Development of Russian economy under the conditions of sanctions.

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- Legislative: The bicameral Federal Assembly of Russia, made up of the 450-member State Duma and the 166-member Federation Council

- Executive: The President is the Supreme Commander-in-Chief of the Armed Forces, can veto legislative bills before they become law, and appoints the Government of Russia (Cabinet) and other officers, who administer and enforce federal laws and policies.

- Judiciary: The Constitutional Court, Supreme Court and lower federal courts, whose judges are appointed by the Federation Council on the recommendation of the President, interpret laws and can overturn laws they deem unconstitutional.

The policy also involves Central Bank of Russia - an independent entity, with the primary responsibility of protecting the stability of the national currency, the ruble. And so called “State-owned enterprises” - a non-profit organizations created by special Federal law and wholly owned by Russian Government. Every measure planned is documented in form of a federal law, other legislative act or executive power representative formal decision. Specific actions of program implementation define responsible executing parties. Most involved institutions are:

- The Ministry of Economic Development: federal ministry responsible for regulating and forming policies related to socioeconomic and business development in Russia.

- Ministry of Finance: federal ministry, responsible for general financial policy and for general management in the field of finance of the Russian Federation

The policy communities map provided in the appendix depicts institutions involved in development and implementations of the policy, and shows directions of policy decisions progress with yellow arrows. Public and businesses are merely policy takers in this macro-economy level picture.

In order to make the discussion more complete we’ll follow an alternative route in policy community analysis as well. Coleman and Skogstad (1990) identified two tiers within the policy community: a ‘sub-government’, mainly of officials, who dominated the process, and an ‘attentive public’, the participants who had an interest in the policy question but who did not have the same standing, might give the question less of their attention, and would not carry the same weight as the members of the policy community. The extent to which ‘outsiders’ can become involved is a matter of degree: most policy issues would call for some degree of ‘outside’ input, whether of other officials or of non-officials. However this approach leads us to somewhat similar results where participation of outsider is limited to the role of policy takers.

Content of the solution.

Economic sanctions were deployed frequently in the 20th century. As one sanctions scholar has observed, “Compellant purposes of sanctions are the most difficult to achieve . . .” (Leyton-Brown 1987, 304).

Infinite amount of suggestions and recommendations have evolved into plan of sustainable economic development and social stability during period of most powerful external economic shocks and political environment. Its implementation have been ordered by government decree dated 27th Jan 2015[4].

We will now provide brief description of measures constituting the plan and describe policy communities involved in its adjustments and implementation.

List of essential top-priority actions include:

- Support of imports phasing out

- Assistance to small and medium business by lowering financial and administrative charges

- Creation of environment for investments attraction

- Reducing unemployment

- Optimization of government spending

Implementation of the plan is expected to contribute for stabilization systemically important businesses in crucial industries and balancing out labour market, lowering inflation and softening the effect of increasing prices on most sensitive layers of population.

Effectiveness assessment

The policy is designed for 2015-2016 years period, it have not been completed yet, however we will try to estimate it’s usefulness throughout year 2015. Comprehensive description of the policy effectiveness requires extremely complex and deep research, a limited but informative examination will be presented instead. We will narrow down our assessment to the most viewed macro-economic indicator – Gross Domestic Product. Real GDP is the one indicator that says the most about the health of the economy. It is by far the most followed, discussed and digested indicator out there - useful for economists, analysts, investors and policy makers. In order to test whether the policy is operational we will compare GDP planned for 2015 and forecasted impact of sanctions on Russian economy against real outcomes.

According to report voiced by the head of the Ministry of Economic Development of Russian Federation, the GDP was expected to reduce by 3.7-3.9% by the end of 2015 comparing to previous year[5]. IMF estimated the immediate effect of sanctions and counter-sanctions had been to wipe between 1 and 1.5 percent of GDP (IMF Country Report No. 15/211). Both reports have been made after publication of and with due regard to the government decree N 98-р., therefore we will take the policy as effective in 2015 if expectations corresponds to actual outcomes.

GDP fall in 2015 is easily calculated with official data (FSSS annual GDP in constant LCU):

[pic 1]

The result is in perfect consistence with anticipated dynamics.

Analysis of initial impact of sanctions on Russian GDP is more complicated, we will construct a simple time series model to test the above mentioned IMF results. Below we present dynamics of Russian real GDP over 1995-2015 in terms of quarterly seasonally adjusted data.

[pic 2]

Next we converted this time series into natural logarithm since statistical interpretation of coefficients of our model in this case becomes more convenient: it will show percentages rather than levels in rubles.

Both graphs exhibit the same dynamics. Visual analysis of this dynamics helps us make the following conclusions:

- Flat growth over 1995-1998;

- Increasing trend over 1999-2007;