Crimea's reconnection could cost Russia hundreds of billions, but price not critical - Kudrin

The Russian economy could contract by a "symbolic" amount and net capital outflows could total $150 billion-$160 billion in 2014, which will be the country's payment for an "independent foreign policy," former Finance Minister Alexei Kudrin, a member of the Russian president's economic council, believes.

The Russian economy could contract by a "symbolic" amount and net capital outflows could total $150 billion-$160 billion in 2014, which will be the country's payment for an "independent foreign policy," former Finance Minister Alexei Kudrin, a member of the Russian president's economic council, believes.

"My forecast is that economic growth will be about zero to plus/minus 0.5 percent. We will literally be on the edge, we could get symbolic negative growth," Kudrin told reporters.

He recalled that he earlier forecast potential capital outflows in the first three months after the imposition of U.S. and European sanctions against Russia at $50 billion.

"I even meant this for the second wave of sanctions, but there was such an outflow as a result of the first wave. I think that in the next three months we will have an outflow of another $50 billion, but then this will subside. Nonetheless, for the year it will be significantly more than $100 billion, I think about $150 billion-$160 billion," Kudrin said.

Kudrin said this is "payment for the fact that we want to conduct an independent foreign policy," to which "society is willing to agree for now."

He said Russia will pay "hundreds of billions of dollars" for its decision in regard to Crimea and Sevastopol "that we will not get in the form of GDP growth, investments, budget revenues and additional expenditures," but this price is not "critical."

"We have hundreds of billions of dollars in payment for this turn of events. But I believe that this is not a critical price for making those decisions," Kudrin said, remarking that these decisions cannot be assessed only in economic terms.

"If this was a choice that was broadly supported, we should understand that it has an economic price, but for now, in my view, […] society is accepting such payment as part of the mild sanctions scenario," Kudrin said, adding that the public does not yet see the ultimate result of the sanctions, which will eventually indirectly slow the growth of real personal incomes.

He said that so far Russia has been subjected to a mild scenario of the first wave of sanctions. "These sanctions do not affect our economy critically, what is having more of an effect is not the sanctions themselves but expectations and investors' actions to close lines, reduce provision of services to Russian players on the world market, the stalling of a number of projects, all this also affects the increase in capital outflow and investment," Kudrin said.

He said the general atmosphere of uncertainty in regard to Russian economic policy in these circumstances is a restraining factor, as well as "all manner of uncoordinated statements coming from the deputy corps or even government circles about us responding with some sort of sanctions."

However, the Russian president's statement that Russia will not impose retaliatory sanctions against businesses is good news, he said. "This indicates that we can remain within the mild wave of sanctions and thus suffer some deterioration, but this will not be critical," Kudrin said.

He said that in light of the latest political statements there is a 49 percent chance of a second wave of sanctions. "This depends on mutual recriminations and steps in regard to a regional conflict related to Ukraine and the desire of the West to realize their desire to pursue further isolation. This escalation of reciprocal steps, of course, could grow. I, of course, am in favor of everyone stopping and not imposing additional sanctions," Kudrin said.

Commenting on whether Crimea is capable of being a non-subsidized region of Russia, he said there is such a possibility but in the long term. "For now it will be subsidized because production and per capita GDP are considerably lower than Russia's. […] There is an oil and gas sector, tourism there. I think that in the next year or two this will not be developed, but when the world comes to agreed positions on this issue and politically resolves this issue, even if tacitly, there will be very good prospects there," Kudrin said.

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