Apr 1, 2015 4:55 AM
American farmer among the winners in sanctions-hit Russia
The Associated Press
MOSCOW (AP) Kansas-born farmer Justus Walker is prospering in Russia one year after the U.S. and European Union began imposing sanctions against his adopted country over its aggression in Ukraine.
Walker, sporting a bushy beard reminiscent of a Russian peasant from past centuries, uses his Siberian dairy smallholding to support his missionary work.
He shot to fame in August, shortly after the Russian government banned Western food imports in retaliation for the sanctions.
The farmer told Russian TV that said his cheese had been struggling to compete with Italian mozzarella until the ban kicked in. He chortled as he added: "But now your Italian cheese won't be there!"
The clip went viral across Russia, turning the American farmer into an Internet meme, even though he opposes sanctions and says his remarks were taken out of context. His sales soared and there was even a boom in Walker-themed souvenirs.
"It's been nothing I could ever have thought of in my wildest dreams," he told The Associated Press by telephone.
Here is a look at Russia one year after the Western sanctions kicked in hours before Russia's March annexation of Crimea.
SANCTIONS AND INSTABILITY
Russia's "counter-sanctions" ban on food imports has forced up prices within Russia meaning Walker earns more for his product. But he warns that it has also made the market unstable.
"I think the sanctions do more harm to the market than good because they pervert the cost mechanism," he said. "We have no idea what our product is supposed to cost anymore."
"You go to one place and it says 2,000 rubles ($35) a kilo, you go to another place and it says 900 rubles a kilo. Before it was pretty understandable, you were somewhere right around 750."
Sanctions have also thrown international projects into turmoil.
One of the main state-owned companies to be targeted by punitive measures is oil producer Rosneft. It had to postpone plans to drill in the Arctic with U.S. firm ExxonMobil. At the same time, sanctions have largely cut off state firms from international lending, making refinancing difficult, costly and a burden on the government.
However, Evgeny Gavrilenkov, chief economist at state-owned Sberbank, Russia's largest lender, argued that sanctions have inadvertently helped Russia's main oil and financial companies by forcing them to abandon riskier projects before the oil price fell.
"I think Russia should be very grateful for sanctions which were imposed a year ago," he said. "I can imagine easily that without sanctions, oil and gas companies could have started draining the North Pole and whatever in the Arctic, looking for energy which looked OK with $100, $110 oil, but if $40, $50, whatever, will be the new equilibrium, it's questionable."
U.S. and EU sanctions were meant to force Russia to back down in the Ukraine crisis first over Crimea, then over its support for separatist rebels in eastern Ukraine.
That has not happened.
"The sanctions did not produce a change in Putin's foreign policy," said Brookings Institute fellow Lilia Shevtsova, although she added that the threat of further sanctions may have prevented open Russian military intervention in Ukraine.
Sanctions aimed at individuals failed to change Kremlin behavior and the broader economic punishment introduced later is mostly hurting ordinary people this year, according to Evgeny Gontmakher, an economics professor and former deputy minister of social affairs.
Government estimates say inflation could hit 12 percent this year, hurting workers whose jobs are already under pressure.
"If the sanctions continue, they mostly hit the ordinary population, not the elite," he said. "Inflation is a tax on the poor, most of all."
He said the oligarchs have not yet become restive.
"Among the business elite, there's a certain discontent, because the channels for economic cooperation with the West are blocked now, that's clear. But there's absolutely no sign yet of any open discontent or pressure on the president."
Sanctions are routinely cited in state media as the cause of most current economic problems. These include woes more properly blamed on over-dependence on oil revenue, Gontmakher said.
The government has managed "to shift the responsibility for it onto the West, and not our own systems and institutions," he said. "In that sense, the initiators of the sanctions have really lost out."
Despite a year of sanctions, President Vladimir Putin's approval rating has hovered well over 80 percent in recent months.
"Sanctions without popular dissent will hardly work" in weakening the government, said Shevtsova.
While the Ukraine crisis has taken the U.S. government's attention away from its "pivot to Asia" strategy, it has had the opposite effect in Russia, forcing the government to seek new partnerships.
The centerpiece is a 30-year, $400 billion gas deal with China signed in May, accompanied by various other deals with Asian and Middle Eastern nations.
"There is a lot of evidence which confirms that Russian authorities started to look for other partners in Egypt, in India, in Indonesia, in China and in Turkey," said Yuri Zaitsev, an analyst at the Gaidar Institute in Moscow.
However, he warned that the new deals, such as a major energy deal with China, rarely fit the Russian government's stated goal of diversifying its economy away from oil and gas.
"It is all about natural resources," Zaitsev said. "It is not the high-technology sector, unfortunately, it is not the financial sector ... because these sectors require extra funding, extra investments."