Authors: German Orejarena
Summary:
- Sputnik, the Russian state-owned news agency, casts doubt on the Western’s financial capacity to continue supporting Ukraine against Russia’s invasion.
- This article proposes to debunk the news from three perspectives: looking for information about the news’ content, analysing the context of the content, and looking for the missing piece of information.
- While the article attempts to link global economic problems to a lack of financing, its arguments fall short of demonstrating a possible crisis as a standalone event from Russia’s invasion. There is evidence of constant funding from Ukraine’s allies, as well as a less favourable Russian outlook in the medium term.
On January 24th, 2023, Russia’s state-owned international news agency Sputnik published an article entitled “The financial question after Ukraine aid becomes more serious for the West” based on an opinion piece published in the newspaper Al-ain. In its article, Sputnik argues that the West would not have the capacity to support Ukraine financially because the international economic situation would not allow for increased public spending. Problems such as slowing growth, high inflation, and declining production would not be able to financially support the national defence sector, let alone the Ukrainian military in the face of Russia’s invasion. How true can this be?
To verify these facts, I will use three perspectives: first, I will look for the rationale behind the Western’s financial capacity; second, I will analyse the context of the content of this article to decipher its intent; and finally, I will trace what is left unsaid about the Kremlin’s financing of this war, which despite almost a year since it began, Sputnik continues to call a “special military operation”.
After the Covid-19 crisis, many economies have still not been able to recover their pre-pandemic levels. Although advanced economies achieved a good performance during 2022, key sectors such as tourism or industry have yet to recover. It is no secret that global economic performance is at risk from multiple factors that are reflected in high levels of inflation that can lead to higher unemployment and destabilise economic growth. The Russian invasion of Ukraine caused energy and gas prices to rise sharply, with a knock-on effect on global supply chains. It also led to unpredictable food price spikes in the international economy.
Although the global economy was already showing signs of stagnation before the war, this caused central banks to target high interest rates to counter inflation, as seen in early 2023. With this move, many countries are expected to enter a slowdown and an eventual recession that would be tentative to fiscal austerity measures. However, the words of António Guterres, Director-General of the United Nations, reflect the purpose and direction of fiscal policy: “This is not the time for short-term thinking or knee-jerk fiscal austerity that exacerbates inequality, increases suffering and could put the SDGs farther out of reach. These unprecedented times demand unprecedented action”, thereby pointing to stimulus packages such as the Recovery and Resilience Plan as the way forward.
Despite this scenario, the West maintains its position of support on three fronts: military support, financial support, and humanitarian assistance, as demonstrated by the Kiel Institute for the World Economy -IfW in research tracking funds flowing to Kyiv from its allies. Since February 24, when Russia invaded the country, at least 28 economies have sent arms to Ukraine. These included the United States with €22.9 billion, European Union institutions with €3.1 billion, and the United Kingdom with €4.1 billion. Germany (€2.3 billion), Poland (1.8 billion), and Canada (€1 billion) also stand out, but this share of aid could change in the coming months following German approval to send 14 Leopard 2 tanks and allow other countries to send theirs. This decision, which had German Chancellor Olaf Scholz under pressure, also allowed President Joe Biden to approve the delivery of 31 M1 Abrams tanks to Ukraine. Germany, Denmark and the Netherlands also plan to deliver at least 100 Leopard 1 tanks to Ukraine, as Berlin has approved the export of up to 178 tanks.
International financial support will also bring substantial changes in support for Ukraine since the EU approved an €18 billion package to be delivered over 2023 “to keep on paying wages and pensions and maintain essential public services, such as hospitals, schools, and housing for relocated people. It will also allow Ukraine to ensure macroeconomic stability, and restore critical infrastructure destroyed by Russia”. These resources would come on top of €30.3 billion from EU institutions, €15.1 billion from the US, €2.55 billion from the UK, €2.14 billion from Canada, €1.15 billion from Germany, €1 billion from Poland, and other smaller amounts. In contrast, humanitarian aid amounting to €16.76 billion is the least represented amount, with only the United States accounting for €9.9 billion.
More than €108 billion accounted for until November 20th, 2022, is proof of the international community’s commitment to Ukraine to deal with the Russian invasion. What is Sputnik looking for with this version of war? The article mentioned that finances would be the biggest problem for the allies to maintain their support for Ukraine, dismissing the Western’s political recognition to join forces against the Kremlin’s invasion of a sovereign territory. The article relies on a tendentious argument that uses elementary economic theory to say that tax increases in donor countries to transfer resources to the defence sector and reduce social spending would put governments in a bind when people come out in protests. Sputnik assumes that the emergence of social problems generated by support for Ukraine would cause people to revolt; however, many of the social problems that already cut across economies over time have been exacerbated precisely because of the effect of the Russian invasion.
The article also mentioned two other problems that the West must solve to maintain its finances and not count its spending as a loss: donated weapons that do not reach the Ukrainian military and weapon protection from Russian shelling. The Kremlin’s fictitious concern overlooks the fact that military support includes technical and logistical support for Ukrainian military forces. Military support aims precisely to protect lives, infrastructure, and sovereignty, although it seems obvious that in a military confrontation, weapons will be destroyed on both sides. From a safer and stronger perspective for the union, the financing of the war encompasses all types of tied and untied bilateral and multilateral international cooperation. The EU makes its support conditional on its interests in supporting reforms that will help Ukraine on its path to EU membership. They consider macroeconomic instruments of financial assistance highly flexible and with very favourable terms for the recipient country.
What is Sputnik hiding in its article? The Kremlin’s finances to maintain its so-called special military operation to contain an alleged genocide by Kyiv are not mentioned in the least. It is estimated that the Kremlin’s finances have enjoyed a period of robustness since the oil price boom in 2000, which has allowed it to strengthen its military power in recent years with the annexation of Crimea, its intervention in Syria, and the current war in Ukraine. From 2000 to 2021, the Kremlin increased its military investment by 700%, and its military budget is larger than in any EU country. But this bonanza has ended since the start of the war, for an estimated of $82 billion has been spent for this purpose. According to the Financial Times, the country is facing a growing budget gap mainly due to sanctions imposed on Russian crude oil on the international market, so “Moscow covered the shortfall by diverting money from Russia’s sovereign wealth fund, state loans, and an extraordinary tax on Gazprom, the state gas monopoly” according to Sofya Donets, an economist at Russian investment fund Renaissance Capital.
President Vladimir Putin has passed on this pressure on public finances to large companies and state-owned enterprises by proposing an increase in dividends and an extraordinary tax on profits. Just before the invasion, “Russian mining companies, including coal and fertilizer producers, were hit by an increase in the mineral extraction tax rate”. The truth is that despite unlimited spending on military resources, investment is low in infrastructure, education, and health in a country with more than 20 million people (14% of the population) below the poverty line. If Russia’s economy is not to perish in the invasion, it will have to reorient its economy to one that seeks import substitution, but an end to the invasion of Ukraine would be a non-negotiable condition.
To summarize, this article, which seeks to cast doubt on the Western’s financial capacity to support Ukraine in the war, employs tendentious arguments with half-truths to describe a factual event such as the decline of the global economy as a separate event from the Kremlin-initiated tensions. This method of presenting information lacks technical rigor and promotes a credible idea. Furthermore, it is not surprising that the version about the state of Russian finances to continue the war is not mentioned.