Russian government nervous as country faces economic challenges

At the International Economic Forum in Saint Petersburg, a Russian deputy came to me.

“Are you going to bomb Iran?” He asked.

“I do not plan to bomb anyone!” I answered.

“I mean you, the British …”

“Don’t you mean Donald Trump?”

“He said what to do by Great Britain,” smiles man. “And by the deep state.”

It was a brief and bizarre conversation. But it showed that in Saint Petersburg this week, there was more in the minds of people than economics.

Take President Vladimir Putin.

Friday, the leader of the Kremlin delivered the opening speech during the plenary session of the forum. He focused on the economy.

But that is what the chief of the Kremlin said in the round table thereafter which made the headlines.

“We have an old rule,” said Putin. “Where the foot of a Russian soldier walks is ours.”

Imagine that you are the head of a country that organizes an economic forum, looking for foreign investment and cooperation. Braking on the seizure of the foreign lands of your army would not seem to be the most effective way to get there.

But that’s the point. Since the large -scale invasion of Ukraine by Russia in February 2022, the state of the economy has been secondary to the goal of winning the war against Ukraine. This is the overall priority of the Kremlin. Admittedly, the economy of Russia has increased, but largely due to massive state expenses for the defense sector and the military-industrial complex.

And even this growth linked to war is now extinguished.

Putin did not seem too worried.

“Regarding the” murder “of the Russian economy, as a famous writer said -” the rumors of my death are very exaggerated, “said the Russian president.

But the Russian government is clearly nervous.

During the Forum, the Russian Minister for Economic Development, Maxim Reshetnikov, warned that the country’s economy wobbled “on the verge of recession”.

“We grew up for two years at a fairly high pace because unused resources have been activated,” said the governor of the Russian central bank, Elvira Nabiullina. “We must understand that many of these resources have really been exhausted.”

The Saint Petersburg International Economic Forum was designed as a brilliant showcase for the Russian economy. A large part of this shine has faded due to the thousands of international sanctions imposed on Russia during the war in Ukraine. Many Western companies have withdrawn from Russia.

Could they come back?

After all, US President Donald Trump clearly said he wanted better relations with Moscow.

“Today, we have had breakfast with the American Chamber of Commerce and many investors came from the United States. We have the impression that many American companies want to come back,” said Kirill Dmitriev, President Putin’s envoy to foreign investment. We talked about the St Petersburg forum.

“I think that the American administration understands that joint dialogue and cooperation are better than sanctions that do not work and do not injure your businesses.”

It is unlikely that Western companies will come back in large numbers while Russia wage war in Ukraine.

“I think it is clear that you must have a kind of end of the conflict before American companies will seriously consider returning,” said Robert Agee, president of the American Chamber of Commerce in Russia.

“Have you asked the Trump administration to delete certain sanctions from Russia?” I asked him.

“We went to Washington,” he replied. “We have made an analysis of the impact of American sanctions on American companies. We have transmitted this to the administration.”

“Do you accept that the idea of ​​returning from Western companies is controversial in the light of war in Ukraine?” I asked.

“Western companies have made decisions based on what happened three or four years ago,” said Agee. “And it’s up to them to decide if it’s a good time to come back.”

After more than three years of war and mass sanctions, Russia is faced with difficult economic challenges: high inflation, high interest rate, stagnation reports, recession. The problems of the economy are now openly discussed and debated.

We do not know how long they will be resolved.