Russia’s immediate first task is to stabilize the value of its currency, ease pressures on its international reserves and restore normal functioning of its banking system.
The Russian government, together with its central bank, has made progress on this score by substantially raising interest rates, injecting liquid assets into its banking system and working to persuade Russian exporters to surrender more of their dollar proceeds.
Yet measures are only temporary stabilizers, not long-term solutions. They need to be quickly supplemented by cuts in the government budget and the adoption of pro-growth measures that alleviate the dangers of what is already an ugly outlook.
As the reality of the situation sinks in, Russian officials will likely take more comprehensive measures.
This first condition is necessary — though insufficient — for restoring economic and financial calm. Russia also needs help on two other fronts, and this is where the situation gets tricky very fast.
The second issue relates to Russian’s operating environment. There is little to suggest that oil prices will rebound quickly from their stunning decline — almost 50 percent since June.
As such, Russia will suffer a meaningful fall in foreign earnings and also see less direct outside investment to support its energy sector. Meanwhile, President Vladimir Putin is giving the West no reason to lift sanctions that have gradually and effectively put pressure on the Russian economy.