By Alexander Kolyandr and Andrey Ostroukh
Updated Sept. 15, 2014 4:08 p.m. ET


MOSCOW—Russia said it would create a multibillion-dollar emergency fund for companies hurt by Western sanctions imposed over the Ukraine crisis—a sign that the country is girding for a long period of economic isolation.

The creation of the bailout fund, which will last at least through next year, comes amid increasingly frank admissions that, despite initial bravado about sanctions strengthening the nation and its domestic producers, Russia’s economy is starting to hurt.

The Russian ruble fell to a record low of 38.5 against the dollar Monday before recovering slightly, as gloom deepened after Friday’s new round of Western sanctions took effect, spurring fears of Russian retaliation.

Finance Minister Anton Siluanov said Monday that the government could divert at least 100 billion rubles ($2.65 billion), initially destined for pensions, to support companies facing sanctions-related financial troubles.

The economic impact is spreading far beyond the targeted companies and individuals, however. Companies are running short of capital, investors are pumping cash out of the country and consumers are reining in spending.

“The impact from already-imposed sanctions, including limiting access to foreign financial markets for Russian companies, will have a prolonged effect,” the central bank said in its annual monetary policy strategy document, released Friday.

The U.S. and European Union sanctions imposed so far have been relatively narrowly targeted. They include financing limits on some major banks and energy companies, restrictions on technology transfers in the defense and oil industries, as well as asset freezes and travel bans on dozens of top officials and tycoons.

But officials and industry executives say they’ve had a much broader indirect effect, dragging on a Russian economy that was already stalling before the Ukraine crisis exploded early this year.

“The Russian economy was practically stagnating before the sanctions and their effect could be nearly as disastrous as that of the 1998 default, with low investment, restricted imports of technology and high inflation,” said one senior official at a state-run financial institution. “Eventually, the Russian economy will be able to raise financing in Asia, but this can’t happen immediately.”

The central bank warned that growth is expected to continue slowing this year amid sanctions and “continued uncertainty,” falling to near-recession levels. The economy will grow no more than 0.5% this year, according to official forecasts, its weakest performance since 2009.

The Economy Ministry last month slashed its growth forecasts for the next two years to 1% in 2015 and 2.5% in 2016.

The ruble has been the most visible symbol of the economic damage. In an effort to stem the decline, the central bank has raised interest rates sharply this year and indicated they might go even higher if currency and inflation pressures persist.

(Read More:http://online.wsj.com/articles/russia-plans-emergency-fund-for-companies-hurt-by-ukraine-sanctions-1410802572)

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