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Is Russia making a ‘costly’ mistake in its Ukraine campaign?

April 25, 2014 at 6:12 PM EST
As evidence that Russia is already hurting from the initial round of sanctions, the ratings agency Standard & Poor’s has downgraded Russia’s credit rating for the first time in five years--to just one notch above junk status. Cliff Kupchan of Eurasia Group joins Judy Woodruff for a closer look at how Russia’s economy has been affected since the Ukraine crisis began.
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JUDY WOODRUFF: For a closer look at how the Russian economy has been affected since the Ukraine crisis began, I’m joined by Cliff Kupchan. He’s the head of the Eurasia Group’s Russia and Eurasia team.

Cliff Kupchan, welcome back to the NewsHour.

So, let’s talk first about the Standard & Poor downgrading of the Russian credit status. What does that really mean for Russia?

CLIFF KUPCHAN, Eurasia Group: It means the Russian economy is not doing very well.

Their report made clear that capital flight from Russia is in full stampede. The S&P report told us that, on average, for the previous five years, $51 billion a year roughly has left Russia. In the first quarter alone of 2014, between $50 billion and $60 billion has left. Growth is anemic. Russia is starting to run deficits. They’re doing nothing to improve the big picture of the economy. So, Mr. Putin is not doing much with his economy.

JUDY WOODRUFF: So, who is that affecting inside Russia?  Is it just some of the leadership? Ordinary people?

CLIFF KUPCHAN: Right now, I think it’s a muddling down for the ordinary person.

Real disposable income, which measurers how much a person has to spend, was growing consistently at high rates until last year, where it was at 1.9 percent. So the first victim of all of this is going to be the ordinary Russian, not the fat cat who has got money all over the world.

JUDY WOODRUFF: And now, just in fact minutes before we went on the air, the wires are — and you and I were just talking about this — the wires are reporting that the U.S. and the E.U. is et — are both set to announce new sanctions against Russia.

CLIFF KUPCHAN: Right.

JUDY WOODRUFF: On Monday, the U.S. — I’m reading — “sanctions that would be focused on those responsible or on Putin cronies.”

CLIFF KUPCHAN: Right.

JUDY WOODRUFF: And the E.U., European Union, focusing on those — quote — “responsible for Eastern Ukraine unrest.”

What does that say to you?

CLIFF KUPCHAN: It tells me that things are going to get worse for Mr. Putin.

I think, right now, he is operating on what I would call a Ukraine bender. It’s all about politics. He wants Ukraine back. Sooner or later, he’s going to realize that he may have well a choice between getting all of Ukraine and having an economy, because these sanctions hurt. Look, we have been able to practice sanctions on Iran. We know how to do them. The Treasury Department knows how to do them.

We know how to hit banks. We know how to scare financial sectors. And Putin may well just find out the hard way.

JUDY WOODRUFF: But are these type sanctions what we just described…

CLIFF KUPCHAN: No. No.

JUDY WOODRUFF: Those are not sanctions at the Iran level?

CLIFF KUPCHAN: Those are not of the Iran level.

They are against individuals and against individual companies. But we have learned that sanctioning a bank — we already sanctioned Bank Rossiya, the 17th largest bank in Russia, on the 20th of March. That spooked the entire Russian financial section.

Now, our president, President Obama, in your lead-in clip, said that we are preparing for level three Iran-like sanctions. So this is all in the works. And what we may see here that would be the epitaph of this very gruesome episode may be that Mr. Putin committed a very, very costly economic overreach. Let’s see.

JUDY WOODRUFF: But, so far, he has shown no sign of backing down?

CLIFF KUPCHAN: So far, he has shown no sign of backing down. So far, I think he simply wants Ukraine back. I don’t think he’s getting informed. Somebody’s got to tell him. And somebody, I think, will sooner or later.

JUDY WOODRUFF: What do you mean you don’t think he’s been informed?

CLIFF KUPCHAN: I don’t know that Putin’s information is always all that good.

I think one of the many tragedies of this crisis is that he surrounded himself by hard-liner, by ex-KGB guys. And the liberals have really been eclipsed. But, for example, if I could, just one example, Alexei Kudrin, the former finance minister, is still very close to him.

I think Kudrin could one day very soon say, look, boss, I want Ukraine back as much as you do, but we’re going to lose the economy. This isn’t working.

JUDY WOODRUFF: But you don’t think he’s hearing that right now and just choosing to ignore it, or you think the information isn’t getting to him?

CLIFF KUPCHAN: I mean, look, I don’t know.

We talking about — I have met Mr. Putin a whole lot of times. He is a very emotional guy. I think he knows what he wants. He’s either hearing it and not hearing it, in one ear and out of the other ear, or nobody is scared — everybody’s too scared to go up to the godfather and say, this is not such a good idea. I don’t know which one, but sooner or later I think he is going to get the message.

JUDY WOODRUFF: But, meanwhile, these new reports about Russian aircraft over Ukrainian airspace in the last 24 hours, Russian troops close to the border, you know, are we looking at a situation that could become a hot war?

CLIFF KUPCHAN: This is scary stuff.

Right now, on balance, I would be surprised if there were a hot war. Mr. Putin still has a very good card to play, which is to destabilize — what I call invade from below, to start to get activist Russians in East Ukraine to take cities, to just grab territory.

That way, he could take Eastern Ukraine without rolling any tanks. If that doesn’t work, then I think he might roll the tanks. So, I think there’s still muscle-flexing, getting leverage. I would be surprised if we saw anything this weekend or next week as far as an invasion goes. But misperception is a real problem. And he could lose patience. He has limited patience. I have seen it. And we could be in for a very, very rough ride here.

JUDY WOODRUFF: Grim.

Cliff Kupchan, we thank you.

CLIFF KUPCHAN: Good to see you.

JUDY WOODRUFF: Appreciate it.

CLIFF KUPCHAN: Thanks.