Overview of Why hasn't the Russian economy collapsed?
This episode of The Indicator from Planet Money (hosts Waylon Wong and Patti Hirsch) examines why Russia’s economy has continued to function after the 2022 invasion of Ukraine, despite sanctions, rising debt, and heavy wartime spending. The show lays out six interlocking reasons—economic, geopolitical, and social—including a grim policy dubbed “smertonomika” (death economics)—that help explain Russia’s resilience in the near term and the risks it is accumulating for the future.
Six reasons Russia’s economy hasn’t collapsed
1) Russia still exports things the world needs
- Energy (oil and gas) plus some metals and fertilizers remain in global demand, providing a steady revenue stream that sanctions haven’t fully choked off.
2) Sanctions were slow, telegraphed, and imperfectly enforced
- Western sanctions created a shock but were implemented with delays, predictability, and weak secondary enforcement, allowing Russia time and routes to adapt.
3) Deepening ties with China (and others)
- China is now Russia’s largest trading partner, buying oil, gas, agricultural and chemical products and supplying consumer goods that free up Russian industry for military production. This relationship has functionally made Russia more dependent on China but has kept revenues flowing.
4) Pre-existing buffers and careful macro policy
- Russia pursued tight fiscal and monetary policy, deleveraging and stockpiling foreign currency. Skilled technocrats and planning since 2014 (after Crimea) helped limit capital flight and stabilize finances.
5) Recasting and consolidating domestic economic power
- Forced sales of foreign firms (often at fire-sale prices) redistributed key assets to new, loyal business elites. That created a business class dependent on—and protective of—the regime, reducing elite opposition.
6) Smertonomika (death economics) — paying for lives to sustain the war economy
- The government has dramatically increased soldier pay, signing bonuses, and death benefits to recruit and keep the military supplied with personnel. Examples:
- Monthly pay reportedly ~6x 2022 levels.
- Signing bonuses now roughly $20,000–$40,000.
- Death benefits reportedly $130,000–$180,000.
- Banks have forgiven recruits’ debts up to ~$120,000.
- This creates perverse incentives: poor, often from deprived regions, enroll because immediate payments exceed lifetime earnings; wealthier classes are insulated from mobilization, reducing domestic pushback. The policy both sustains troop levels and supports local consumption in struggling regions.
Key data & stats highlighted
- Daily wartime spending: $0.5–1 billion.
- Official debt: about $320 billion.
- Growth: dropped from ~4% (2022?) to under 1% in Q3 of last year.
- Russia’s global economy ranking: depending on measure, 11th or 4th largest.
- Estimated foreign business direct losses after exits: ~$170 billion (Kyiv School of Economics).
Notable quotes & insights
- “We’ve just not been very clever” — critique of how sanctions were designed and enforced.
- Sanctions bought Russia a shock but not a knockout blow; enforcement and secondary sanctions have been weak.
- Smertonomika described as a “macabre Keynesianism”: direct cash transfers to soldiers and their families act like targeted stimulus to depressed regions while also sustaining the war.
- The relationship with China has been helpful short-term but makes Russia economically dependent.
Implications and likely future scenarios
- Short-term: The combination of commodity revenues, external partners, domestic buffers, political consolidation, and smertonomika can keep the economy functioning despite large wartime costs.
- Medium-to-long term risks:
- Heavy spending on defense and depletion of human capital can degrade productive sectors.
- Rising debt and resource reallocation (to war) are effectively mortgaging the future; structural damage may surface once the war ends or external support wanes.
- Dependence on China and informal sanctions circumvention channels creates strategic vulnerabilities.
- If the war stops, the “war economy” support mechanisms will collapse and the real cost of the economic damage will become clearer.
Policy implications (what would change the calculus)
- Stronger enforcement of secondary sanctions and penalties for sanctions evasion would raise the cost of circumvention.
- Targeting the channels that enable refined oil sales and third‑country facilitation could reduce revenue flows.
- International coordination (beyond headline sanctions) and measures that limit China’s ability to substitute for Western markets would make sanctions more effective—but would be geopolitically complex.
Produced insights and sources: interviews with Alina Rybnikova (Peterson Institute), Timothy Ash (Chatham House), and Vladislav Inozemtsev (Center for Analysis and Strategies in Europe). The episode emphasizes that current resilience is brittle and built on short-term fixes that carry significant long-term costs.