Consider This from NPR - For Russia and Ukraine, The Battlefield Includes The Economy

Episode Date: June 5, 2023

Wars are expensive. And Russia's invasion of Ukraine has had an impact on the economies of both countries.NPR's Julian Hayda, in Kyiv, reports that international assistance is allowing Ukraine to stabilize its economy and avoid collapse.The Russian economy seems to have remained resilient in the face of sanctions and other trade and financial restrictions. But NPR's Stacey Vanek Smith reports on how that could be changing.In participating regions, you'll also hear a local news segment to help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This message comes from Indiana University. Indiana University is committed to moving the world forward, working to tackle some of society's biggest challenges. Nine campuses, one purpose. Creating tomorrow, today. More at iu.edu. For most of the last 15 months, Russian President Vladimir Putin has been able to keep his citizens largely insulated from the war he's waging next door in Ukraine. This is kind of a pledge that Putin gave to them at the beginning of the war, saying, look, this is not going to disrupt your life. Just let me do this. It's going to be a quick and victorious war. That is Mary Alushina, who covers Russia for The Washington Post. But last week, that bubble of normalcy?

Drone attacks in Moscow overnight. The explosions raining down. It was punctured. What Russians see is drones falling near residential areas. So it's definitely, I think, concerning for them and for the Kremlin. Last Sunday, drones that were fired at the Russian capital hit several residential buildings. Many were intercepted, according to the Russian Defense Ministry, and Russia blamed Ukraine. Ukraine has denied involvement, though most military analysts do believe that Ukraine is responsible.

In a public appearance, Vladimir Putin said the attack was meant to, quote, frighten Russians, and he tried to reassure them that air defense systems had worked properly. I think that's indicative that there is concern in the Kremlin that Russians are worried because the war has rested on this kind of indifference amongst most Russians who kind of shut the war out of their ordinary lives. Ukrainians, meanwhile, have not had the option to shut the war out of their lives. While the drone attack in Moscow was huge news, in Kyiv, they happen regularly. You could hear it last week in evening addresses recorded by Ukrainian President Volodymyr Zelensky. Today was a very long day, he said on Monday, after rounds of overnight and mid-morning missile barrages in Kyiv. And three days later?

This long and hard day is coming to an end, Zelensky said. Three Ukrainians were killed in a missile attack that day, according to officials, including a nine-year-old girl and her mother. And it's not just the threat of attacks that upends daily life. Consider this. For Russians and Ukrainians, the war is also playing out in their economies. We'll hear how each country is trying to manage the financial fallout. From NPR, I'm Elsa Chang. It's Monday, June 5th. This message comes from WISE, the app for doing things in other currencies. Send, spend, or receive money internationally, and always get the real-time mid-market exchange

rate with no hidden fees. Download the WISE app today or visit WISE.com. T's and C's apply. Support for NPR and the following message come from Carnegie Corporation of New York, working to reduce political polarization through philanthropic support for education, democracy, and peace. More information at carnegie.org. Support for NPR comes from NPR member stations and Eric and Wendy Schmidt through the Schmidt Family Foundation, working together to create a just world where all people have access to renewable energy, clean air and water, and healthy food.

The Schmidt Family Foundation is part of the philanthropic organizations and initiatives created and funded by Eric and Wendy Schmidt to work toward a healthy, resilient, secure world for all. On the web at theschmidt.org. It's Consider This from NPR. Fighting a war is expensive. There are costs directly related to the war itself, like for weapons, ammunition, room and board, and salaries for soldiers. And if, like Ukraine, your country is the one being invaded,

there is the fact that war can grind daily life to a halt. The agriculture and business and trade that bring money into an economy, lots of it just can't happen when bombs are falling. So how is Ukraine doing? Well, NPR's Yulian Haida brings us this checkup on the economy, starting at a market in Kiev. It's one of those markets that you only really see outside the U.S. Ten, twelve acres of booths, aluminum

shacks, canvas roofs, people selling everything from socks to beer to cigarettes to sausage to gravestones to cooking oil to toilet paper to light bulbs. People talk about politics, people play badgammon, but prices are the main theme here. Lyudmila Stalina is a vendor here running a booth overflowing with Ukrainian produce. She says before Russia invaded last year, a kilo of onions went for about 30 hryvnia, a little over a dollar in Ukraine's currency at

the time. Now, Kyiv residents are paying double, as much as 60 hrivnya. She reminds me that much of Ukraine's agricultural heartland is still under Russian occupation, leading to low supply and high prices. Still, people buy her local foods because it's the only thing that's predictably affordable, unlike the Moroccan pineapples and Turkish avocados she keeps on hand for the rare customer who can splurge. Several miles away in a gleaming downtown Kiev high-rise, I meet economist Ruslan Spivak. Everybody in this country has become much more poor since February last year. Still, Spivak says that things could have been much worse if Ukraine's central bank hadn't made some radical reforms

after Russia first invaded Ukraine in 2014. We have the record high currency reserves, which allow Ukrainian national bank and regulatory bodies to infuse money into the economy when it's really needed. Spivak says that significant reserves buttressed by funds from Western financial institutions like the IMF and U.S. Treasury Department have allowed Ukraine's financial system to avoid collapse when Russia invaded again last February. Ukraine's central bank had also fixed the exchange rate of Ukraine's hryvnia. By some estimates, it's worth twice as much as it would be if it were allowed to freely float.

So, do you remember that kilo of onions that Lyudmila Stalina had at her produce booth? Well, while the sticker price of those onions has doubled, the domestic buying power of Ukraine's currency, because of the central bank's moves, is also relatively stronger than it could have been, meaning that those onions are still pretty affordable, even with poverty on the rise in Ukraine. So while Ukraine's GDP is estimated to have shrunk 40% last year,

the actual inflation rate was... Close to 20%. Plus minus. Only 20%. That's a fraction of the inflation rate that some countries like Turkey are facing these days. And not much more than economic powerhouses like the US and EU. Spivak says that there's another reason why Ukraine's economy beat expectations. Everybody start to consume the local production. I see that this intention

definitely patriotic thing. Using their local currency at home means less of it is being used to buy goods and services from other countries, and that leads to a more stable economy and leaves the government able to focus on the war effort. Back at the market, I walk into a refrigerated warehouse that's just packed with egg vendors. When I was here last, last fall, they were probably half the vendors operating these stalls. Prices had hit record highs and people were tightening their belts ahead of a brutal winter. Now there are more eggs, and vendor Albina Alhematasova tells me the prices have fallen and stabilized.

She tells me every domestic industry is working together to ensure market stability, from the delivery vans to the chicken feed providers, even if it lowers profits across the board. That was NPR's Y Haidai in Kiev. Meanwhile, Russia's economy faces challenges on two fronts. First, there's the cost of the war itself. And then there are the sanctions imposed by the U.S. and its allies. They've made it nearly impossible for Russia to sell goods like oil and wheat to other

countries. Now, so far, Russia's economy has held surprisingly strong. But NPR's Stacey Vanek-Smith reports that may be changing. As the Russian invasion of Ukraine was ramping up, the country's economy was hunkering down. Sanctions closed in, cutting off Russia from most global banking and trade. But the economy proved surprisingly tough. Russians even developed a nickname for it. It's called a Fortress Russia. Fortress Russia. Alexandra Prokopenko grew up in Russia. She studied economics and business and eventually took a job in Moscow at the Russian Central Bank. She says the sanctions from more than 40 countries were

expected to hammer Russia's economy. Instead, it held pretty steady. They put a lot of effort in this resilience. A lot of Russia's resilience came from oil prices. The invasion of Ukraine caused a global panic that pushed the price of oil way up. Oleg Itzhoki is an economist at UCLA. He says Russia has been able to sell its oil to China and India, among others. And a lot of the sanctions against selling oil and gas to Europe didn't kick in until the end of last year. So Russia was raking in money for most of 2022. Russia was making about a billion dollars a day, which essentially financed the rest of the economy.

But Itzhoki says this year has been very different. European sanctions have kicked in, so oil revenues are way down. And now the war is costing Russia hundreds of millions of dollars a day. That's exactly why 2023 is a year of difficult choices. A year of difficult choices. Itzoki says right now, Russia needs money. And raising it is not going to be easy. President Vladimir Putin will either have to raise taxes or force people to buy war bonds. Or both. And that could erode support for the war, which Putin desperately needs. Kremlin obviously is paying attention to what's particularly unpopular among the population. They're trying to navigate what's least unpopular.

Fortress Russia is starting to feel the heat. And it's not just a lack of funds causing problems. Sanctions also mean Russia can't import goods from many countries. And manufacturers often can't get products or parts. For example, airbag technology is not available in Russia. And so basically the cars that are assembled are assembled without their backs. Or anti-lock brakes. Many of the trains, planes and other high-tech goods that are made in Russia are using technology from decades ago. Russia can import a lot of things from places like China, but that takes business away from Russian companies and it risks creating

an even greater economic dependence on China, which Putin does not want. But the biggest issue facing the Russian economy is not products or sanctions. It's people. We saw a massive brain drain. Alexandra Prokopenko says it's estimated nearly one and a half million young Russians have left the workforce since the invasion began. Many have fled the country, especially educated, skilled workers. Prokopenko says without workers, many Russian companies and businesses are having to scale back or even shut down. In fact, Prokopenko herself is among the young workers who have left. I left Moscow shortly after the invasion. Prokopenko now works at the Council

on Foreign Relations in Germany. But she says she misses Moscow every day. And she still dreams about her favorite places there, like Mershersky Park, a big foresty park where she loved to go running. There are lots of trails and I always felt myself really great in there. And I'm missing Moscow a lot. But like hundreds of thousands of her peers, Prokopenko is making her future elsewhere. And that is a huge problem for Russia, not just right now, but also going forward. After all, while sanctions and restrictions on manufacturing could affect Russia's economy for years to come, losing a generation of its best and brightest could damage the country's economy for generations. That was NPR's Stacey Bannock-Smith.

It's Consider This from NPR. I'm Elsa Chang. Support for NPR and the following message come from the Kauffman Foundation, providing access to opportunities that help people achieve financial stability, upward mobility, and economic prosperity, regardless of race, gender, or geography. Kauffman.org.