‘Close to the brink of collapse’: White House says Russia’s financial system is near failure

US officials paint an increasingly bleak picture of Russia’s economic future under the weight of US and EU sanctions imposed in response to Vladimir Putin’s invasion of Ukraine.

On Wednesday, the Biden administration unveiled a new set of financial sanctions to be imposed on Moscow, which President Joe Biden said would “aggravate the pain” of Mr Putin, including sanctions against his two adult daughters, the family of the Russian Foreign Minister Sergei Lavrov and members of the Russian Security Council.

Addressing union leaders at the annual legislative conference of North American building trades unions, Mr Biden vowed to “continue to increase the economic cost and increase the pain of Putin and further increase Russia’s economic isolation,” while boasting that the measures the United States has taken so far are expected to reduce Russia’s gross domestic product by double digits this year.

“Our sanctions are likely to wipe out Russia’s last 15 years of economic gains,” he said.

“And because we have prevented Russia from importing technologies such as semiconductors and encryption security and critical components of quantum technology that they need to compete in the 21st century, we will stifle the ability to Russia to grow its economy for years to come”.

A senior administration official who briefed reporters on the latest sanctions said the combined effects of the U.S. and European sanctions regime have dramatically reduced Russians’ quality of life and predicted the decline would continue.

“The reality is that the country is sinking into economic, financial and technological isolation. And at this rate, it will return to the Soviet-style living standards of the 1980s,” he said.

“Putin himself has said that the sanctions will require deep structural changes to the Russian economy to deal with new realities, including inflation and unemployment – ​​they were simply not prepared for their economic fortress to s collapses. And that’s what happened “.

Among the latest sanctions imposed on Moscow is a ban on using assets belonging to the sanctioned Russian central bank to pay sovereign debt obligations. The official said the effect of the ban is that Moscow “will now have to find new sources of dollars outside the United States and find a new channel of payment, other than American banks, to avoid falling into default. “.

“It’s Russia’s choice as to how to proceed – even if Russia taps into other sources of hard currency to stay current on its debt obligations, which will mean fewer resources available to Putin. to finance his war machine”.

On Tuesday, White House press secretary Jen Psaki called Russia’s financial system ‘close to the brink of collapse’ and said when Moscow would start defaulting on its debts depended on decisions taken by the country in response to the results of the sanctions.

“It’s getting harder and harder for President Putin to finance this war, every day. It’s having an impact,” she added.

Asked by Bloomberg News if the White House has a specific timetable for when Russia might start defaulting on its debts, Ms Psaki said the administration did not have a specific answer and she would be interested in the timetable suggested by the financial media.

“I don’t have an assessment on this, I can’t wait to read Bloomberg’s assessment on this, but I don’t have an assessment from here. It depends partly on the decisions they have taken. [Russia] do,” she said.

“Inflation is skyrocketing to 15%, the pull, the constriction of the economy there is one that we also expect to decline by 15%, private sector companies are not investing in Russia and the President Putin is an outcast,” she said. continued.

“All of this was the result of a coordinated effort to put in place economic and financial consequences that are having an incredible effect.”