Once a powerful symbol in Russia, McDonald's withdraws amid increasing global sanctions

It was the first American fast-food restaurant to enter the Soviet Union, reflecting the new political openness of the era.

Published: 15th March 2022 09:44 AM  |   Last Updated: 15th March 2022 09:44 AM   |  A+A-

People walk past Moscow's first McDonalds a day before its opening, in Moscow's Pushkin Square, Jan. 30, 1990. (Photo | AP)


MOSCOW: Two months after the Berlin Wall fell, another powerful symbol opened its doors in the middle of Moscow: a gleaming new McDonald's.

It was the first American fast-food restaurant to enter the Soviet Union, reflecting the new political openness of the era.

For Vlad Vexler, who as a 9-year-old waited in a two-hour line to enter the restaurant near Moscow's Pushkin Square on its opening day in January 1990, it was a gateway to the utopia he imagined the West to be.

"We thought that life there was magical and there were no problems," Vexler said.

So it was all the more poignant for Vexler when McDonald's announced it would temporarily close that store and nearly 850 others in response to Russia's invasion of Ukraine.

McDonald's Russian website on Monday read: "Due to operational, technical and logistical difficulties, McDonald's will temporarily suspend service at its network enterprises from March 14."

"That McDonald's is a sign of optimism that in the end didn't materialise," said Vexler, a political philosopher and author who now lives in London.

"Now that Russia is entering the period of contraction, isolation and impoverishment, you look back at these openings and think about what might have been."

McDonald's said in a statement that "at this juncture, it's impossible to predict when we might be able to reopen our restaurants in Russia."

But it is continuing to pay its 62,500 Russian employees.

The company said this week that it expects the closure to cost around $50 million per month.

Outside a McDonald's in Moscow last week, student Lev Shalpo bemoaned the closure.

"It's wrong because it was the only affordable place for me where I could eat," he said.

Just as McDonald's paved the way for other brands to enter the Soviet market, its exit led to a cascade of similar announcements from other US brands.

Starbucks closed its 130 outlets in Russia.

Yum Brands closed its 70 company-owned KFC restaurants and was negotiating the closure of 50 Pizza Huts that are owned by franchisees.

McDonald's entry into the Soviet Union began with a chance meeting.

In 1976, McDonald's loaned some buses to organizers of the 1980 Moscow Olympics who were touring Olympic venues in Montreal, Canada.

George Cohon, then the head of McDonald's in Canada, took the visitors to McDonald's as part of the tour.

That same night, the group began discussing ways to open a McDonald's in the Soviet Union.

Fourteen years later, after Soviet laws loosened and McDonald's built relationships with local farmers, the first McDonald's opened in downtown Moscow.

It was a sensation.

On its opening day, the restaurant's 27 cash registers rang up 30,000 meals.

Vexler and his grandmother waited in a line with thousands of others to enter the 700-seat store, entertained by traditional Russian musicians and costumed characters like Mickey Mouse.

"The feeling was, Let's go and see how Westerners do things better. Let's go and see what a healthy society has to offer,'" Vexler said.

Vexler saved money for weeks to buy his first McDonald's meal: a cheeseburger, fries and a Coca-Cola.

The food had a "plasticky goodness" he had never experienced before, he said.

Eileen Kane visited the original McDonald's often in 1991 and 1992 when she was an exchange student at Moscow State University.

She found it a striking contrast from the rest of the country, which was suffering frequent food shortages as the Soviet Union collapsed.

"McDonald's was bright and colourful and they never ran out of anything. It was like a party atmosphere," said Kane, who is now a history professor at Connecticut College in New London, Connecticut.

McDonald's entry into the Soviet Union was so groundbreaking it gave rise to a political theory.

The Golden Arches Theory holds that two countries that both have McDonald's in them won't go to war, because the presence of a McDonald's is an indicator of the countries' level of inter-dependence and their alignment with U.S. laws, said Bernd Kaussler, a political science professor at James Madison University in Harrisonburg, Virginia.

That theory held until 2014, when Russia annexed Crimea, Kaussler said.

Kaussler said the number of countries now withdrawing from Russia, and the speed with which they acted, is unprecedented.

He thinks some __ including McDonald's __ might calculate that it's unwise to reopen, which would leave Russia more isolated and the world less secure.

"As the Russian economy is becoming less inter-dependent with the U. S. and Europe, we basically have fewer domestic economic factors that could mitigate current aggressive policies," Kaussler said.

Vexler said the admiration for the West that caused Russians to embrace McDonald's three decades ago has also shifted.

Russians now tend to be more anti-Western, he said.

Anastasia Chubina visited a McDonald's in Moscow last week because her child wanted one last meal there.

But she was indifferent about its closure, suggesting Russians will get healthier if they stop eating fast food.

"I think we lived without it before and will live further," she said.

Entrepreneur Yekaterina Kochergina said the closure could be a good opportunity for Russian fast-food brands to enter the market.

"It is sad, but it's not a big deal. We'll survive without McDonald's," she said.

The European Union has announced that the 27-nation bloc has approved a new set of sanctions to punish Moscow for its invasion of Ukraine.

France, which holds the EU presidency, said the bloc "in consultation with our international partners, has approved the fourth package of sanctions targeting individuals and entities involved in the aggression against Ukraine, as well as several sectors of the Russian economy."

The French presidency said in a late Monday statement that the bloc also approved a declaration to the World Trade Organization "on suspending the application of the most-favoured-nation clause for Russia and suspending the examination of Belarus' application for accession to the WTO."

If Russia is suspended, its companies would no longer receive special treatment throughout the bloc.

The announcements were in line with what leaders had announced at the Versailles summit last Friday, that a stringent package of sanctions would be upcoming if Russia continued its invasion of Ukraine.

The exact details of the latest package of sanctions will only be known upon publication in the EU's official journal.

Since the war started last month, the EU has adopted tough measures targeting Russian President Vladimir Putin, Russia's financial system and its high-maintenance oligarchs.

Last week, the bloc's nations agreed to slap further sanctions on 160 individuals and added new restrictions on the export of maritime navigation and radio communication technology.

They also decided to exclude three Belarusian banks from SWIFT, the dominant system for global financial transactions.

Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities.

In a statement published after the summit, EU Commission President Ursula von der Leyen said the fourth package of sanctions will further isolate Russia "and drain the resources it uses to finance this barbaric war."

She said the EU will work in lockstep with Group of Seven countries to ramp up the pressure against Moscow.

Efforts to agree on an oil boycott against Russia are complicated, because some EU countries, including Germany and Italy, are much more dependent than others on Russian energy.

Showing the range within the EU, Poland gets 67 per cent of its oil from Russia while Ireland receives only five per cent.

Russia may face a "deep recession," IMF chief Kristalina Georgieva has said, as she warned that the impact of the "unprecedented" Western sanctions on Moscow for its military aggression against Ukraine will be "quite severe" for the Russian economy.

IMF's Managing Director Georgieva also said that a Russian sovereign default is no longer an "improbable event" because the economic sanctions on Russia will prevent it from accessing foreign reserves and paying down the outstanding debt.

Half of the gold and foreign exchange reserves of the Bank of Russia have been frozen due to sanctions, Russia's Finance Minister Anton Siluanov said on Sunday.

"This is about half of these reserves that we had. We have a total amount of reserves of about USD 640 billion. Currently, we cannot use about USD 300 billion of these reserves," Russia's state-run TASS news agency quoted him as telling the Rossiya 1 TV channel.

In Washington, the IMF chief told CBS News on Sunday that the reason the sanctions are "unprecedented" is because the "unthinkable happened, a devastating war in Ukraine."

Georgieva said the impact of the sanctions is "quite severe for the Russian economy.

We expect a deep recession in Russia, and this abrupt contraction is affecting already how the Russian population is taking the heat on them.

Russian leaders have repeatedly said that the Kremlin will take appropriate steps to minimise the consequences of the "economic war" that the Western countries have declared on Moscow.

"The ruble depreciated significantly. What does it mean? Real incomes have shrunk. The purchasing power of the Russian population has significantly diminished," Georgieva said, according to the transcript of the interview provided by CBS News.

"In terms of servicing debt obligations, I can say that no longer we think of Russian default as an improbable event. Russia has the money to service its debt but cannot access it. What I'm more concerned is that there are consequences that go beyond Ukraine and Russia," she said.

The IMF, she said, was mostly concerned about the immediate neighbours of Russia and Ukraine, the Central Asian republics, the Caucasus, Moldova, because they have trade relations with both Russia and Ukraine more than the rest of the world, and because of this outflow of people refugee wave in Europe, that is of the order of magnitude of what happened in the Second World War.

"So there the impact is most significant. Beyond the immediate neighbours, there are two groups of countries we are very worried," she said.

The first group are countries that have yet to recover from the COVID-induced economic crisis.

"For them, this shock is particularly painful," she said.

The second group of countries are those that are more dependent on energy imports from Russia, because there the impact on consumption, but also on inflation is going to be more prominent, she said.

Measures designed to damage the Russian economy following its 'special military operation' against Ukraine have been introduced by the US, UK and EU, among others.

The US has banned all Russian oil and gas imports and the UK will phase out Russian oil by the end of 2022.

US President Joe Biden has said the American sanctions targets "the main artery of Russia's economy" after his Russian counterpart ordered the invasion of Ukraine on February 24.

Western countries have frozen the assets of Russia's central bank, to stop it using its USD 630 billion reserves.

Meanwhile, Russia is taking action and will be able to minimise the consequences of the economic war that the Western countries have declared, Kremlin spokesman Dmitry Peskov told reporters on Monday.

He was commenting on the statements of US President Biden on the prospects for the Russian economy facing more sanctions by the West.

"Measures are being taken to minimise the consequences [of sanctions]. A whole set of measures has been adopted by the Central Bank, which are being implemented. There is every reason to believe that the consequences of this economic war will be minimised," Peskov was quoted as saying by TASS news agency.

Earlier, Russia's Finance Minister Siluanov said that part of the Russian foreign exchange reserves is in Chinese currency.

However, Western countries are now putting pressure on China in order to limit trade with it, he said.

"Of course, there is pressure to limit access to those reserves that we have in yuan (Chinese currency). I think that our partnership with China will allow us to maintain the cooperation that we have achieved, and not only to maintain, but also to multiply it in conditions when Western markets are closed," Siluanov said.

The minister reiterated that the debts of countries that were "unfriendly" to Russia would be paid in rubles.

India Matters


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