Russia: The Future of a “War Economy”

The International Monetary Fund (IMF) predicts that the Russian economy will grow by 2.6% in 2024, more than double what it had predicted in October last year. This remarkable growth occurs despite Russia’s receiving more than 500 trade sanctions from the US and the European Union (EU) since 2014, when it annexed the Crimean Peninsula; and even after the invasion of Ukraine on February 24, 2022.

It is worth noting that Russia has managed to transform itself into a next-generation “war economy” with advanced technology. This was made possible through the construction of a “Military-Industrial Complex” and Vladimir Putin’s leadership in rebuilding the Russian State after its collapse in 1991 and reversing the immense power vacuum left behind.

The economic structure that emerged was composed of large conglomerates with no investment, low productivity, and very low salaries, owned by oligarchs who took over state companies through privatization. However, Putin has now managed to deploy a highly dynamic capitalist system within the “Military-Industrial Complex,” equipped with modern technology.

Putin’s government pays up to 80% of production contracts in advance to large conglomerates subject to conditions of efficiency and precision typical of an advanced army. This has resulted in a significant increase in productivity, which was never achieved under the Soviet regime and was instead a systematic destroyer of value due to its lack of innovation capabilities.

Russia’s defense spending increased by 4 points of GDP in the last three years, but this did not produce an extraordinary overheating of the economy with inflationary explosion because it was more than compensated for by increases in productivity achieved by the “Military-Industrial Complex.” None of this would have been possible without Putin’s economic structure before he came to power in 1999/2000.

Putin’s certainty that this path was correct was further confirmed when he warned that his actions were fundamentally confronting not only Ukraine but also NATO – representing advanced capitalism – and only secondarily Ukraine itself. Putin then shifted his focus towards Asia, especially China and India, using Chinese currency yuan or renminbi for international transactions, resulting in almost half of total international trade being processed using this currency today compared to just 3% before 2019. As a result, Russia’s international trade with China has doubled while India’s tripled over two years, most processes being done entirely in yuan or renminbi currency.

In conclusion, while sanctions imposed by both the US and EU were intended to isolate Russia from global trade opportunities during its conflict with Ukraine, these efforts have been largely unsuccessful as Russia continues to grow at an impressive rate despite significant challenges such as economic sanctions and military conflicts.

By Editor

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