How U.S. sanctions could ‘constrain’ Russia’s economy

Judy Woodruff:

And for a closer look at the new sanctions the Biden administration announced today on Russia and how all of this could affect the U.S. economy, we are joined by Wally Adeyemo. He is the deputy secretary of the Treasury Department.

Secretary Adeyemo, thank you very much for joining us.

Let's start with the sanctions on these two major Russian financial institutions. Whom do these sanctions hurt, and how does it hurt them?

Wally Adeyemo, U.S. Deputy Treasury Secretary:

Well, Judy, thank you for having me.

These sanctions hurt Vladimir Putin and the Kremlin. One institution is the institution that the Kremlin has used to project power within Russia. The second institution is an institution the Kremlin has used to project power outside Russia by funding their defense industry.

The president's charge to us was to use our sanctions to have a significant impact on Russia, while mitigating the impact on the United States and our European allies, which is exactly what we did today.

Judy Woodruff:

You also — the president also announced sanctions, punishments on five so-called elite individuals. We understand three of these individuals have already been sanctioned.

How is this going to influence Mr. Putin?

Wally Adeyemo:

Judy, as you know, Mr. President derives a great deal of his wealth from a set of elites who are around him.

And many of these elites who we have previously sanctioned, what we have found is that they have moved their money from themselves to their children. By today taking this action to be able to re-sanction some of those individuals, it allows us to get at their family members, to whom they have moved their wealth, to further deprive President Putin and the Kremlin of the wealth that they're using to project power around the world.

Judy Woodruff:

I want to also ask you about the sanctions imposed on Russia's central government debt and how that's going to work.

I mean, are — what our understanding is, that over the last several years, economic — people who study Russia's economy say that Mr. Putin has structured Russia's economy, so that they are insulated from these kinds of outside sanctions.

For example, they have enormous currency reserves. They don't depend as much on the U.S. dollar. So how do you know that he is going to feel hurt from this?

Wally Adeyemo:

So Judy, you're right that the Kremlin has tried to take attempts to structure their economy in a way that avoids the dollar.

But still to today, the financial system in Russia on a daily basis does about $46 billion worth of foreign exchange transactions; 80 percent of those transactions involve the U.S. dollar. So they have not succeeded in their goal. These sanctions that we're going to implement today will have significant impact on the Russian economy.

By cutting off their sovereign debt not only in the primary, but in the secondary market, we're also starving the state of the resources that they will need to project power within Russia and also external to Russia.

Judy Woodruff:

How soon is Russia going to feel the pain of these sanctions?

Because, as you know, events moving very fast on the ground in Ukraine.

Wally Adeyemo:

Judy, Russia is already feeling the pain of our sanctions and the fact that we have threatened them.

To date, the Russian economy is one of — is the worst performing emerging economy in the world, in terms of the ruble. And the Russian stock market has already lost 20 percent.

Over the course of the next several days, the actions that we have taken today, in collaboration and coordination with our allies, will have a significant, immediate impact on Russia. But, over the long term, it will impact their ability to project power around the world.

One of the key things that happened today was, the United States didn't act alone. As you know, Europe is — Europe is responsible for 40 percent of Russia's trade. The decisions that Europe has made now will constrain Russia's economy, not only tomorrow, but for the years and years to come.

Judy Woodruff:

How concerned is the administration, at the same time, Secretary Adeyemo, about how Russia could retaliate?

We know they export essential commodities like copper and wheat. How do we know that there won't be a restriction in those exports?

Wally Adeyemo:

Judy, an important thing to remember is that Russia makes money from those exports. Those exports are critical to Russia's economy going forward.

But we are concerned about potential responses. And that's why the president is taking steps to mitigate them by talking about steps we can take in the United States to reduce costs and steps we can take to help our European allies deal with some of their energy constraints by working with our partners in the region.

Our goal overall is to use our sanctions authorities to target the Russian economy, but to mitigate the impacts on the United States and Europe, while taking additional steps to make sure that we reduce costs on our economy. And that's exactly what we're doing.

Judy Woodruff:

And speaking of that — and the president's already spoken, in fact, about the higher costs that could come from all this for oil and gas, for energy in this country — specifically, can the Biden administration take steps that are going to prevent gasoline, for example, from going even higher than it is right now?

Wally Adeyemo:

So, Judy, as the president said in his remarks, we're focused on reducing costs across the economy for the American people.

When it comes to the sanctions and the actions we're going to take with regard to Russia, our goal is to have a significant impact on the Russian economy, while mitigating the impact on the U.S. and on the European economy.

In addition to doing that, none of our sanctions today targeted the energy markets or energy infrastructure. In addition, we're committed to working with our allies and partners to make sure that the energy market remains well-supplied.

But, as the president made clear, there will be costs associated with President Putin's decision to invade Ukraine. And our goal is to make sure that we mitigate those costs as much as possible for the American people. And that's what we're focused on doing.

Judy Woodruff:

Two other areas I want to ask you about, Mr. Secretary.

And one is, as you know, criticism already coming from Republicans and others that this should have happened much sooner, that, if it had, frankly, Vladimir Putin might not have moved on Eastern Ukraine as he has.

Wally Adeyemo:

From the very beginning, when we saw Russian troops amassing near the Ukrainian border, President Biden set us off to do work, not only in the United States, but to work closely with our allies, to make very clear to President Putin that, if he were to invade Ukraine, there would be clear and decisive costs for the Russian economy.

And by offering that, we said that President Putin had a choice. He could choose the route of diplomacy and discussion or the choice of sanctions.

President Putin is clearly making his choice. And our goal now is to make sure that we take actions to constrain the Russian economy and to make sure that he is unable to project power going forward.

Judy Woodruff:

So, you're saying you don't believe these sanctions would have had a deterrent effect.

And another question is, what about Vladimir Putin's own — he is believed to have in the hundreds of billions of dollars worth of assets scattered around different parts of the world. Can the Biden administration ultimately go after his personal assets?

Wally Adeyemo:

So, Judy, Vladimir Putin doesn't have a bank account. Vladimir Putin makes his money by taking money from the elites who are around him and also from the Russian economy.

That's why we think it's so important that we target these elites, and that we cut them off from the U.S. financial system, and that we work with our European allies and partners to have them also constrain these elites' wealth that exists outside of Russia.

The actions we're taking today and the actions we will continue to take if Russia continues to invade Ukraine will cut off Vladimir Putin's sources of funding and his wealth.

Judy Woodruff:

The deputy secretary of the Treasury, Wally Adeyemo, thank you very much for joining us. We appreciate it.

Wally Adeyemo:

Thanks for having me, Judy.