Russian Default 1998
Russian Default 1998
1 Intro
Russian financial crisis – Ruble crisis – Russian flu -> 17th august 1998
Result => Devaluation of Ruble , Default on Debt
Causes =>
Declining productivity high fixed exchange rate chronic fiscal deficit
Economic burden of Chechen war
Asian financial crisis 1997
Commodity prices – oil & non-ferrous metals – impacted foreign exchange reserves
Political crisis => Russian president Boris Yeltsin dismisses PM Viktor Chernomyrdin & his cabinet - 23 March 1998. Yeltsin -> Energy Minister Sergei Kiriyenko, 35 years -> as acting prime minister. 29 May 1998 – Yeltsin -> Boris Fyodorov as Head of the State Tax Service.
Responses
June 1998 - Kiriyenko -> GKO interest rates to 150%.
July 1998 – IMF & World Bank approves $22.6 billion package - swapping out an enormous volume of the quickly maturing GKO short-term bills into long-term Eurobonds.
Russian government decided to keep the exchange rate of the ruble within a narrow band.
July 1998 - State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan. Government forced to rely on presidential decrees.
29 July 1998 - Yeltsin replaces Federal Security Service Chief Nikolay Kovalyov with Vladimir Putin.
Govt. employed floating peg policy, the Central Bank decided that at any given time the ruble-to-dollar (or RUR/USD) exchange rate would stay within a particular range. If threatened to devalue band, the Central Bank would intervene - spending foreign reserves to buy rubles.
Investors fled the market by selling rubles and Russian assets / securities.
By 1 August 1998 – approx. $12.5 billion in debt -> Russian workers.
17 August 1998 - Russian government & Central Bank issues Joint Statement
The ruble/dollar trading band would expand from 5.3–7.1 RUR/USD to 6.0–9.5 RUR/USD
Russia's ruble-denominated debt would be restructured.
Temporary 90-day moratorium - Payment of some bank obligations
17 August 1998 - State securities (GKOs and OFZs) would be transformed
1 Intro
Russian financial crisis – Ruble crisis – Russian flu -> 17th august 1998
Result => Devaluation of Ruble , Default on Debt
Causes =>
Declining productivity high fixed exchange rate chronic fiscal deficit
Economic burden of Chechen war
Asian financial crisis 1997
Commodity prices – oil & non-ferrous metals – impacted foreign exchange reserves
Political crisis => Russian president Boris Yeltsin dismisses PM Viktor Chernomyrdin & his cabinet - 23 March 1998. Yeltsin -> Energy Minister Sergei Kiriyenko, 35 years -> as acting prime minister. 29 May 1998 – Yeltsin -> Boris Fyodorov as Head of the State Tax Service.
Responses
June 1998 - Kiriyenko -> GKO interest rates to 150%.
July 1998 – IMF & World Bank approves $22.6 billion package - swapping out an enormous volume of the quickly maturing GKO short-term bills into long-term Eurobonds.
Russian government decided to keep the exchange rate of the ruble within a narrow band.
July 1998 - State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan. Government forced to rely on presidential decrees.
29 July 1998 - Yeltsin replaces Federal Security Service Chief Nikolay Kovalyov with Vladimir Putin.
Govt. employed floating peg policy, the Central Bank decided that at any given time the ruble-to-dollar (or RUR/USD) exchange rate would stay within a particular range. If threatened to devalue band, the Central Bank would intervene - spending foreign reserves to buy rubles.
Investors fled the market by selling rubles and Russian assets / securities.
By 1 August 1998 – approx. $12.5 billion in debt -> Russian workers.
17 August 1998 - Russian government & Central Bank issues Joint Statement
The ruble/dollar trading band would expand from 5.3–7.1 RUR/USD to 6.0–9.5 RUR/USD
Russia's ruble-denominated debt would be restructured.
Temporary 90-day moratorium - Payment of some bank obligations
17 August 1998 - State securities (GKOs and OFZs) would be transformed