Russian bank fires economist who said Moscow losing 'war of attrition' with West

Russian state development bank VEB has fired its chief economist over remarks in which he said the country was falling behind the West and China and suffering mounting economic damage from the war in Ukraine, two sources familiar with the matter said.

Andrei Klepach, one of Russia's most prominent macroeconomists, made the remarks to a financial forum in May, but they were reported in Russian media only last week.

"We are falling behind. We are losing both the technological and economic competition in the world. And we are losing it not only to China and the United States, in some ways we are losing it to Ukraine too," he said, adding that this was due to Kyiv receiving financial support from the West.

"We will not win the competition in this war of attrition. We have the illusion that everything there [in Ukraine] will collapse. It has not collapsed and will not collapse. Our costs are mounting,"

he said.

The speech, published on the website of the Nikitsky Club — a forum of economists, academics and government officials — and in which he predicted a social crisis, marked a rare public critique by a senior figure at a state institution of the costs of continuing the war that Moscow launched in 2022.

Mr Klepach has held several roles at economic institutions and worked at the economy ministry for 10 years before joining VEB.

VEB, which finances state projects, confirmed in a written response that Mr Klepach was no longer its chief economist, but did not say why. Mr Klepach, who was appointed to the role in 2014, also confirmed his dismissal to Reuters.

Mounting pressures from Ukraine

In the speech in May, Mr Klepach highlighted Russia's resilience to Western sanctions but said pressures were mounting due to Ukrainian strikes on energy and logistics infrastructure. 

He pointed to rising income inequality and a slower GDP growth rate than in the US and Ukraine.

In July, the Russian central bank suggested the economy might not grow at all this year. Over the summer, repeated Ukrainian attacks on Russian oil refineries and warehouses of top online retailer Wildberries have created supply shocks, raising inflation risks and public unease.

President Vladimir Putin has said the economy was stable despite what he called external attempts to undermine it.

"Economically we will not collapse, but our lag will continue to grow, with all the resulting consequences," Mr Klepach said in his speech, predicting a social crisis could arise "precisely when nobody is particularly expecting it".

There is currently no sign of serious social unrest in Russia, amid tight wartime censorship, protest bans, long jail sentences for dissidents and the growth in influence of the Federal Security Service, the main successor agency to the Soviet-era KGB.

Mr Klepach also criticised what he called Russia's over-dependence on China and said uncoordinated monetary, budgetary, and industrial policy had contributed to this year's economic slowdown.

"The quality of governance is almost constantly deteriorating," he said. 

"Decisions are being made all the time that have an extremely low level of justification but long-term strategic consequences."

War critic jailed

Mr Klepach's dismissal came on the same day a prominent opposition politician was sentenced by a Russian judge to 11 years and one month behind bars.

Lev Shlosberg, a senior member of the Yabloko party, had previously criticised Russia's invasion of Ukraine.

Yabloko, the only official political party in Russia overtly opposing the war, also saw itself barred from upcoming parliamentary elections.

The moves against Mr Shlosberg and Yabloko highlight the Kremlin's intolerance toward any criticism of the war, now in its fifth year.

It was the second trial for Mr Shlosberg in the past two years.

He has also been designated a "foreign agent", a label that carries strong pejorative connotations in Russia and brings additional government scrutiny. He was convicted of violating the foreign agent regulations.