Russian economy taking a hit from its success in Ukraine

LA Times:

Russia's economy has been hit hard by the turmoil in neighboring Ukraine, Kremlin officials said Wednesday, as pro-Russia separatists battled to take over more territory in Ukraine's east — and potentially add to Moscow's economic burden.

Russia's annexation of Ukraine's Crimea region last month and the instability it created in Russian financial markets were cited by government officials for record capital flight and sharply downgraded growth forecasts for the country. Finance Minister Anton Siluanov said that instead of projected 2.5% growth this year, Russia's economy might show no growth at all.

Russia's economic slide has accelerated since a rebellion in Ukraine ousted President Viktor Yanukovich, a Kremlin ally, in late February. Russian President Vladimir Putin then sent troops to Crimea, claiming that the ethnic Russian majority there was in danger from the opposition politicians who took power in Kiev, the Ukrainian capital.

U.S. and European sanctions to punish Russia for occupying and annexing Crimea have so far targeted only a few dozen officials and businessmen. But the prospect of broader penalties, such as a Western boycott of Russian oil and gas, have scared investors into cashing out their ruble-denominated assets for hard currency and taking their money abroad.

Russia's foreign exchange reserves were drained of a record $63 billion in the first quarter of the year, Economic Development Minister Alexei Ulyukayev said Wednesday in an address to the lower house of the parliament.

If that pace continues, losses this year would surpass the $120 billion Russia lost in 2008 at the height of the global recession.

Russian stocks fell 10% last month, wiping out further billions in capital. The ruble has lost 9% of its value since the start of the year, boosting prices for the imported food and manufactured goods on which the Russian consumer market is heavily dependent.
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A more aggressive sanctions regime by the West could have made these Ukraine adventures much more costly.  They still should be imposed if there is to be any effective response to Russian aggression.