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Nov 21, 2022
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Expropriation of Russian assets by the collective West

After February 24, the collective West began to expropriate Russian assets that it could reach. The expropriation is conceived in two stages. First, the so-called freezing of assets (Russian owners are deprived of access to assets, they cannot dispose of them), and then the final confiscation.

The work on freezing (also called seizure or blocking) of assets is quite well organized. At the initiative of Washington, the countries of the collective West in March established an international working group that is engaged in identifying Russian assets in different countries, coordinating actions to freeze at the international level and accounting for the frozen assets. At first, the total amount of “frozen” assets was estimated at $300 billion. This was the first production – the foreign exchange reserves of the Russian Federation. In June, according to the working group, the total amount of frozen assets rose to $330 billion. The working group did not publish later estimates, but the process of freezing continued.

So, in early November, a report by the Office of Financial Sanctions Implementation (OFSI) was published in the UK. It follows from it that, it turns out, already in September last year, Russian assets totaling 44.5 billion pounds (50.7 billion dollars) were under arrest in the country. And from February 24 to October 20 this year, the UK froze another 18.39 billion pounds ($20.95 billion) of Russian assets. The document also notes that in 2022 sanctions were imposed on 1.3 thousand Russian individuals and legal entities.

At the beginning of July this year, the European Commission reported that by mid-2022, Russian assets worth 13.8 billion euros were frozen in the EU. In early November, the figure was updated and increased to 17 billion euros.

If we take into account the data on freezing in other countries of the collective West – Japan, Canada, Australia and some others, then, probably, at the beginning of November, the total amount of frozen Russian assets could be about $ 350 billion. This became the basis for some experts to assert that the possibilities of a collective West on further arrests of Russian property are close to exhaustion.

However, the edition Politico On November 18, citing classified information from the European Commission, it was reported that the EU had decided to freeze Russian assets worth 68 billion euros. Also, an internal document from Brussels says that already in the EU countries assets have been frozen in the amount of 33.8 billion euros, i.e. twice as much as officially announced. Of the 68 billion euros, Belgium accounts for 50 billion euros of the 68 billion euros.

The strange geography of frosts is surprising. According to the publication Politico73% of seized assets fell on only one country – Belgium, whose economy occupies a rather modest place in the EU. I would not like to delve into the versions of what lies behind the Politico message. But let me draw your attention to the fact that it caused a strong response both abroad and in Russia. They began to say that, it turns out, the possibilities of the collective West to freeze have not been fully exhausted. Estimates of amounts that could still be frozen and then expropriated began to be voiced.

And here, from my point of view, the possibilities are very large. Let’s turn to the document called “International Investment Position (IIP) of the Russian Federation”, compiled by the Bank of Russia. The first part of this document, which is a table, presents Russia’s foreign assets formed as a result of the export of capital from our country. In the second part – foreign assets in the Russian economy, formed as a result of capital imports from other countries. The latest data on the MIP of the Russian Federation is as of January 1, 2022. Russia’s foreign assets at that moment amounted to 1.651.5 million dollars and included the following main components (accumulated investments, million dollars):

direct investments – 487.1;

portfolio investments – 117.4;

derivative financial instruments (DFI) – 6.4;

other investments (loans and credits) – 410.0;

reserve assets (gold and foreign exchange reserves of the Russian Federation) – 630.6.

Half of the reserve assets were frozen almost nine months ago. Less $300 billion, approximately $1.35 trillion remained. Less about $50 billion more of the later frozen assets of individuals and legal entities of the Russian Federation, there remains “non-frozen balance” of $1.30 trillion

I will name the volumes of accumulated direct investment of Russian origin by country (billion dollars): Cyprus – 224.83; Austria – 27.05; Netherlands – 25.47; Switzerland – 24.49; Great Britain – 22.66; Jersey – 20.59; Singapore – 12.57; Ireland – 10.39; Germany – 10.03; USA – 7.17, etc. All the main recipients of direct investment are countries from the list of “unfriendly states”. The size of direct investments in friendly countries is very modest (million dollars): Belarus – 4.876; Kazakhstan – 3.814; Armenia – 1.145; Kyrgyzstan – 269. And in China, which we today consider our main ally, the amount of Russian accumulated direct investment is simply ridiculous – $ 359 million.

I will name the geographical layout according to the Russian accumulated portfolio investment abroad (billion dollars): Ireland – 25.13; USA – 23.22; Ireland – 25.13; Luxembourg – 13.41; Great Britain – 12.86; Netherlands – 7.93; Cyprus – 6.78; Germany – 4.83; Japan – 3.09; Cayman Islands – 2.85; Canada – 1.94; British Virgin Islands – 1.37; France – 1.15; Jersey – 1.05, etc. All named (and many unnamed) countries and jurisdictions are from the list of “unfriendly states”. And here are the accumulated portfolio investments of Russia in friendly countries (million dollars): Kazakhstan – 929; Belarus – 851; Armenia – 28; Kyrgyzstan – 0. And in China – only 114 million dollars.

According to my very preliminary estimates, of the above-mentioned “unfrozen balance” of Russian assets, at least 90% are in those countries that are on the list of “unfriendly states.” In absolute terms, these countries account for approximately $1.17 trillion. Let’s round it up to $1 trillion. This is what Russia can potentially say goodbye to if the collective West continues its line of freezing and confiscation of Russian assets.

Back in 2014-15, when the collective West began to take the first sanctions measures against Russia (in connection with Crimea), I already warned that our geopolitical opponents could resort to such harsh measures as freezing and confiscation of foreign assets of Russian origin. See for example: Katasonov Valentin. Economic war against Russia and Stalinist industrialization. – M.: Algorithm, 2014. In this regard, I suggested that Russia’s foreign assets be curtailed as vigorously as possible. As of January 1, 2013, the total value of these assets was $1.354.2 billion. In nine years, not only has it not decreased, but, on the contrary, it has grown by almost $300 billion. Such a line of behavior cannot be called anything other than a giveaway game.

A reasonable question arises: why has the United States and its allies not yet seized such gigantic assets of Russian origin? One of the most convincing versions: our geopolitical opponents are afraid of retaliatory actions from Russia. How can Russia respond? Freezing foreign assets in Russia. According to the Ministry of Investments of the Russian Federation, their amount as of January 1 this year amounted to 1.166.6 billion dollars. Including (accumulated investments, billion dollars): direct – 610; portfolio – 273.6; PFI – 5.8; others – 277.2. The geography of the countries from where investments came to Russia is very exotic. These are, first of all, countries and territories that have explicit or indirect signs of offshore. Here is the list of leading countries and jurisdictions in terms of accumulated direct investments in the Russian economy (billion dollars): Cyprus – 183.30; Bermuda – 62.48; Great Britain – 53.48; Netherlands – 36.75; Ireland – 34.06; Luxembourg – 30.41; Germany – 25.42; Bahamas – 24.92; France – 23.71; Switzerland – 19.38, etc.

Again, according to a rough estimate, about 90% of the total accumulated investment was in countries from the list of “unfriendly states”.

Freezing and confiscation is easier with direct and portfolio investments. Our total accumulated direct and portfolio investments abroad amounted to 487.1 + 117.4 = 604.5 billion dollars. And their similar investments in Russia amounted to 610.1 + 273.6 = 883.7 billion dollars. the moment is on our side. The collective West is cautious about new frosts, but it does not refuse them.

America is energetically inciting its allies to new frosts. For the reason that its direct and portfolio investments in the United States are relatively modest. Thus, accumulated US direct investment in Russia amounted to only $6.21 billion (about 1 percent).

Those who professionally watch the game on the mentioned chessboard pay attention to the fact that the collective West is acting more energetically and boldly. The position of our opponents is more intelligible. They report on new frosts, plan for the next ones, schedule preparatory measures to move from freezes to confiscations. And Moscow does not submit any reports on the freezing of foreign assets, it does not make any statements about the possible nationalization of foreign assets of “unfriendly states”. There is still no federal law on nationalization or a nationwide program for the nationalization of foreign assets. We need to play on this chessboard more boldly, resolutely and more professionally than our geopolitical opponents. Our pre-emptive moves would make it possible to avoid at least part of the expropriations of Russian assets planned by the collective West.

What is still “out there” and what can still be saved from confiscation should be converted into machinery, equipment, technology, gold and other physical assets that should be located on the territory of the Russian Federation and work for its interests.

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