Damn August. Five naive questions about default and the crisis of 1998

Damn August. Five naive questions about default and the crisis of 1998

The events of 20 years ago Russians remember forever. The country has defaulted — this meant a sharp increase in the price of everything and unemployment. Formally, Russia could not service its debt. But whether it was possible to avoid it?


Twenty years ago the government of Russia announced a technical default of our country are unable to cope with your debt. 17 August 1998 the Central Bank announced a transition to floating the ruble — the national currency fell (in early August, one dollar was 6 rubles a month — 21%). The devaluation sparked severe inflation products rose in price almost every day, businesses went bankrupt one after another, and thousands of Russians were left without work. The government of Sergey Kiriyenko and the management of the Bank of Russia has resigned, Russia’s state debt rose to $ 300 billion, the country has experienced severe crisis.

Aephi answers the questions about the causes and consequences of the 1998 default.

What preceded the default?

After the collapse of the Soviet Union became the legal successor Russia. And in the 1990s, our country faced an acute shortage of money.

To understand: only the external debts of the Soviet Union at that time was 96.6 billion.

Simultaneously, on the Russian political scene it was a real fight between appointed Boris Yeltsin’s liberal government and the state Duma, which had been controlled by the Communist party.

MPs approve unbalanced budgets increasing expenditure of the state Treasury, and the government was looking for ways to close budget holes, increasing the national debt through the issuance of state Treasury bonds (GKO).

The process of mass production of these financial instruments was started after President Yeltsin’s reelection. If in 1995 the volume of issue of t-bills amounted to 160 billion rubles, while in 1997 that figure had grown to 502 billion. Buyers of government Treasury obligations offered high interest rates, so demand for t-bills was impressive. Simply put, for every ruble borrowed in a year the government returned 5-7 rubles of budget money. Subsequently, this system actually turned into a pyramid — old obligations of the Russian Federation could cover only at the expense of new releases.

As a result, the payment of t-bills is twice as high as all revenues of the state. And economists, it became clear — the bubble will burst.

At the time of default reserves of the CBR were $ 24 billion. And obligations of Russia in the market of GKO/OFZ bonds and the stock market exceeded 36 billion dollars.

Only if internal problems triggered a default?

No, as is often the case, along with negative internal background at the same time developing negative external background, which has accelerated the onset of the crisis in Russia.

The newsThat bought at the time of default. Technique 1998 photos

In the 1990s our economy as well as now, depended on exports of oil and gas. At the same time commodities collapsed. In addition, they also contributed to the so-called Asian crisis. The economy of South Korea, Taiwan, Singapore and Hong Kong in the early 1990s, has grown at an unprecedented pace, and very quickly they became leading in the region. The investment boom resulted in overheating economies and by the mid-1990s in the countries of the Asia-Pacific region crisis, which has not gone unnoticed to the world. In the United States, for example, collapsed the Dow Jones was suspended trading.

Why Russia has not helped foreign creditors?

Now foreign financial institutions — the international monetary Fund (IMF), world Bank (WB), etc. poured money into Greece or Ukraine, in order to prevent their bankruptcy.