Bankruptcy haunts Russia after war sanctions: IMF

According to the International Monetary Fund (IMF), Russia could be doomed to bankruptcy due to economic sanctions and financial restrictions imposed on it by the international community for invading Ukraine.

And the conflict could also have major consequences for the global economy, according to the director of the Fund, Kristalina Georgieva.

“Russia’s bankruptcy is no longer an unlikely event,” Georgieva said in a digital meeting with several international media outlets, warning that the Russian economy is already shrinking and is heading for a deep recession this year.

As he explained, the length of the war and the sanctions, as well as the possibility of them tightening and affecting energy exports, will be key elements in determining the extent of the recession.

The IMF also warned of the dire consequences of the war for the global economy, especially for neighboring Russia and Ukraine, but also for the rest of the planet.

“We have been through an unprecedented crisis with the pandemic. And now we are in even more unimaginable territory: war in Europe,” Georgieva said.

He pointed to three direct effects of the conflict on the global economy: the rise in commodity prices, the decline in global purchasing power due to inflation, and the impact on the global financial situation and business confidence.

As for the institution’s ties to Russia, Georgieva indicated that the entity’s office in Moscow is closed, that the IMF currently has no ongoing operations with that country, and that the reserve funds that Russia has in the organization are practically inaccessible to them. because of the sanctions of other countries.

Regarding a hypothetical expulsion of Russia from the IMF, the director explained that the only way envisaged in the institution’s statutes for expelling a member is the breach of its financial obligations, something that the Russians are up to. have not done so to date and that is therefore a scenario that the Fund is not considering.

The IMF held the meeting a day after its board approved the $1.4 billion disbursement of emergency aid to Ukraine and warned that the war will cause a “deep recession” in the country.

The amount approved by the Fund corresponds to the amount requested by the Ukrainian government and will serve to mitigate “the economic impact” of the war started by Russia, the IMF said on Wednesday in a statement in which Georgieva admitted that Ukraine’s financing needs ” big, urgent” and can grow.

In the specific case of Latin America, a region with which Russia has made efforts in recent years to strengthen economic ties, the IMF warned that the invasion of Ukraine will exacerbate the inflationary situation due to the pressure it is exerting on energy prices. , in addition to risks to the region’s supply.

Georgieva recalled that inflation in many Latin American countries had skyrocketed even before the war in Ukraine due to their difficulty in recovering from the recession caused by Covid-19.

“And now on top of that is the pressure on energy prices from the war,” he said.

The director of the international financial institution admitted that some Latin American food-exporting countries could see the war as an economic opportunity to increase their exports in the face of dwindling Russian and Ukrainian competition, but warned that there are risks even for them. .

The shortage of fertilizers – of which Russia and Belarus are major exporters, while Brazil, for example, is one of the largest importers – and the disruption of the global trading system could create difficulties that outweigh any benefits.

Georgieva also referred to the specific situation in the Caribbean, which is still waiting for a full recovery in international tourism as the Covid-19 pandemic subsides, something that could now take even longer due to the loss of purchasing power around the world. by the inflationary pressures of the war.