinki last month where he appeared to doubt US intelligence conclusions that Russia intervened in the 2016 election.
Rep. Ed Royce, chairman of the House Foreign Affairs Committee, was among lawmakers who welcomed the US sanctions announced this week. “It’s critical that we use every tool at our disposal to confront Putin’s use of chemical weapons, as well as his efforts to undermine our democracy,” the Republican from California said.


Selling sketches and clothes, Libyan women set up businesses against the odds

Updated 4 min 28 sec ago
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Selling sketches and clothes, Libyan women set up businesses against the odds

  • Libya has only a tiny private sector and the economy is dominated by the state
  • Cumulative inflation over the last four years has seen real incomes lose more than half of their purchasing power

TRIPOLI: When inflation began eating into her state-paid salary Libyan architect and assistant professor Seham Saleh started selling drawings over the Internet to help pay the bills.
She joins a growing number of Libyan women launching start-ups in the conservative Arab country, where many still think a woman’s place is in the home but where the strains on personal and family income following years’ of political chaos have forced women to look for more work.
Libya has only a tiny private sector, which means there is a market for locally-produced goods. The economy is dominated by the state, which employs most adults under a structure set up by Muammar Qaddafi, who was toppled in 2011.
Men are the traditional breadwinners, although around 30 percent of women were in the labor force as of 2015, according to a UN report.
“I cannot live on my assistant professor salary of 1,000 dinars ($256) even if it is paid out,” said Saleh. She has been selling drawings of people in Libyan dress or book marks she created on a computer.
“Thank God... people wanted to buy the products,” she said. She also does freelance work as an architect.
Once one of the richest countries in the region, the chaos and civil war that ensued after the fall of Qaddafi has seen Libya’s living standards erode. Little is now produced in Libya other than oil, even milk is imported from Europe.
Cumulative inflation over the last four years has seen real incomes lose more than half of their purchasing power, and the government effectively devalued the dinar last September.
A cash crisis means public servants often do not get their salaries paid out in full. Lenders have no cash deposits as the rich prefer to hold their cash themselves, rather than deposit it in a bank.
Women rarely had jobs outside of sectors such as teaching, although the need for more family income has changed the situation, said Jasmin Khoja, head of a women’s business support venture.
Her organization, the Jusoor center for studies and development, has trained some 33 would-be female entrepreneurs, offers legal advice and office space as women often can’t afford their own.
While Seham’s “Naksha” art business is in its early stages, others such as Najwa Shoukri’s start-up are growing fast. She started designing clothes from home in 2016, and selling them online.
Now, together with five other women, she has a workshop selling 50 pieces a month and plans to open a shop next year on Jaraba Street, the main fashion shopping avenue in Tripoli.
To make the shop a success her output would have to rise to 150 pieces a month. Her brother and family have contributed to investments worth 10,000 dinars.
The biggest challenges for start-ups are legal hurdles and the lack of electronic payment systems.
Some Libyan commercial laws go back to the 1960s and are aimed at big corporations such as oil firms, not start-ups. Under these regulations firms need to deposit thousands of dinars.
“Banks do not give loans, which stops projects and makes them unable to grow or employ other women and young people,” Khoja said.
Undeterred, Mayaz Elahshmi started a business last week training women to fix computers and smartphones.
“There is big demand as many women are reluctant to go to a phone shop where men work, as they have personal files on their phones.”
Six people came to her first training session, each paying 30 dinars.