In 1998, when he was default in Russia, the country's economy has experienced one of the most severe crises in its modern history. He had many negative and positive consequences.
Reason for the crisis
Most citizens did not understand the reasons for what happened when there was a default in Russia. Even now, economists continue to argue about this. But the most diverse points of view agree on several important factors.
Firstly, in the 1990s, the government maintained an artificially high ruble exchange rate in order to contain inflation. These measures were effective only in the near future, and in the long term, they could hurt the country's economy. And so it happened.
Secondly, the State Duma adopted inflated annual budgets that did not meet the state's capabilities. In the current situation, only an external impulse was required in order for the “domino effect” to begin. On the eve of when there was a default in Russia, the price of energy resources (oil, gas, etc.) fell sharply on the world market. They were the main export objects of the country. Therefore, in 1998, the size of budget revenues decreased markedly.
In addition, before that there was an Asian economic crisis. Since all countries are interconnected in the economy, the bankruptcy of foreign partners only increased the panic in Russia. In the summer of 1998, the government realized that they had lost control of the situation.
Default declaration
When the state is on the verge of an economic crisis, it has several ways out of this situation. One of them is to announce technical default. This procedure means that the government recognizes its own inability to pay debts to creditors and to fulfill its social obligations to citizens of the country.
That is what the state did when it defaulted in Russia in 1998. On August 17, termination of the performance of debt obligations was announced. This date was soon called Black Monday. The government also stopped holding the ruble against the dollar. Prior to this, the national currency was at the same level thanks to the huge injections of the Central Bank of the currency into the market. Now this artificial feed was not there, and the ruble immediately began a rapid decline at the auction.
Bank strike
In the late 90s, when there was a default in Russia, the “black Thursday” of 1929, associated with the beginning of the Great Depression, was often compared with the events on the Moscow stock exchanges. Over the next six months, the ruble fell three times against the dollar (from 6 to 21 rubles per dollar).
All this caused irreparable damage to the ordinary population. Deposits of citizens depreciated before our eyes. People in a panic began to buy anything, until their money was finally turned into paper. It only spurred inflation. Banks and small private enterprises in all sectors of the economy began to go bankrupt. The entire system of lending and deposits for six months simply ceased to function. The ruin of the population entailed a general decline in living standards.
The 1998 default in Russia led to a loss of confidence on the part of foreign investors. Prior to this, Western money willingly flowed to Moscow in order to occupy niches in the new market that had just emerged after the fall of the Soviet Union and the abandonment of the planned economy.
Economic losses
Due to the devaluation of the ruble, the collection of taxes and production began to decline. For this reason, in 1998 the Russian gross domestic product became three times less.GDP was at the level of 150 billion dollars, which at that time corresponded to the economy of tiny Belgium.
Several attempts were made to calculate how much money was lost when there was the last default in Russia. The Moscow Banking Union in its study reported that the country lost $ 96 billion. About half of this amount came from the banking sector, which received the most severe blow. The population has lost about $ 20 billion in savings and savings.
Dozens of credit organizations went bankrupt. When there was a default in Russia in 1998, Inkombank, one of the five largest banks in the country, collapsed. This event was a shock to all investors and even the state. The unfortunate fate of Inkombank over time was deposited in the memory of the population as one of the most vivid symbols of that default.
Government reshuffle
The fact that the government could not prevent the crisis signaled the end of the career of politicians in ministerial seats. In addition, the entire leadership of the Central Bank of the Russian Federation resigned. September 11, its head Sergei Dubinin was fired. Replaced him Victor Gerashchenko - a person who was still the chairman of the board of the State Bank of the USSR in the late 80s - early 90s.
On August 23, a week after the announcement of default, the country's Prime Minister Sergey Kiriyenko left his post. After several castling, the second place in the state was taken by Yevgeny Primakov, who had to implement a stabilization plan in order to minimize damage from what happened.
Economic restructuring
If you look back and see what year was the default in Russia, it becomes clear that the country was able to quickly get out of the abyss. The cause of the crisis was hidden in the wrong economic policy of the government in 1992-1998. Therefore, the new ministers in a relatively quick time changed the entire financial system of the country. In particular, officials refused to overstate the national currency as a measure against inflation. Since then, the value of the ruble in the market has evolved only according to the situation at the auction. The state has ceased to intervene in the processes inherent in capitalism, which has borne fruit.
All experts noted the dependence of the Russian economy on oil exports. Therefore, after 1998, the country began to increase production in other sectors, which made the state less dependent on the “raw material needle”.
Changes in fiscal and tax policies
Thanks to the free formation of the ruble exchange rate, the government quickly accumulated the country's reserve fund. This helped smooth out the blows in the future. The 1998 default in Russia forced the authorities to reconsider their attitude to budgeting. In subsequent years, the projects proposed by the State Duma became more realistic. In particular, the government began to adopt a budget with a small deficit, thus saving money. The Ministry of Finance has left huge Western loans in the past to “close holes” in the economy. It was debt to foreign funds that made the economy more unstable and vulnerable.
What year was the default in Russia? In 1998, the state had to reconsider its attitude to taxation of citizens. The government decided to spend all available funds to slow down the rise in prices for electricity, rail transport and other monopolies. While inflation reigned in the country, these indicators remained at the same level, which made it possible to quickly overcome the crisis when another entrepreneurial boom began in Russia.
Positive effects
Interestingly, when there was a default in Russia in 1991, the whole country thought it was the worst that could happen to the domestic economy. Then the crisis was associated with a painful transition of the state and trade to market principles. Seven years later, in 1998, the devaluation of the national currency even played into the hands of Russian producers.Prices for domestic goods abroad fell several times due to the difference in rates, which allowed companies to get new customers.
After the ruin of major players in the market, many niches formed in the Russian economy. These places could not remain empty for long. Soon they were occupied by the enterprising people who created new companies. The growth of small business began, which replaced the obsolete monopolies. It was a natural process of economic recovery that came after every crisis. The year 1998 did a lot for the Russian economy to get rid of vulnerabilities and distortions.
Economic recovery
Soon, the state simply began to smile luck. In the international market there has been an increase in energy prices. Domestic exports have become more profitable. Two years later, the treasury began to replenish with a stream of money, which led to an increase in the well-being of the population.
In connection with the devaluation and inflation in Russia, foreign-made goods have become very expensive. The population began to buy domestic products in bulk, thereby helping to grow and become richer for local companies. After default, for a long time they were spared from expensive foreign competitors.
