The current situation in the economy makes all citizens of the state think about whether there will be a default in Russia. Fall on world market oil prices, the real increase in prices for goods within the country, sanctions by Western countries and the aggravation of military conflict. All this worries the average person and is a pressing agenda. It depends on the chosen political course whether there will be a repeat of 1998 and whether the country is in default.
What it is
In simple words, default is the inability to pay off debts. The word "default" is borrowed. Translated from English means "default". As an economic phenomenon, “default” can be called “bankruptcy” in another way, the inability to pay the debt or its interest. Only the word “bankrupt” is more often used in relation to the borrower, individual or legal entity, and “default” - in relation to the state.
Varieties of default
The default can be of two types. Full or technical. In the event of a default, the country is declared insolvent to pay any debts and obligations. It leads to decline in all spheres of life and to the depreciation of the national currency. The International Monetary Fund can solve the problem and help such a state.
The second default option is the most common and less dangerous. Technical default declared in case of temporary difficulties in paying debts and obligations. In the event of a technical default, a country has the opportunity in the near future to restore reserves and pay debts by selling, for example, state property and enterprises.
A country that violates the clauses of the contract securing the financial side, and delays payments or stops them, declares a technical default. What is this, in simple words can be illustrated by the example of Ukraine. After non-payment of debts to Russia at the beginning of 2016, Ukraine was recognized a technical default.
Prerequisites for Default
The textbooks on economics provide a number of factors leading to this situation. Comparing them with the real situation in the country, we can conclude whether a default in Russia is possible.
- Inconsistency of income planned. For example, Russian budget for 2015, it was calculated at the high cost of oil, when the price of it fell, incomes also decreased. Accordingly, the budget did not receive the money, and planned expenses had to be cut. If the government did not respond to changes in the cost of oil, the country would have been in default.
- Decrease in income due to tax evasion and lower prices for exported goods.
- Economic crisis;
- Political upheavals and a sharp change in the political course (for example, termination of previously concluded contracts or a change in social policy and default).
- Force Majeure.
Will there be a default
The standard of living of the population has fallen; this can be seen in all areas. The economic crisis also hit hard both citizens and businesses. According to statistics, a large number of Russians lost their jobs due to reductions in production capacities, sanctions and bankruptcy of some enterprises. The income of the Russian in 2015 decreased, while inflation increased. The ruble exchange rate against the dollar and the euro is constantly falling. Ordinary people began to predict default in Russia.
The opinion of experts on this issue is controversial. However, most of them adhere to a positive scenario. If Russia faces default, then only technical. The correct course of our government protects us from bankruptcy.
Gold reserves
Today, gold reserves exceed the size of external debt, which makes it possible to avoid an even greater fall in the ruble. As long as the size of gold and foreign exchange reserves and the level of GDP exceed the size of debts and obligations on payments of the country, default is impossible. At the moment, any debt of Russia can pay off CentroBank. In the future, if Russia does not move away from the commodity economy, and the price of oil continues to fall or remains at a minimum mark, this will lead to a deficit of state funds.
Therefore, with almost one hundred percent certainty, the question of whether there will be a default in Russia in 2016 can be answered: “No”.
If not default, then what?
According to expert studies and forecasts, the economic situation in Russia can begin to stabilize only by the end of the year. The decline in the economy is primarily associated with an increase in payments to public sectors (teachers, doctors, cultural workers). For this, 1 trillion rubles has been budgeted for 2016, which is 35% of total expenses.
Tariffs are also forecast to increase by more than 1.5 times. For some services, prices have already risen, and, unfortunately, will continue to increase.
Experts predict the rapid growth of debts of municipalities and regions, which could lead to their bankruptcy.
Due to the fact that deductions to the state budget by regions of profit taxes are reduced, the budget deficit will grow steadily. To avoid this, the government will again have to cut costs.
Preconditions for default. Sanctions
Central Bank analysts and financial experts do not give positive forecasts about the economic situation in the country for the coming year. Often the main reason is called the sanctions and the prevailing geopolitical situation.
In connection with the imposition of economic sanctions, Russian banks do not have enough funds from the state budget, and they cannot cooperate with European financial institutions. International business has become impossible, cooperation with Western financial institutions has either been terminated or suspended.
To correct the situation, it is necessary to open the Asian financial market for the banking sector of Russia. We see that active work is being done in market policy.
If a default occurs in Russia, this will significantly reduce gold and foreign exchange reserves. Accordingly, the entrepreneurs of our country will be placed in tough credit conditions. Therefore, the more reserves the Central Bank has, the more loans it can issue, and the milder the conditions for their provision.
What will happen after default?
If, however, a default occurs in the country, then its image will suffer first. From this, all world ratings begin to decline, which leads to a decrease in investment in the state’s economy. The state currency exchange rate is falling, and all indicators in the stock market are also falling. Other countries cease to cooperate and conclude contracts and contracts. There is an outflow of labor to other countries.
Debts held by the state can either be written off or restructured (interest is reduced or payment deadlines are increased). Sometimes some countries are forgiven most of the debt.
The state lowers the level of salaries to budget employees, delays the payment of benefits, making every effort to save money in the budget to pay off internal and external debts. Of course, this negatively affects not only the standard of living, but also on the mood of citizens.
As a rule, with a full default, devaluation occurs. This collapse of the value of the currency in relation to other world currencies, leading to the depreciation of money. An example is the default in Russia in 1998.
The positive side of default
Along with negative consequences, default has unconditional advantages.
First of all, debt relief or delaying their return makes it possible to strengthen the country's economy and make it more stable.Some countries, fearing not to get their money at all, write off most of the debt to the country or remove interest.
Secondly, after the default, domestic production is being established by increasing internal competition. Previously unused resources or industries begin to develop.
There is an opportunity to restructure the economy, make it independent of imports.
Return to a stable exchange rate (after devaluation, for example).
And although default has an extremely negative effect on citizens and the state of the world, in the future it can have a beneficial effect on the development of the country.
1998 default
The last default in Russia in 1998 was caused by the collapse of the USSR. The economic crisis and financial difficulties have led to huge loans and growing public debt. In 1998, Russia's public debt amounted to 50% of GDP.
Along with this, a sharp decline in the price of oil, gas and metals began. This shook the raw materials economy of Russia even more. And the wrong political course of the leadership of the country and the Central Bank has become a decisive factor.
After the country experienced a period of default, the level of GDP had an annual increase. Government debt was declining. Along with the development of Russia, its economic condition was strengthened. After the change of government in 1999, the world ratings of our country began to grow.
The consequences of the 1998 default
The default in Russia was announced on August 17, 1998. The government defaulted on external debts, the devaluation of the ruble and stopped payments on a number of obligations, such as payments on federal loan bonds, for example.
The consequence of default was a drop in the ruble four times. Until August 1998, 1 dollar was worth 6 rubles, after default it became equal to 24 rubles.
According to experts, the banking system lost 100-150 billion rubles. Income shortfall consolidated budget lost at least 50 billion rubles.
Of course, the standard of living of the population has greatly suffered. Revenues decreased, according to official figures, by more than 30%. The country was in decline.
The volume of GDP decreased by more than 10%, and the volume of investments - by 17%.
World practice
After a default in Russia in 1998, Argentina experienced a decline in 2001. At that time, it was the largest default in the world. The country was in an economic crisis, the people went on strike, constantly taking to the streets. Argentina's debts grew, enterprises declared bankrupt, and the government changed its composition several times.
In the summer of 2015, experts defaulted in Greece. The country simply had nothing to pay its IMF loan. The authorities did not officially recognize the default, and after lengthy negotiations for Greece, the debts were restructured.
In the history of Russia in 1918, the new government refused to pay the debts of tsarist Russia to creditors. The refusal of the new government to pay the bills of the previous one is also called default. Already in the 21st century, the debts taken by the kings were recognized and partially paid.
Finally
The opinion of experts and analysts (not only Russian ones) agrees that by the end of 2016 the economic situation in the country will begin to stabilize. It is even expected that the government will announce GDP growth and lower inflation.
No matter how negatively the sanctions and the global economic crisis affect the position of Russia, there is always a flip side to the coin. An import substitution program is underway, strengthening the economy. Moving away from the resource base in the economy will make it less dependent on fluctuations in raw material prices. Huge cash infusions into the Crimea are also projected to bear fruit.
