The causes and consequences of the Russian crisis of 1998
The period 1995 to mid-1997 was boom time for Russia’s financial markets. The value of the Russian bonds and stocks soared, with the participation of foreigners in these asset markets increasing rapidly. International investors’ optimism about the country’s future was lifted by stabilization policy that followed the advice of Western institutions.
Russian crisis of 1998 were caused due to a number of factors, the investor risk aversion by foreign players, fall in oil prices put the ruble under a drastic downward trend. Russia at that point in time was heavily dependent on capital inflows which was eroded due to the external shocks e.g Asian financial crisis etc country
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Devaluation was postponed through heavy international support. The ultimate crisis in August 1998 resulted in a partial government default and steep devaluation
Central Bank of Russia (CBR) introduced an exchange rate target band. The regime was mutating during the following three years, featuring various corridor ranges, levels and crawls. Also, from 1996 the CBR targeted an “inner band” with a small range and a short announcement horizon, in order to smooth the day-to-day fluctuations of the ruble. Yet the principal regime remained in place until August 1998. It slowed ruble depreciation to a 9.7% average during target regime which compares impressively to the 138% during the 2 years prior to it. Cash revenues declined, on the federal level they fell from 12.9% of GDP in 1995 to just 10.7% in 1998. Enlarged government revenues declined from 33% to 31.7%. Tax collection problems were mostly structural and tedious to ease. Tax laws were complicated, inefficient and inconsistent.
Ruble was under pressure: Dow Jones Industrial Average dropped by 554points (all time highest drop), worsening of the Asian crisis around the same period lead the international investment community to shy away. Russian external bonds soared from 540 basis points in the 3rd qtr 1997 to 690 basis points in the 1st qtr 1998. Finally, world oil prices collapsed by 35% in just three
The Soviet Union, which was once a world superpower in the 19th century saw itself in chaos going into the 20th century. These chaoses were marked by the new ideas brought in by the new leaders who had emerged eventually into power. Almost every aspect of the Soviet Union was crumbling at this period both politically and socially, as well as the economy. There were underlying reasons for the collapse of communism in the Soviet Union and eventually Eastern Europe. The economy is the most significant aspect of every government. The soviet economy was highly centralized with a “command economy” (p.1. fsmitha.com), which had been broken down due to its complexity and centrally controlled with corruption involved in it. A strong government
Economically, Russia was in a lot of danger. Thus they took out a loan from France. In one respect in indicated instability in that they now relied on another country which was risky. However simultaneously it depicted how Russia was trying to overcome the backwardness. Nevertheless; linking back to Stolypins social reforms, it as well had knock on affects on agricultural affairs. As now, they were becoming more reliant and independent in their farming. As well it encouraged them to get jobs; in turn improving Russia’s industry. By 1914 only 17.8% of factories had less than 100 workers and 41.4% had more than a 1000 workers. In this respect indicating stability with Russia or at least Russia was stabilising.
Russia’s economy is very complex and also very terrible at the same time. Many other economy’s are also like this but Russia’s is a very interesting thing to learn about. Russia’s economy has many things wrong with it that in the long run could probably affected it in a negative way. But it also has many positive things about it.The negatives and the positives are, in my opinion, are equal in Russia economy.
Along with the stocks and bonds, there was also a high demand from foreigners wanting American goods. This occurred because the deflation from the United Sates made it so appealing to foreigners (Romer). On the other hand, because there was such a low income from Americans it reduced their demand for foreign products (Romer). Unfortunately other countries were trying to maintain an international gold standard in order to continue to meet the monetary contraction that was occurring in the United States (Romer). Sadly, this resulted in the deterioration of output and prices throughout countries all over the world. This downturn of other countries started looking like the one occurring in the United States (Romer). Banking panics along with financial crisis started occurring in other countries around the world, not just in the United Sates (Richardson, September 2007). By forcing countries to deflate, the gold standard reduced the value of bank’s collateral and made them more vulnerable to bank runs (Romer). Due to the overwhelming panics in banks and other financial market disruptions, countries globally experienced a tremendous depression in output and prices (Paul Evans).
The banking system, stock market, and financial markets in Russia were also seriously affected. Russian government had to pump tens of billions of dollars to rescue financial markets and banking system of the country.
The Russian state has been characterized by its strong heritage of powerful, autocratic leadership. This domination by small ruling elite has been seen throughout Russia's history and has transferred into its economic history. Throughout the Russian czarist period, to the legacy of seventy years of communism; Russia has been a country marked by strong central state planning, a strict command economy and an overall weak market infrastructure (Goldman, 2003). Self-interest, manipulation and corruption have all been present in the Russian economy, and have greatly helped the few as opposed to the many. To this day, Russia still struggles with creating a competitive and fair market.
Caused by poor planning, Leonid Brezhnev’s “obsession with heavy industry” and his “conservative reaction to his predecessors (Nikita Khrushchev) efforts at improvising reform”, this era began when Leonid Brezhnev assumed leadership and continued until Mikhail Gorbachev came to power in 1985 (Mazower, pg. 363-365). During this time Eastern Europe’s “hard currency debt” grew rapidly, going from “$6.1 billion in 1971 to $66.1 billion in 1980 and $95.6 billion in 1988” (Mazower, pg. 367). Brezhnev also revoked various liberal reforms created by Khrushchev and began implementing Stalinist
In 1997 the country’s exports were no longer booming and the Thai economy entered a unsafe and unpredictable phase. Foreign investors were skeptical about the current-account deficit and the big loans property developers. Bad debt continued to mount up and the stock market crashed to depths not seen in eight years. This caused the baht to fall prey to speculative attack. High debt, heavy borrowing, large current account deficit, and the semi-fixed exchange rate system all played a part to the Thai crisis.
111 people control 19% of all household wealth in Russia (Breslow, 2015). The centrally planned economy realigned to a capitalist order based on markets, private property and free enterprise. The ‘oligarchs’ or known as Russia’s richest 1%, own about 30% of the entire populations personal assets (Aven, 2013). A massive disparity in wealth that is purported to have held back Russia’s economic growth from its true potential (Aven,
The Global Financial Crisis, also known as The Great Recession, broke out in the United States of America in the middle of 2007 and continued on until 2008. There were many factors that contributed to the cause of The Global Financial Crisis and many effects that emerged, because the impact it had on the financial system. The Global Financial Crisis started because of house market crash in 2007. There were many factors that contributed to the housing market crash in 2007. These factors included: subprime mortgages, the housing bubble, and government policies and regulations. The factors were a result of poor financial investments and high risk gambling, which slumped down interest rates and price of many assets. Government policies and regulations were made in order to attempt to solve the crises that emerged; instead the government policies made backfired and escalated the problem even further.
With money comes power and with power comes control. This is the case in the 1990s, when a Russian organized group attempted to control entire branches of the Russia’s economy to include banking sector, providing nonperforming loans and real estate. It was
* The Russian financial crisis of 1998 resulted in a financial collapse and devaluation of the ruble by 2/3. The domestic producers had to reduce their reliance on imported materials and some foreign competitors exited the Russia market.
In 1994, the world saw the decline of the Mexican Peso, leading to what is now considered as the Mexican Peso Crisis. The crisis was characterized by the drastic decline in the value of the Mexican Peso. The Mexican Peso Crisis is considered significant because of its impact on other parts of the region, including Brazil. The following is a discussion of the causes and impact of the Mexican Peso Crisis.
decided to establish foreign direct investment in Russia, we see that in 1991 as the Soviet
Therefore, the Russian government planned to issue 6 billion of European bonds in 1998. On July 13 1998, the government borrowed 22.6 billion dollars from western financial institutions led by IMF. (Lucey and Voronkova, 2008)