Russia’s latest move to impose a new tax on capital gains has led investors to withdraw their funds, leaving the Russian economy in dire straits. The country is predicted to see economic growth drop by 4% this year compared with 2017.
The “Putin’s War Tax Crushes Russian Investors” is a news article that discusses the upcoming tax on investments. The article says that the tax will make it harder for Russians to invest in their country. Read more in detail here: why is russia so big.
Don’t put your faith in Vladimir Putin when it comes to your personal wealth. Last month, customers queue to withdraw US dollars and Euros from an ATM in St. Petersburg, Russia.
Dmitri Lovetsky/Associated Press photo
Vlad the Investment Impaler is his moniker. Since Vladimir Putin’s ruthless invasion of Ukraine, Russian bonds have plummeted in value, and Russian stocks are still banned from trading for fear of revealing a massive financial loss. A severe drop in the country’s GDP is almost likely this year, and it all adds up to Mr. Putin imposing a hefty confiscatory war tax on the Russian people. This begs the issue of how long Putin can keep his expensive and destructive attack on Ukraine going.
While assisting Ukraine and avoiding being sucked into a conflict, policymakers in the United States should also be prepared to assist Russia in peacefully navigating the post-Putin future.
Matt Wirz and Alexander Saeedy of the Wall Street Journal reported on Mr. Putin’s thrashing of Russian fixed-income investors on Tuesday:
Russian government bonds fell below 10 cents on the dollar last week, putting the country’s debt on par with Venezuela, which collapsed into famine five years ago. The valuation is near the low-water mark on bonds set by serial defaulter Argentina, which took 15 years to repay creditors after a bitter legal battle with hedge funds… About 80% of its debt was held by domestic investors last year, according to S&P Global Ratings…
If the Russian government’s claim that it is paying all of its bond payments on time—and in dollars rather than rubles when required—expect a comeback. Russian bondholders, on the other hand, will continue to suffer significant losses.
Russian investors are still not allowed to know how much money they have lost. Julie Steinberg and William Mauldin of the Wall Street Journal reported last weekend:
The Moscow Exchange said on Saturday that the country’s major stock exchange would be closed next week, from March 18 to March 19. The stock exchange has been closed since February 25, the day after the invasion and immediately before the West announced new sanctions against Russia’s financial sector. The halt postpones what is expected to be a harsh reckoning for Russian stock investors. While trading in Russia has been suspended, shares of Russian firms listed on foreign exchanges such as London and New York have fallen dramatically. Companies in Russia are expected to take a blow as the economy struggles to recover from the repercussions of the Ukraine conflict, which include sanctions, the exodus of Western investors, supply chain interruptions, and problems importing vital components and materials.
The atmosphere in Russian investing circles was less than hopeful a few days after the stock market closed. Liam James of the Independent newspaper in the United Kingdom reported earlier this month:
In front of a stunned presenter, a Russian economic expert toasted to the “death” of the country’s stock market… A Russian economist, Alexander Butmanov, went on Russian news network RBC to examine the future of the local stock market. “Worst scenario, I’ll work as Santa Claus as I did 25 years ago,” he said on live TV when asked whether exchange techniques were outmoded and if he [hoped] to remain in the profession. Let’s put the jokes aside and get this done quickly.”
According to the Independent, the economist then hoisted a bottle of fizzy water and said:
“Dear stock market,” he said, “you’ve been close to us and intriguing.” “Dear buddy, may you rest in peace.” “I won’t remark on this prank because I don’t want to believe in it,” the presenter added, his eyes unblinking.
It’s difficult to overlook the harm. The Russian economy looks to be on the verge of a significant downturn, according to several estimates. Paul Hannon and Caitlin Ostroff of the Wall Street Journal report:
The Institute for International Finance, a grouping of international banks, expects Russian economic output to fall by a third this year. Economists at credit-ratings firm Standard & Poor see a contraction of 6.2% in 2022, while Moody’s Analytics estimates the sanctions-induced slowdown will cut economic output by between 13.5% and 24% depending on the duration of the conflict, and the scale of the decline in Russian energy exports. “This is a massive act of self-harm,” said Gaurav Ganguly, an economist at Moody’s.
Gov. Ron DeSantis (R., Fla.) may soon be in charge of a bigger economy than Vladimir Putin, and isn’t that a comforting notion in these troubling times?
Russian consumers are going through a same bleak period as Russian investors. Stu Woo, Georgi Kantchev, and Evan Gershkovich of the Journal report:
Alexander Isavnin said the exit of Western businesses is like going “back to the Stone Age.” The 45-year-old has been having flashbacks to his Soviet Union childhood when he and friends stitched patches with the Levi Strauss & Co. logo onto other pants to look cool. “I remember the dark times before the West came here,” said Mr. Isavnin, a Moscow-based university lecturer and member of the Pirate Party of Russia, a small opposition group.
Unfortunately, the Pirate Party does not seem to embrace intellectual-property rights, which enable individuals to create amazing goods and companies. The absence of the rule of law in Mr. Putin’s Russia is a major factor in the country’s lack of both. But let us not nitpick. To drive change, many types of opposition parties will be required.
The conflict has prompted even more Russians to explore emigrating to pursue artistic endeavors in other nations. Nikolai Roussanov, a finance professor at Wharton, anticipates a big talent drain from Mr. Putin’s domain:
Human capital is what fuels the country’s productive development and wealth creation, and that human capital is fast depleting.
How much economic hardship would Russians put up with before demanding new leadership—and for how long?
“The Cost: Trump, China, and American Revival” is co-authored by James Freeman.
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