S a nc­ctt ii o nss

Financial Mirror (Cyprus) - - FRONT PAGE -

With the cri­sis in Ukraine in­ten­si­fy­ing, the United States and the Euro­pean Union are locked in a bat­tle of wills – and sanc­tions – with Rus­sia. In­deed, in re­tal­i­a­tion for the in­ten­si­fi­ca­tion of Western fi­nan­cial sanc­tions, Rus­sia has an­nounced a ban on food and agri­cul­tural im­ports from the US and the EU. But the real threat to the West lies in the po­ten­tial im­pact of a fi­nan­cial cri­sis sparked by its own sanc­tions against Rus­sia.

Con­sider Rus­sia’s 1998 fi­nan­cial cri­sis. In Au­gust of that year, then-Pres­i­dent Boris Yeltsin de­clared, “There will be no de­val­u­a­tion – that is firm and def­i­nite.” Three days later, the ru­ble was de­val­ued, and Rus­sian fi­nan­cial mar­kets went into a tail­spin. With cap­i­tal pour­ing out of the coun­try, the Rus­sian gov­ern­ment was forced to re­struc­ture its debt, and the econ­omy en­tered a deep re­ces­sion.

Though Rus­sia was rel­a­tively in­signif­i­cant fi­nan­cially, its cri­sis had far-reach­ing con­se­quences. Among the worst af­fected was Ar­gentina; the Rus­sian cri­sis ex­ac­er­bated a de­cline in in­vestors’ con­fi­dence in emerg­ing mar­kets that cul­mi­nated in Ar­gentina’s sov­er­eign de­fault less than four years later. Even the US and Europe were not im­mune, with the col­lapse of the ma­jor hedge fund Long-Term Cap­i­tal Man­age­ment (LTCM) fu­el­ing anx­i­ety about the vi­a­bil­ity of many other fi­nan­cial in­sti­tu­tions.

To­day’s fi­nan­cial dra­mas bear a strik­ing re­sem­blance to this ex­pe­ri­ence. Ar­gentina has tech­ni­cally de­faulted; Amer­i­can and Euro­pean fi­nan­cial in­sti­tu­tions and mar­kets are jit­tery; and Rus­sia is promis­ing that the sanc­tions it faces will have no im­pact on its econ­omy.

The most ob­vi­ous sim­i­lar­ity is Rus­sian Pres­i­dent Vladimir Putin’s as­ser­tions that his coun­try can weather any and all Western sanc­tions. That may be wish­ful think­ing. In fact, bar­ring most ma­jor Rus­sian banks from op­er­at­ing freely in

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