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Russian Financial Crisis 1998

Introduction

The economic crisis in Russia in 1998 (also called a Default under the name of one of the causes of the crisis) was one of the worst economic crises in the history of Russia.

August 17, 1998 the Russian government defaulted on foreign debt , which was the beginning of large-scale financial and economic crisis in Russia. First of all, the GKO pyramid was destroyed, amounting at the time of financial support "food chain": the money that the investor was carrying a shallow campaign, she passed a large firm, the latter accumulated funds and translating them into fixed-term deposit, a bank, in turn, sold Ruble and foreign currency in the interbank market, ie put them in another bank, and so on. In the end, money always takes the form of T-bills, which were perceived by all financial institutions as the most liquid short-and medium-term assets. Therefore, the "freezing of T-bills," was obliged to turn into an instant crisis of liquidity in the banking system, lead to an epidemic of bankruptcies and lead to total collapse of the financial turnover in the country.

The causes of the crisis

The crisis in Russia in 1998 was preceded by a collapse in Asian markets and the subsequent economic crisis. The immediate causes of the crisis is a large external debt, falling prices for oil and other commodities, the pyramid of T-bills, which gave a return on investment 40%. The set of internal and external factors led to the fact that the state could not pay its debts and was forced to default.

The causes of the crisis from the standpoint of the international economy

In theory, international economics concept of impossible trinity implies the impossibility of the situation of a fixed exchange rate, free capital mobility and independent monetary policy. In Russia, the ruble to the dollar was fixed. Free movement of capital allowed foreign companies to invest in the GKO market. Monetary policy was aimed at curbing inflation. In such a situation, if the revalued currency (the real exchange rate of ruble against the dollar was very high, in April 1998 it was estimated at 9-11 rubles.), There is a strong speculative attack on the currency. In the case of Russia, the pressure went through the GKO market with its high stakes, not relevant inflation. As a result, falling foreign exchange reserves forced the government to devalue the currency by default.

Chronology of events of the crisis in August 1998

August 5 - the government has decided to sharply - from $ 6 to $ 14 billion - an increase of external borrowing limit Russia this year. In fact, this decision says about the impossibility of financing the budget from domestic sources.

August 6 - World Bank decided to provide loan to Russia third at restructuring the economy of $ 1.5 billion on the world market, Russia's foreign currency liabilities have reached the minimum values.

August 12 - Central Bank reduced the limits on the sale of the currency's largest commercial banks.

August 13 - Central Bank of ...