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Russia has reserves to ride out sanctions

LONDON/MOSCOW: Mathematically Russia has enough reserves to hold out for at least two years before Western sanctions start to choke the economy, but it must avoid reawakening the “sleeping dragon” of investor panic. At first glance the stockpile - $472 billion of hard currency reserves and nearly $1.5 trillion of assets overall - is more than enough to keep banks, firms and the economy going as the West tries to punish Moscow over the Ukrainian crisis. But this ignores the psychological effect. Russia burned through $200 billion (149.05 billion pounds) in six months during its last major crisis in 2008-09; if reserves were to start draining away again, panic could quickly set in among people inside and outside the country, accelerating a flight of capital. The United States and European Union first imposed sanctions after Russia annexed Crimea from Ukraine in March and have since tightened them. This week the EU froze five state-controlled banks out of its capital markets in measures targeted at Russia’s financial, military and energy industries. While Russia is on the verge of recession, analysts and investors generally agree with officials there that its finances can withstand a tightening of the screws for now. “They have reserves of almost half a trillion dollars. Given the minimal refinancing needs of the sanctioned banks, they’re in a reasonably comfortable position,” said Brett Diment, head of emerging markets funds for Aberdeen Asset Management. 

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