1998 Russian financial crisis

When Russia crisis (also ruble crisis ) is the non -triggered massive capital outflow economic crisis in Russia in the years 1998 and 1999. In Russia, this crisis is often referred to by the term default (Russian дефолт ).

The first signs of an economic crisis, there had already been in the wake of the turmoil of the Asian financial crisis in the fall of 1997. Through the local crisis, investors in Russia had become nervous and there was an increased outflow of capital. This placed the currency of the Russian ruble under pressure. In addition, the Russian government had a high demand for short-term loans to fill gaps in the budget.

Internal debt

Russian President Boris Yeltsin dismissed on 23 March 1998, the Government of the Russian Prime Minister Viktor Chernomyrdin on charges that he had not addressed the economic problems of the country vigorously enough.

At the inauguration of the new Russian Prime Minister Sergei Kiriyenko (13 March provisionally, April 24, approved by the Parliament ), the Russian state had a high budget deficit. The state was unable to due to lack of tax revenue, lack of profitability of state enterprises, corruption, shadow economy and foreign investors dissuasive complicated customs and tax laws do not comply with the budgetary targets. He could hardly interest rates of the loans (30 % of the budget ) and state wage debt ( miners' strike, pensioners, soldiers, doctors, teachers ) pay.

The main problem of the Russian economy was a domestic indebtedness and payment crisis. Factories could not pay their workers because they got no money for their goods. The factories could not pay for the electricity consumed, which is why the energy companies in turn led away no taxes to the state.

The largest proportion of borrowers were state-owned enterprises and municipalities. Winner of this crisis were the so-called Russian oligarchs who had amassed huge fortunes in the operation of energy and natural resources companies.

The extremely expensive presidential campaign Yeltsin against the Communists Gennady Zyuganov in 1996 was also supported by banks and industrial companies of the oligarchs, the Yeltsin for " protected " after the election before tax authorities. Only about five million of the 148 million inhabitants of Russia regularly paid taxes.

Austerity

Loan commitments and financial plan of the International Monetary Fund included a strict austerity measures. On May 27, it came to Russian financial markets to sharp price fluctuations. In addition, interest rates on short-term government bonds rose sharply. Because of the recent unstable situation of economic recovery failed to materialize, despite an economic sedative. In May 1998, the government was able to sell their Notes only under massive interest rate increases ( interest rate 80%) on the market. In order not to devalue the ruble and the IMF to convince them of the restoration of the state budget, the Central Bank tripled on 27 May 1998, the interest rates to 150%, while President Yeltsin ordered an austerity package by decree on May 26 that a saving of about 40 billion rubles envisaged. The IMF gave it his credit tranche of $ 670 million known. The State presented the oil company Rosneft, Slavneft - Megionneftegaz, Sibur and Lukoil and the phone holding Svyazinvest privatization. After the fall of oil prices on the world market, however, were hardly interested parties and the sale failed. On 4 June, the central bank cut interest rates to 60%.

Attempts at reform

The IMF criticized on June 18, the speed of reforms and postponed the payment. Although on June 25, the IMF approved the outstanding credit line, the Russian stocks fell further. On July 1, Kiriyenko presented to Parliament an austerity package, which provided savings of the equivalent of $ 6 billion a year, and depended upon its approval more loans from the IMF to stabilize the ruble. The government decided to essential points of a tax reform by decree because of the lack of will to reform the Duma. Because of the slow implementation of reforms the IMF slashed the first payment of the loan. Trying Kirijenkos to install the communist opposition politician Yury Masljukow as Commerce and Industry Minister in the government, was not honored by the Parliament. After a partial acceptance of the austerity package by the Duma in mid-July, the World Bank and the IMF, Russia granted $ 22.6 billion loan for the next two years. On 20 July, the IMF, the World Bank approved a bridge loan of $ 11.2 billion, on August 6, a loan of 1.5 billion dollars.

Speculation

On the interbank market liquidity became scarce on August 12. Commercial banks were allowed to buy then at the direction of the central bank no unlimited amounts of foreign currencies more.

On August 13, the Hungarian- American billionaire George Soros and financial agent recommended by the Russian government in the London Times a ruble devaluation of 15-25 %. Speculation about a devaluation of the ruble led immediately to drastic losses in the RTS index at the Moscow Stock Exchange. After panic selling and losses up to 25 % of trading on the Stock Exchange has been temporarily suspended. The shares fell to their lowest level in two years. Due to the resulting capital outflow and high government debt, the Russian ruble came under massive pressure. However, Yeltsin concluded on August 14 from a devaluation of the ruble, which stock prices more than offset the losses. In effect, this meant the bankruptcy, with the result that private bank accounts opened lost their value.

Soros has been accused by the Moscow business press, to have used his recommendation of a ruble devaluation on currency speculation, but what this denied. In fact, the ruble decline indicated already some time ago, and went back to the inability of previous Russian governments to relieve the state budget of the debts of unprofitable state enterprises. Soros only acted as a trigger of the crisis by publicly uttered the overpricing of the ruble. The Asian crisis and the falling price of oil ( main export of Russia) promoted the Russian currency crisis.

Devaluation of the ruble

The Russian government could not defend longer to become unrealistic exchange rate of the ruble. She had tried in vain with the $ 4.8 billion aid money to the IMF to support the ruble exchange rate. On August 17, she expanded the dollar - ruble corridor of what amounted to a de facto devaluation of the currency. The U.S. dollar could then be traded from 6.0 to 9.5 rubles. Previously, an average value of 6.2 rubles only by a maximum of 15 % above or below could be exceeded. The government's promise not to devalue the ruble has been abandoned by the back door. The repayment of private external debt was suspended for 90 days and set the operation of short-term government bonds. The release of the exchange rate led to a sharp depreciation of the ruble with a loss of 60%. This in turn increased the cost of debt service of commercial banks significantly ( for loans in foreign currency) and led to a storm of private investors to the banks. Much of the commercial banks had to file for bankruptcy under these conditions.

New government

On August 23, Yeltsin dismissed Kiriyenko surprising after five months out of office. One reason for this was that Kiriyenko had not solved the economic problems, and its decision to devalue the ruble. Yeltsin said he had pronounced the dismissal in the interest of stability and continuity. Kiriyenko had previously stated in Parliament, Russia stand at the beginning of a financial crisis, what broke the courses in the financial world. With the dismissal Kirijenkos Yeltsin saved his own career, but was considered struck. Only after a change of government in which the previous and now interim Prime Minister Viktor Chernomyrdin appointed by Yeltsin was replaced on 11 September by the Russian Foreign Minister Yevgeny Primakov, a rigid austerity program was initiated. This allowed the confidence of financial markets restored and inflation in 1999 will be curbed.

For the vast majority of citizens, the devaluation of the ruble meant existential loss of purchasing power. Not until 2000 could the single market, driven by commodity exports recover.

The Russian crisis had a significant impact on the successor states of the Soviet Union, which slumped traditional outlets. Back in 2006, the Russian government had substantial foreign exchange reserves.

In the Baltics, the Russian crisis of favorable economic development led by years of recession in 1999.