The Treasury’s target is Russia’s economic woes, but critics question its effectiveness

WASHINGTON – When Russia imposed retaliatory sanctions on top American officials last month, its government targeted President Biden and his top national security advisers, including Deputy Treasury Secretary Wally Ademo, whose agency is plotting to cripple Russia’s economy.

Russia’s move, while fully symbolic, implies that the Treasury Department is playing a central role in designing and enforcing the most comprehensive monetary sanctions imposed on a major economic power.

The sanctions amount to an economic war against Russia, with the war in Ukraine escalating and the Russian government trying to find a way to avoid or mitigate Western sanctions.

In an effort to prevent Russia from being punished, Mr Adeimo, a 40-year-old former Obama administration official, crossed into Europe last week to plan a crackdown on Russia’s evasion tactics and future sanctions. In a meeting with opponents, Mr Adeimo discussed European governments’ plans to target the supply chains of Russian defense agencies, some of which the United States imposed sanctions on last week, and talked about ways in which the United States could help strengthen Europe. . European countries could reduce Russia’s oil and gas purchases, a Treasury official has said.

On Wednesday, five days after Mr Adeimo returned, the Biden administration announced additional sanctions on Russian banks, state-owned enterprises and the adult daughters of President Vladimir V. Putin.

Still, it remains to be seen whether sweeping penalties will work to neutralize Russia’s economic power.

In the past six weeks, the United States and its allies in Europe and Asia have imposed sanctions on Russia’s largest financial institution, its central bank, its military-industrial supply chain and Mr Putin’s allies, seizing their yachts and planes. The United States has banned Russian oil imports, and Europe is slowly but surely planning to free itself from Russian gas and coal. This week, the Treasury Department banned Russia from repaying its sovereign debt with dollars held in American banks, possibly pushing Russia into its first foreign currency debt defaulter in a century.

But so far Russia has been repaying its debt. Currency controls imposed by Mr Putin’s central bank, which restricts Russians from using the ruble to buy dollars or other hard currencies, have allowed the ruble to stabilize as energy exports continue to Europe and elsewhere, replenishing Russia’s coffers with more dollars and euros. The question is whether the measures have worked.

“I think we’re fighting sanctions and the aftershocks of the sanctions that take time to fully affect an economy,” said Juan C. Zarate, a former assistant secretary of the Treasury. For terrorist financing and financial crime. “It’s actually talking about a lot of restrictions on the return of tanks, especially when the sanctions have been enforced since the attack.”

In a speech in London last week, Mr Adeimo promoted the power of sanctions to change behavior, describing the measures as part of an equation that opponents like Russia need to consider when they violate international law.

“The idea that you can infringe on the sovereignty of another country and enjoy the benefits of integration into the global economy will not be tolerated by our allies and partners,” Mr Adeimo told Chatham House, a think tank.

Even the United States, which is not dependent on Russian power, has wrestled with how far to go with its punishment.

Within the Treasury Department, officials are debating how far sanctions should be pushed without creating unintended consequences that would upset the financial system and drive up inflation, which is rising across much of the world.

The impact on the U.S. economy has been a top priority, and Treasury Secretary Janet L. Yellen has expressed concern about measures that could increase inflation. Sanctions on Russia have already led to higher petrol prices, and officials warn that they could raise food and car prices because Russian wheat and mineral exports have been disrupted.

“From the beginning, our goal has been to inflict maximum suffering on Russia, while doing our best to protect the United States and our partners from unnecessary economic losses,” Ms. Yellen told lawmakers Wednesday.

Considering how the ruble could be targeted, officials, Ms. Yellen, a former Federal Reserve chair, argued against simply imposing a ban on foreign exchange transactions that would prevent Russia from buying dollars. Instead, he suggested that stabilizing Russia’s foreign reserves – savings in US dollars, euros and other liquid assets – would be the most effective way for Russia to make concessions to accept payments for certain energy transactions, which would hurt the Russian economy. Influence on the United States and its allies.

At a congressional hearing this week, Republicans criticized the carving-outs for the gigantic hoaxes that allow Russia to make millions of dollars a day by selling oil and gas.

Treasury Department officials are tracking the measures Russia is using to propel its economy, such as buying stocks and bonds, and monitoring signs of a growing black market for the ruble, indicating a real depreciating value of the currency. The Biden administration is concerned that the ruble has recovered in recent weeks, and that sanctions have weakened the Russian currency.The ruins

“Of course, this means that when the ruble rebounds for reasons that do not indicate the weakness of the sanctions, people will say, ‘Well, look, they have failed,'” said Daniel Fried, a former US ambassador to Poland. And Assistant Secretary of State for Europe.

A Treasury official said the United States was also keeping a personal list of oligarchs whose financial transactions were being monitored in preparation for the ban so that they could better understand the network of people who help them hide their money. The United States has not yet imposed sanctions on Russian billionaire Roman Abramovich, who is already under EU sanctions.

Economists at the Institute of International Finance wrote in a research note this week that Russia’s domestic markets have been seen stabilizing as a result of tight monetary policy, tight capital controls and its current account surplus.

“Sanctions have become an ongoing goal and will need to be adjusted over time to remain effective,” they said.

Imposing sanctions on Russia and ensuring that opposition efforts are coordinated with Europe is largely up to Mr Adeimo.

Mr Adeimo worked in the Treasury Department during the Obama administration and was the deputy national security adviser to the international economy when the United States imposed sanctions on Russia after occupying Crimea in 2014. Mrs. Yellen, an academic economist with no national security experience, tapped her last year to become deputy secretary and lead a review of the department’s sanctions program.

The review emphasizes the need for sanctions, often unilaterally deployed during the Trump administration, for stronger coordination with American allies so that they can “thwart, disrupt and prevent” actions that harm US national security.

Mr. Adeimo is coordinating closely with State Department officials and with Dalip Singh, who was deputy assistant secretary of international affairs at the Treasury during the Obama administration and now deputy national security adviser to the international economy.

Julia Friedlander, a former senior European policy adviser to the Treasury Office of Terrorism and Financial Intelligence, said the Biden administration was more aggressive about sanctions on Russia than it was in 2014, when it was concerned about “disproportionate measures” and could hurt Russia’s economy. Gradually building up troops toward Ukraine, he said, gave the Biden administration more time to coordinate with allies and prepare for the imposition of sanctions soon after the offensive began.

“It’s really a tactical change that seeks to do harm as a tactic in a proportional response against those involved,” said Mrs. Friedlander.

However, some sanctions experts have claimed that the Biden administration did not go far enough. Many of the toughest measures the United States has taken against Iran to prevent it from benefiting from its energy exports have not yet been used against Russia. Several large banks have not yet been restricted or isolated from the international financial messaging service SWIFT. And the United States has been cautious about pressuring Europe to stop buying Russian power.

“Time is not on Ukraine’s side,” said Marshall S. Billingslia, the Trump administration’s assistant secretary of state for terrorist financing. “The longer the administration removes these half-measures and does not take steps to truly cripple the Russian economy, the longer Russia’s aggression lasts and the more carnage and destruction and war crimes continue.”

Ms Yellen said this week that any sanctions targeting Russia’s energy sector would require close coordination with Europe, which is heavily dependent on Russia’s oil and gas. Taking this step, he added, could have unintended consequences.

“If we impose a complete ban on oil, we will see skyrocketing prices,” said Mrs. Yellen.

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