Davos ponders Russia's reversal of fortunes and wider sanctions effects

Davos ponders Russia's reversal of fortunes and wider sanctions effects
By Sarah Chappell with EURONEWS DAVOS TEAM ORIGINAL REPORTING
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Falling oil prices and sanctions are pressuring Russia's economy. The International Monetary Fund says this is an opportunity for the country to enact reforms.

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The dramatic reversal of Russia’s fortunes is at the forefront of many Davos delegates’ minds.

Carlos Ghosn, the chairman of Renault-Nissan, which has a controlling stake in Russia’s largest car maker Avtovaz, expects the car market there to shrink by at least 20 percent this year.

He told euronews: “Not only is the market declining but the [Russian] currency is weakening. The carmakers are in the process of localising production but it is not yet done, which means there are still a lot of parts that are being imported to Russia. So, you can imagine, if you have to sell cars in rubles and part of your costs are in euros or in yen, it is going to be extremely unfavorable.”

Plummeting global oil prices and international sanctions against Russia over the Ukraine crisis shook up investor confidence and sent the rouble into freefall late last year.

Euronews correspondent at Davos, Sarah Chappell, notes: “Economists have been slashing their Russia growth forecasts for this year and beyond in the belief that the country’s economic pain is here to stay. There is no sign of the international sanctions being lifted and oil prices are widely expected to remain low.”

The International Monetary Fund is warning that Russia will have a very challenging 2015, but also says it may not be too late for some good to come out of the crisis.

Zhu Min, the Deputy Managing Director of the IMF, told us: “With the low oil price, with the pressures, maybe there’s a window of opportunity for [Russia] to carry out reforms. I think it is absolutely [essential] for Russia to carry out the reforms to reduce the vulnerability, for themselves and for the rest of the world as well.”

The IMF says the top reform priority is the diversification of Russia’s economy away from its dependence on oil and gas.

But until that happens, the country’s economy remains largely at the mercy of global oil prices.

On the subject of sanctions, euronews spoke to Mark Rutte, the prime minister of the Netherlands.

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Isabelle Kumar, euronews: “Prime minister, many thanks for being with us on euronews. It’s been six months since the tragic crash of the Malaysia airlines flight where pro-Russian separatist rebels have been accused of being involved. Are feelings still running very high in the Netherlands when it comes to Russia?”

Mark Rutte, Dutch Prime Minister: “Well, the feelings are running high in terms of this terrible crash. The Netherlands has been asked by the world to lead the independent investigation, and I expect results over the course of this year and that means that I cannot at all assume who might be behind this, who has done this. I know there are many theories around, but I really have to be silent on this.”

euronews: “In terms of EU and US sanctions against Russia, there’s obviously concern of a blow back on the European economy, the Netherlands as well. Do you think sanctions should continue against Russia?”

Rutte: “Absolutely. The sanctions have not been put in place because of MH17, they have been put in place because of Crimea and Eastern Ukraine. And the situation has only deteriorated, and even today, it seems – it is not officially confirmed – it seems even today that the Russians are upping their game in Eastern Ukraine, so I believe the sanctions should stay in place.”

euronews: “And increasing sanctions?”

Rutte: “It is not on the table at this moment. We have to look at the situation — if indeed the situation deteriorates any further. At the moment at least we need to remain with the present sanctions.”

euronews: “Now, you’ve also got extensive energy ties with Russia. Is that a cause of concern in the Netherlands?”

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Rutte: “Well, I think, and this goes back to the fact we have to realise that if a country starts to interfere in another country, we, from the European Union, being based on freedom and free trade and the freedom of speech, we cannot accept it. And that is only logical that against a country like that, who is interfering in another country, that sanctions are applied, and yes, of course, they also have an effect on the European economy, but at the moment here, particularly, and this is how they were designed, are hurting the Russian economy.”

euronews: “We did see Ukrainian President Poroshenko in front of the audience here in Davos making claims that there were some 9,000 Russian troops on his soil. Do you think Europe has really stepped up to the plate enough in terms of this conflict? Are we basically having enough of a leadership role there?”

Rutte: “Yes, I think so, I do believe so. The Minsk process, the peace process, means that Europe is really taking leadership in solving this.”

euronews: “Just before the World Economic Forum convened, it released a report saying that international conflicts are the biggest risk to the stability of the world and therefore economies. Do you concur with that?”

Rutte: “I do think so, that it is at least a very big threat at the moment. It might even be the biggest threat. There are other threats, like the environmental issues in the world, and the fact that in many countries economies are lacking behind in terms of reforms and investments and making sure that the public finances are in good health. But I do concur with the fact that, as things are presently, as the situation is now, that international… the terrorism, the unsafety [sic] of certain parts of the world, is probably the biggest threat.”

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euronews: “And Russia is obviously part of that. Prime Minister, many thanks for being with us.”

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