Interview with Ivan Miklos, Former Slovak Finance Minister and Economic Adviser to Ukraine

Ivan Miklos served as the deputy prime minister and minister of finance of the Slovak Republic (2002-2006, 2010-2012), deputy prime minister for economy (1998-2002), and minister of privatization (1991-1992).

From April 2016 until August 2019, he served as a chief economic adviser to the prime minister of Ukraine. After a change in government, from November 2019 until March 2020, he advised the Ukrainian prime minister on economic matters.

Between 2016 and 2020, he chaired the Strategic Advisory Group for Support of Ukrainian Reforms (SAGSUR). He is also co-founder of the Ukrainian economic think tank Centre for Economic Strategy.

In this interview with the Kyiv Post’s Jason Jay Smart, he talks about sanctions, a possible future of Russia without Russian President Vladimir Putin, and what the future might hold for Ukraine.

Mr. Miklos, the sanctions imposed on the Russian Federation following its invasion of Ukraine are historic in scale. Do they go far enough?

Yes, the sanctions are unprecedented, but they are still insufficient. The purpose of sanctions is to stop Russian aggression, but if the European Union (EU) continues to import Russian gas and oil, the EU is contributing directly to Russia’s state coffers. It is estimated, that if prices remain constant, that Russia will make over 320 billion euros from exporting gas, oil, coal, etc. This is a third more than last year, at 240 billion euros. The West is helping Ukraine significantly but at the same time it continues to pump hundreds of millions of dollars and euros daily into Russia.

How will the average Russian citizen “feel” the impact of the West’s current sanctions in the short, medium and longer term?

There will clearly be inflation, along with shortages of goods. But how will the ordinary people experience the sanctions? Remember that in the weeks following the Feb. 24 invasion, Putin’s popularity increased in Russia. This comes down to unbelievable propaganda and brainwashing, combined with Putin being buoyed by “the ordinary people” of Russia, including the elderly.

Ordinary people are not buying imported goods or luxury items, so they are not experiencing the immediate effects of the sanctions. But the effects on inflation will eventually catch-up with the average Russia. It will probably take two or three months to be felt as the effects of inflation on their salaries and the rising cost of goods becomes unavoidable.

How should the West expand its sanctions?

First, we must exclude all Russian banks from the SWIFT payment system. As of now, this has only affected seven banks, but there are over 300 banks that use SWIFT in Russia. That means we are not yet going as far as we could.

Secondly, we absolutely must eliminate the import of Russian oil and gas to Europe. Though it seems incredible, Russia may end-up with more money this year, despite the current sanctions, as the value of oil has increased. The Russian government calculates its budgets with an oil price of $44 per barrel – now it sells for more than double that amount. We need to act now to eliminate the primary source of the Kremlin’s money.

When the sanctions were first introduced, the exchange rate of the U.S. dollar to the Russian ruble went from about 1 USD = 72 RUB to 1 USD = 159 RUB. However, that seems to be reversing as today’s exchange is 1 USD = 83 RUB. Why is this? How is Russia bouncing back from these sanctions and what can we expect?

Well, the exchange rate that you cited is not the price used by ordinary people to buy dollars or euros. So, this is merely the price administratively managed by the Central Bank. Russia is not giving the ruble to the free market – rather, it is “managed.” The value of the ruble is therefore artificial. Remember, Russia still has large amounts of cash reserves that they have not yet burned, which allows them to maintain the price of the ruble.

Importantly, the rising value of oil and gas benefits Russia. In fact, it will contribute to a budget surplus and current account surplus. Remember that every Russian exporter is obliged to sell the Central Bank of Russia 80 percent of all dollar or euro revenues from exports. This again is why we must eliminate the import of Russian oil and gas to Europe: it directly assists the Russian government to strengthen the value of the ruble, which directly works against what we are trying to do with the sanctions. The EU is the key place from which the Kremlin gets hard currency, and it must be stopped.

How scared is Putin of the effects of sanctions on the Russian national economy?

If you watch Putin’s March 16 speech with his economic team, there is something quite interesting. After the first part of the speech – which was just idiocies of how the “special military operation” was unavoidable and how it successfully continues – then Putin gets to the economic measures. Notice that in response to the West’s sanctions, Putin is implementing several new spending initiatives: helping those affected by sanctions; providing more assistance to the public; and offering greater economic support for people and families with children, etc.

What does this mean? It means Putin still has a lot of money. He has a lot of money because the price of oil is propping up his economy and, remarkably, it is the Europeans who are his best “helpers” as they are the ones buying Putin’s oil and gas.

Right now, especially following acts of genocide – and I specifically want to emphasize the word “genocide” – having been revealed in cities outside of Kyiv, it is urgent that we block the import of Russian oil and gas to Europe.

What outcomes can we expect if Europe stops buying Russian oil and gas?

It will not be easy for Europe, but there really is no other option. How painful will it be for Europeans? Economically the effects could be similar to the COVID-19 pandemic. However, that is tolerable, and Europe can survive and ultimately overcome such hardship.

Conversely, how significant would it be for Russia if Europe cuts out Russian gas and oil? It is estimated that the Russian economy would face a major recession, a 20 percent economic retraction and will be missing $300 billion yearly. That means Russian purchasing power would decrease. For Putin to maintain macro-stability, he would then need to cut public sector salaries, which his people would hate. Importantly, it would make Putin’s continuation of the war in Ukraine economically unaffordable.

Do you expect Europe to eliminate Russian oil and gas? How soon can we expect to see action to do so?

Just this week, more than 500 members of the European Parliament (MEPs) voted in favor of cutting Russian coal, oil, and gas. Especially following the genocide, it makes it clearer to the leaders in Brussels that immediate action is needed to eliminate Russian oil and gas.

With the sanctions that have already been implemented on Russia – and those that might yet be implemented on Russia – what is the framework by which Russia can work to have the sanctions removed? What must Putin do to have the West repeal its sanctions?

Clearly, the war must end before there is any thought of that. However, I do not see the end of the war anytime soon. Simply, the position of Russia and Ukraine are diametrically opposed and I see no way that a deal can be made.

Just think of what public opinion polls show us: 81% of Russians support the war. Meanwhile, 93 percent of Ukrainians believe in their own victory and 80 percent of Ukrainians oppose giving away land to Russia in exchange for peace. Even a few years ago it was politically unacceptable to agree on “giving away” Donbas or Crimea – but today it is totally rejected by Ukrainians.

However, Ukrainian President Volodymyr Zelensky is facing daily bombings that are killing his citizens – innocent civilians – and so he may feel pressured to cut a deal with Russia. I certainly hope the West is not pushing him to do so. If we allow Putin to change the borders of Ukraine through violence and force, it will set a terrible precedent whereby modern Europe agrees that using violence is an acceptable means of changing borders.

So, the only way to remove the sanctions is to in fact put more sanctions on Russia. The sooner that Putin leaves, the better it is for everyone.

When you mention Putin “leaving” – how do you think the Putin Regime will end? A coup d’état? Ousted by people taking to the streets? Or will Putin just die in office?

It is hard to say as it is not predetermined. However, we can suppose that there is an increasing probability that there will be greater civil discontent in Russia as time passes.

Of greater importance is that the upper class of Russia – and I do not mean the oligarchs. I mean those who are close to power – those who know what is really going on in Ukraine and that Putin is a disaster for Russia. These people understand that if Putin continues in power, he becomes a greater threat to Russia. These people know that Russia can break apart at some point if the current path continues.

These people look around and see that the entire Western world actively supports Ukraine. Everywhere they look, people are criticizing and sanctioning Russia. They are not blind to everything that is happening. There are also patriots in Russia who want the best for their country and they see that Putin is not someone working in Russia’s best interests.

As Abraham Lincoln said: “You can fool all the people some of the time and some of the people all the time, but you cannot fool all the people all the time.” The insane Russian propaganda machine is currently effective in controlling the Russian population – but at some point, more people will see that their government is lying to them.

The number of young Russian soldiers who have died, and will die, in Ukraine, will certainly go together with the increasing societal dissatisfaction to show Russians that Putin is Russia’s greatest threat. For those Russian soldiers who return to their country, dissatisfied and knowing the truth, they will also play a role in opening the eyes of Russian citizens.

So, post-Putin, do you think that Russia will become a liberal democracy?

No one knows what the future holds. However, I think that we should be reminded of a lesson from history: After World War I, the reparations levied on Germany had the opposite of the desired effect. They so severely gutted the German economy that they contributed to why Fascism flourished and paved the road to World War II.

Rather, let’s look at what the West, namely the United States example after the Second World War. The U.S. invested heavily in rebuilding Germany and Japan. This led us to today: Both countries are major world economies and are allies of the U.S. We must pull Russia in, not push it away, after Putin. But we also must be sure that Russia will never be a threat for other countries.

As you do not believe that there will be a peace treaty signed soon, do you believe that we could be approaching World War III? How do we prevent such an inevitability?

Of course, this is also yet to be determined. However, we should certainly prepare ourselves for the possibility. What is concerning is not the conventional Russian Army – as it is far inferior to what many had expected – but rather the use of nuclear weapons in Russia’s possession.

One of the best strategies to prevent the expansion of the conflict to other countries is by strongly supporting Ukraine now. We must maintain and expand the current sanctions that are lodged against Russia.

What will happen to Ukraine? What can we expect in one year, or in five years?

That depends on when the war will end. However, we can be quite sure that the West would support a “Marshall Plan”-type of program to help Ukraine rebuild. Likewise, I think that support for Ukraine, in the West, is much stronger now than ever before.

Ukraine has a lot of potential. It always had a lot of potential. However, the oligarchy in Ukraine, and the entire oligarchical system, have been inhibitors of Ukraine’s development.

I think that Ukraine will win this war. And when Ukraine wins, it will be much closer to joining the European Union. The old EU Association Agreement was a signed document – but it did little to advance Ukraine on the path to Brussels. After the war, if Ukraine “does its homework,” I think that there will see much more support for its admission to the EU.

Will Ukraine be admitted to NATO?

Right now, it looks quite complicated. But it’s possible. If the war ends, there is a chance. It seems more likely that there will be some sort of defense agreement signed by Western partners. However, unlike with the Budapest Memorandum, the consignees this time need to actually guarantee to protect Ukraine. Ukraine must have a solid agreement, with teeth – not empty words!