Article originally written on the 25th April 2014
Reviewing this week’s news I am reminded of one of Aesop’s fables:
“A Donkey found a lion’s skin, and dressed himself up in it. Then he went about frightening everyone he met, for they all took him to be a lion, men and beast alike, and took to their heels when they saw him coming. Elated by the success of his trick, he loudly brayed in triumph. The fox heard him, and recognised him at once for the donkey he was, and said to him “Oho, my friend, it’s you, is it? I, too, should have been afraid if I hadn’t heard your voice.”
– Clothes may disguise a fool, but his words will give him away
Last Wednesday in a typically Russian show of bravado (especially in the context of the last six weeks) Dmitry Medvedev told Russian Parliamentarians that Russia’s economy must shrink back from international integration, reduce its dependency on imports and strengthen from within in the face of increased sanctions from the US and Europe.
The sentiment, which was outlined in the Russian Government’s Annual Work Report, seems sensible in the short term – after all Russia’s domestic economy does need strengthening. However, the “we will win in the end” strategy (as Medvedev boldly put it) bears the possibility of a disastrous picture in the long term in which Moscow will struggle to support its already stagnant economy (after 1.3% growth in 2013, Russia has seen a contraction in GDP in the first quarter of this year with recession a likely possibility in the current quarter).
Despite its recent lion-skin-like show of bravado, Russia cannot follow an economic isolationism policy for long especially as foreign banks start to fully pull out of the country in the wake of more sanctions from the US & EU. Russia has more than $624bn of foreign debt which cannot be refinanced domestically. Furthermore, more than 40% of the country’s food and medicine come from foreign imports. In order for Russia to flourish economically, Russian officials should be convincing foreign investors that their money is safe in Russia. The Russian bravado and isolationism emanating from the incidents in Ukraine have unfortunately masked this essential truth from them.
As long as Russia wishes to shrink back from the international economic community, the international economic community will keep its distance to the detriment of the Russian economy. Putin and Medvedev may think their actions in Crimea and East Ukraine are clothing Russia in a lion’s skin, but their recent talk of economic isolationism betrays them with all the force of Aesop’s braying donkey. How long before the foolish words fully reveal the fools behind them.