Washington Warns of More Sanctions Against Moscow as Russia's Economy Dips

Washington Warns of More Sanctions Against Moscow as Russia's Economy Dips

Russia’s aggression towards Ukraine and sanctions from the West are hurting the economy and the US announced there will be more sanctions if Russia recognizes the May 11 referendum in Donetsk. On Wednesday, Putin told Donetsk to delay the May 11 referendum “to create necessary conditions for dialogue” between the government in Kyiv and pro-Russian forces in the east.

According to The Kyiv Post, the collapsing economy is not enough force Putin to stop. The ruble is down 9% and “Russia has suffered more than $50 billion capital flight in the first three months of the year.” Investors do not want to land in Russia due to the sanctions and the possibility of harsher sanctions in the future. If a business has a large presence in the US they can receive penalties if caught doing business with anyone on a US sanctions list. The International Monetary Fund cut Russia’s economic growth for 2014 to only .2% from 1.3%. Standard & Poor’s dropped Russia’s overall ranking to “just one notch above junk.”

Franklin Templeton Foundation pulled out $200 million from Russia, leaving only $1.2 billion in bonds. The company has $7.5 billion Ukrainian bonds. The conflict between Ukraine and Russia influence Franklin to take these steps.

Russia’s actions in Ukraine were never going to be costless and consumer confidence has taken a battering over the past two months as worries over their personal finances and the outlook for the economy have grown,” MNI Indicators chief economist Philip Uglow said.

Russia also owns 80% of Ukraine’s cellphone market with MTS Ukraine, VimpelCom’s Kyivstar and Beeline. Their profits are affected by sanctions, crime and the fall of Ukraine’s hryvnia. The Kyiv Post reports that 48% of MTS shares are sold on the New York Stock Exchange.

None of the companies are listed on sanctions, but on Wednesday morning, US Assistant Secretary for European and Eurasian Affairs Victoria Nuland said Washington is ready to hand out more sanctions against Russia. She said the sanctions would target different sectors of the Russian economy.

“Strengthening sanctions against the sectors [of the Russian economy] is an absolutely necessary step, it is a powerful instrument and, as you know, the sanctions are already influencing the Russian economy,” she said.

MTS released a corporate statement that said the company needs to be careful with external borrowing. While some of the executives try to remain positive, analysts think MTS should be cautious.

Evgeniy Golosnoy, an analyst for Moscow-based Metropol research firm, warns that “loans will be more difficult. If MTS falls under sanctions, there will be a lot of problems.” As of Dec. 31, the MTS had a total debt of $6.1 billion.