Russian crisis

The Russian crisis (also ruble crisis ) is the term used to describe the economic crisis in Russia in 1998 and 1999 that was triggered by various factors . In Russia, this crisis is often referred to by the term default (Russian дефолт).

The first signs of an economic crisis began in the autumn of 1997, shortly after the start of the Asian crisis . This crisis made investors nervous in many countries (including Russia); they sold z. B. stocks, bonds and rubles and transferred the proceeds to particularly safe countries (" capital flight "). This put the Russian ruble - the rate of which the Russian government did not allow the Russian government to float freely at the time - came under pressure. In addition, the Russian government had a great need for short-term loans to finance budget deficits.

On March 23, 1998, President Boris Yeltsin dismissed the government of Prime Minister Viktor Chernomyrdin on the charge that he had not tackled the country's economic and political problems with enough vigor.

Domestic debt

When the new Prime Minister Sergei Kiriyenko took office (provisionally confirmed on March 13, and confirmed by Parliament on April 24), Russia's budget deficit was high. The state was unable to achieve its budget goals due to a lack of tax revenues, unprofitable state-owned companies, corruption , the shadow economy and complicated customs and tax laws (which deter foreign investors). He was barely able to pay the interest on the loans (30% of the budget) and the state wage debts (miners' strike; pensioners, soldiers, doctors, teachers).

The main problems facing the Russian economy were internal debt and payment crises . Factories couldn't pay their workers because they didn't get money for their goods. The factories could not pay for the electricity they used, which is why the energy companies did not pay taxes to the state.

The majority of the debtors were state-owned companies and municipalities. The winners of this crisis were the so-called Russian oligarchs , who had amassed huge fortunes running energy and raw materials companies.

Yeltsin's extremely expensive presidential election campaign against the communist Gennady Zyuganov in 1996 was also supported by banks and industrial companies belonging to the oligarchs , who Yeltsin “protected” from tax authorities after the election . Only about five million of Russia's 148 million people regularly paid taxes.

Austerity

Loan commitments and a financial plan from the International Monetary Fund included a strict austerity policy. On May 27, there were strong price fluctuations in Russian financial markets. In addition, interest rates on short-term government bonds rose sharply. Due to the unstable situation to date, there has been no economic recovery despite the economic calm. In May 1998, the government was only able to sell its bonds on the market with massive interest rate hikes (interest rate 80%). In order not to devalue the ruble and to convince the IMF of the restructuring of the state budget, the central bank tripled the key interest rate to 150% on May 27, 1998, while President Yeltsin issued a decree on May 26, decreing an austerity package that would save around 40 Billions of rubles. The IMF then announced its loan tranche of $ 670 million. The state released the oil companies Rosneft , Slawneft-Megionneftegaz , Sibur and Lukoil and the telephone holding company Swjasinvest for privatization. After the drop in oil prices on the world market, however, there were hardly any interested parties and sales failed. On June 4, the central bank cut the key interest rate to 60%.

Attempts at reform

On June 18, the IMF criticized the speed of reforms and postponed the payment. Although the IMF approved the outstanding credit lines on June 25, Russian stock prices continued to fall. On July 1, Kiriyenko presented an austerity package to parliament, which provided for savings of the equivalent of 6 billion dollars a year and on whose approval further IMF loans to stabilize the ruble were dependent. Due to the Duma’s lack of will to reform, the government decided on essential points of tax reform by ordinance. Because of the slow implementation of the reforms, the IMF cut the first loan payment. Kiriyenko's attempt to incorporate the communist opposition politician Yuri Masljukov into the government as Minister of Industry and Trade was not honored by parliament. After the Duma partially approved the austerity package in mid-July, the World Bank and IMF granted Russia a loan of $ 22.6 billion for the next two years. On July 20, the IMF approved a bridging loan of $ 11.2 billion, and on August 6, the World Bank approved a loan of $ 1.5 billion.

Speculation

Liquidity on the interbank market ran out on August 12th . Commercial banks were then no longer allowed to buy unlimited amounts of foreign currencies on the instructions of the central bank.

On August 13, the Hungarian-American billionaire George Soros recommended that the Russian government devalue the ruble by 15-20%. Speculations about a devaluation of the ruble soon led to drastic price losses in the RTS index on the Moscow stock exchange . After panic sales and price losses of up to 25%, trading on the stock exchange was temporarily suspended. Shares fell to their lowest level in two years. The Russian ruble came under massive pressure due to capital outflows and high national debt . However, Yeltsin ruled out a devaluation of the ruble on August 14, which more than made up for the losses in share prices. In fact, this meant national bankruptcy, with the result that private assets in bank accounts also lost their value.

Soros was accused by some Moscow newspapers of having used his recommendation to devalue the ruble to speculate on foreign exchange, which Soros denied. In fact, the ruble was already showing signs of falling some time earlier; it was due not least to the inability of the previous Russian governments to relieve the state budget of the debts of unprofitable state-owned companies. Soros is only seen as the trigger for the crisis; he publicly stated the overpricing of the ruble. The Asian crisis and the drop in the price of crude oil (Russia's main export) promoted the ruble crisis or accelerated its course.

Devaluation of the ruble

The Russian government could no longer defend the now unrealistic rate of the ruble. It had tried in vain to use the $ 4.8 billion in aid from the IMF to support the ruble exchange rate . On August 17, it widened the ruble's dollar corridor, which resulted in a de facto devaluation of the currency. The US dollar was then allowed to trade between 6.0 and 9.5 rubles. Previously, an average of 6.2 rubles could only be exceeded by a maximum of 15% upwards or downwards. The government's promise not to devalue the ruble was thus broken through the back door. The repayment of private foreign debt was suspended for 90 days and the servicing of short-term government bonds was suspended. The release of the exchange rate led to a sharp devaluation of the ruble with a depreciation of 60%. This in turn made the debt servicing of commercial banks (for loans in foreign currency) much more expensive and led to a storm of private investors on the banks. A large number of commercial banks had to file for bankruptcy under these conditions .

New government

On August 23, Yeltsin surprisingly dismissed Kiriyenko from office after five months. Kiriyenko had not solved the economic problems and devalued the ruble. Yeltsin said he had issued the dismissal in the interests of stability and continuity. Kiriyenko had previously declared in parliament that Russia was at the beginning of a financial crisis, whereupon prices on the financial markets collapsed worldwide. With the dismissal of Kiriyenko, Yeltsin saved his own career for the time being ( he did not run for the presidential election on March 26, 2000 ), but was considered ailing.

On September 11, Yeltsin's interim Prime Minister Viktor Chernomyrdin was replaced by Yevgeny Primakov (until then Russian Foreign Minister). Primakov initiated a rigid austerity program. The confidence of the financial markets slowly rose again; the inflation in 1999 was significantly lower than the 1,998th

The inflation during the ruble crisis meant a heavy loss of purchasing power for every ruble owner . In 2000 the domestic market recovered again (supported by raw material exports). As early as 2006, the Russian government had considerable foreign exchange reserves.

The Russian crisis had a significant impact on the successor states of the Soviet Union , which lost their traditional sales markets. In the Baltic States , after years of favorable economic development, the Russian crisis led to a recession in 1999.

Web links

• The financial crisis in Russia in the wake of the Asian crisis , From Politics and Contemporary History (B 37-38 / 2000)

Footnotes

1. ↑ Russia's 'Black Thursday' , cnn.com of August 13, 1998, accessed on July 12, 2019.
2. ↑ Thomas Schmidt: The foreign policy of the Baltic states: in the field of tension between East and West . VS Verlag für Sozialwissenschaften, 1st edition 2003, ISBN 978-3531136813 , page 180