03.04.2014 Author: Sofia Pale

Russia’s partnerships with Pacific Rim will compensate losses from possible sanctions

4576“That which does not kill us makes us stronger” and “There’s no great loss without some small gain” – are wonderful proverbs that historically have become an integral part of Russian society, during its entire existence, helping it survive predicaments worse than any sanctions with which West threatens Russia today. If we look at the situation from the optimistic point of view, then we can come to some completely unexpected, although, obvious conclusions.

The most unpleasant of the discussed sanctions is the possible refusal of the international payment systems, Visa and MasterCard, to serve Russian customers, as well as the lower volumes of Russian resource purchases by the EU countries and America.

In fact, these, and other sanctions of the Western countries would be more difficult to put into practice, and would prove more expensive than they expect. Because, despite this new “Cold War” game, globalization has done its job, and the Western states have become more dependent on Russia, than it has on them.

Here is a simple example: if foreign banks will lose the opportunity to service Russian plastic cards, then the Russian tourists, which in a great number annually flock to visit attractions and resorts in Europe and America, will feel uncomfortable, and “uncivilized”. Those states, which directly depend on the tourist flow from Russia – for example, Finland and Bulgaria, already in the middle of March 2014 made ​​statements that would neither hinder the issuance of visas to Russian tourists nor to apply any other restrictive measures. Rather to the contrary, they said that they would be happy to see as many Russians as possible.

Moreover, if Europe and America really firmly decide to buy less Russian resources, in order to “hit hard” the Russian economy, they have somehow to compensate for the resulting shortages – for example, by removing corresponding sanctions against Iran. Moreover, they would have to establish relations with Saudi Arabia – it is no wonder that at the end of March 2014, the U.S. President Barack Obama visited Riyadh, previously having threatened Russia with some “disastrous” sanctions. If the West begins to make purchases of fuel in Iran, the Iranian economy would immediately feel much better, and then all the previous efforts of Western diplomacy at belittling the dignity of this country, would have been in vain. In the future, we can only guess what consequences there would be for the Western world, after the strengthening of OPEC countries’ position.

Meanwhile, “to spite its enemies”, Russia has all the possibilities for overcoming the country’s dependence on foreign payment systems and westward commodity exports.

Let us start with the fact that Visa and MasterCard are not the only payment systems that banks around the world work with. There exist cards of other national payment systems (NPS) in other countries, where the leaders are the card payment systems of China and Japan.

The Chinese UnionPay NPS was introduced in 2002, and first began to operate within the country, then went beyond it, and now is operating in 140 countries, already occupying second place after the Visa system, in terms of volume of payments. However, its success is largely due to the one billion people in China, which is much more than in Europe and America combined.

On the other hand, Japan, with a 130 million population, has achieved considerable success in promoting its own NPS JCB (Japan Credit Bureau), beyond its borders, having covered during the last 20 years about 200 countries. This popularity is not explained by the number of users of the system, but by their high purchasing power – JCB cardholders are Japanese with high standards of living.

Encouraged by the positive example of its eastern neighbors, Russia also intends to create its own national payment system. Unfortunately, the new Russian NPS cannot boast about the number of clients, or about their purchasing power. That is why, at least in the first years of its existence, foreign banks are unlikely to want to work with it. Nevertheless, at the very least, the Russian NPS will provide for the domestic needs of the state, and will serve as the “alternate option” in case of possible cataclysms, like threats, sanctions or Visa or MasterCard failures. Although, now this looks like some fantasy, yet the modern world is full of “surprises” and such a scenario may also be possible. Especially given that Visa, as it has become known recently, pocketed about $5 billion, by overstating interchange commission fees in settlements with the largest U.S. retailer Wal-Mart. And greed, as we all know, never leads to anything good.

Since we are talking about crazy scenarios, Russia could save considerably by not creating its own NPS, but instead joining China’s payment system. Then again, maybe this scenario is not so crazy after all, considering that in March 2014, there was a wave of reports about Russian billionaire Alisher Usmanov’s buying of Alibaba Group shares, which owns another popular payment system in China – the Alipay.

 As for the issue of reducing Russia’s dependence on sales of raw materials to EU countries, which are threatening to refuse purchases of Russian oil and gas, then the solution lies in expanding Russia’s cooperation with Asia-Pacific countries, such as China, Japan, South Korea, Vietnam and the promising ASEAN countries. Now, cooperation is confined to increasing the exports of Russian raw materials into these countries. However, the implementation of such a cooperation requires a new (or the repairing of the old) infrastructure, in order to ensure supplies in greater amounts than in the European direction. This situation can be described by another great proverb – “Every cloud has a silver lining”. Thanks to the West’s threat to stop using Russian energy resources, Moscow is finally starting to think seriously about carrying out a capital reconstruction of the Baikal–Amur Mainline and Trans-Siberian Railway communications, in order to transport Russian crude oil to the East. These plans have long been talked about, but their true necessity has appeared now. There was announced, at the governmental level, that the required amount of investments is 562 billion rubles (150 billion of which will be borrowed from the Russian National Wealth Fund, and the rest – from the Railways own funds and private capital).

Thus, we can conclude that, if you try, you can find a way out of even the seemingly most desperate situation. By means of threatening sanctions, the West is pushing Russia onto the path of new partnerships with the East, which can bring more benefits, because of the absence of ideological motives in building mutually beneficial relationships. Eastern partners do not care about belonging to a “block”, and do not care about issues of “democracy”, “rebooting of relations”, “hegemony”, “dictatorship”, and other terms that Western ideologists operate with, when tying international relations into a “Gordian Knot”. The countries in the East are interested in only one thing; this is the economy, in its purest form. Its improvement, finally, can lead society to prosperity.

Sofia Pale, PhD, Researcher at the Center for Southeast Asia, Australia and Oceania Oriental Studies, exclusively for the online magazine New Eastern Outlook.

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