The following is the second installment of a threepart series on growing debt for russias regional governments. An analysis of the currency and financial crisis in russia. Russian ruble crisis of 1998 management study guide. Russian banks have warned against hysterically jumping to the conclusion that the current ruble crisis will follow the trajectory of 1998, when the country was forced to default.
The lessons and insights extracted from the 1998 russian crisis are of general applicability, oil and geopolitics notwithstanding. The volume and variety of negative financial news, and the seeming impotence of policy. Russian banking since the crisis of 1998 article pdf available in economic change and restructuring 393. Financial globalization and the russian crisis of 1998. Impact of the crisis on the people in russia 20 vi.
Investors and speculators, aware of the crisis that confronted the country, registered their sentiments through the collapse of russian bond, stock and currency markets on august, 1998 rabobank. Ltcm was founded in 1994 by john meriwether, the former vicechairman and head of bond trading at salomon brothers. This paper is an invited submission to the elsevier encyclopedia of. The russian financial crisis of 1998 every crs report. The russian economic crisis michael ellman robert scharrenborg since the end of the 1980s an attempt has been made to implement a liberal revolution in the former soviet union. Since may of 1998, russia has been caught in the latest, and likely the most serious, in a series of economic crises. The russian financial crisis also called ruble crisis hit russia on 17 august 1998. An extraordinary economic situation that prevailed in russia in 19971998 led to a widescale economic crisis. The value of the russian bonds and stocks soared, with the participation of foreigners in these asset markets increasing rapidly. Causes of the financial crisis congressional research service 4 economy appeared to be locked in a descending spiral, and the primary focus of policy became the prevention of a prolonged downturn on the order of the great depression. It resulted in the russian government and the russian central bank devaluing the ruble and defaulting on its debt.
Though the crisis is generally characterized as a financial crisis or economic crisis, what happened in 1997 and 1998 can also be seen as a crisis of governance at all major levels of politics. Financial crises a financial crisis is a situation in which the value of financial institutions or assets drops rapidly. The russian financial crisis and its consequences for central asia wp01169 created date. Financial globalization and the russian crisis of 1998 by. This paper is an invited submission to the elsevier encyclopedia of financial globalization. The significance of the asian financial crisis is multifaceted.
The purpose of this paper is to examine the exchange rate volatility of the ruble, before the august 1998 crisis, using a macroeconomic model of the russian federation developed by basdevant 2000. The russian financial crisis also called ruble crisis or the russian flu hit russia on 17 august 1998. Financial globalization and the russian crisis of 1998 issuu. Russias 1998 meltdown is yet another instance of financial globalization being linked to a crisis in an emerging market instead of better resource allocation and. An analysis of trends, causes, and implications summary since may of 1998, russia has been caught in the latest, and likely the most serious, in a series of economic crises. The russian crisis also called ruble crisis hit russia on 17 august 1998. Traditionally, russias regions have reacted against federal authority in times of economic crises, such as the socalled ruble crisis of 1998. The russian financial crisis and its consequences for central asia. January 1998 did it become clear that this was a truly russian crisis, as the russian stock market declined by 30 percent in that month. Russias 1998 crisis and subsequent recovery offer valuable lessons for countries simultaneously facing unsustainable public debt dynamics and low international liquiditya list that in recent. The crisis had severe impacts on the economies of many neighboring countries. The economic crisis in russia of 1998 economic crisises. Financial globalization and the russian crisis of 1998 may 1, 2010.
Russian ruble crisis of 1998 the soviet union was one of the countries that emerged as a superpower after the second world war. It builds on existing theories and focuses on the empirical record in the leadup to the crisis. Russian financial crisis of 1998 russia financial crisis. For one, as the effects of the russian crisis became manifest in the last quarter of 1998, the initial policy response by the various monetary authorities in central. The ruble depreciated more than two times, annual yields on bonds denominated in the currency increased by 200%, while stocks lost more than 75%. The causes and consequences of the russian crisis of 1998. Owyang a currency crisis can be defined as a speculative attack on a countrys currency that can result in a forced devaluation and possible debt default.
Euro crisis recalls russias 1998 monetary meltdown the. Only six months later, it experienced a comprehensive macroeconomic collapse, involving its exchange rate, the banking system, and public debt. Lessons from the russian crisis of 1998 and recovery. The russian crisis paper prepared jointly by the secretariats of the united nations conference on trade and development and the united nations economic commission for europe a. Meanwhile, james cook, the senior vice president of the u. And in february 1998, the annual inflation rate at last dipped into the single digits. In february 1998, russia attained its goal of singledigit inflation set under the stabilization program that began in mid1995. Paper prepared jointly by the secretariats of the united. Ltcm was a hedge fund based in greenwich, connecticut that used absolute return trading strategies combined with high financial leverage. Pdf political instability and the august 1998 ruble crisis. Russian financial crisis 1998 ppt free download as powerpoint presentation.
Introduction the underlying origins of the russian crisis of 1998 are to be found in the countrys economic structure, institutional environment and political processes. The post war economic system was basically a competition between the american capitalist system and the soviet based socialist system. It was exacerbated by the asian financial crisis 1997. Financial globalization and the russian crisis of 1998 brian pinto and sergei ulatov1. By then an outbreak of a severe banking, currency and sovereign debt crisis could not be prevented. Longterm capital management, hedge fund sunk in the wake of the russian crisis. This was known as moral hazard play, on the assumption that if the russian federation did not pay. Financial globalization and the russian crisis of 1998 english abstract. An econometric investigation feridun, mete abstract this article aims at deriving lessons from the russian financial crisis through examining the root causes of the crisis based on a probit model incorporating 20 monthly macroeconomic and financial sector indicators spanning the period 1988.
This paper, originally written in early 1998, provides an early diagnosis of the financial crisis in asia. Learning from the 1998 russian debt default seeking alpha. The crisis had a negative impact on all the spheres. Russia s fixed exchange rate regime together with its fragile fiscal position appeared to be unsustainable in the course of 1998. According to a recent report of the council on foreign relations, relative to the 19871997 average, the. Financial globalization and the russian crisis of 1998 brian pinto and sergei ulatov1 1 both authors are at the world bank. By 1998, all of the affected countries, including singapore and hong kong, whose financial and corporate sectors were relatively sound, had entered a serious economic recession. I remember the 1998 russian debt default crisis and the associated long term capital management collapse very well. Causes of the financial crisis federation of american. The russian financial crisis hit russia on 17 august 1998. However, the experiences with the debt crisis of the 1980s, russia 1998, argentina 2001, and greece 2010 indicate that orderly debt restructurings remain elusive, even with highpowered official. The russian crisis took place in the first decade of russias transition from communism to a free market economy. The russian ruble crisis had many different causes that contributed to the sudden crisis of confidence, including falling energy prices, heightened geopolitical risks, and increasing demand for the u. One of the first results was the dissolution of the ussr into 15 independent states, which have pursued a variety of policies.
The russian financial crisis and its consequences for. The crisis came to a head on august 17, 1998, when the government of thenpremier sergei kiriyenko abandoned its defense of a strong ruble exchange rate against the dollar, defaulted. The findings, interpretations and conclusions expressed in this paper are entirely. One example of a currency crisis occurred in russia in. We can work on russian ruble crisis in 1998 write my. The data shows that brazil suffered a drastic reduction in reserves as investors exchanged real for foreign currency. It was triggered by the asian economic crisis, which started in july 1997. In the aftermath of the russian crisis of august 1998, a series of events led to the brazilian crisis that culminated in the floating of the real on january 1999. The financial chaos in russia is giving investors flashbacks to the summer of 1998. With the ruble still trading near its lows with the u. Russia had moreorless completed the privatization of its manufacturing and natural resource sectors by the end of 1997. Members of ltcms board of directors included myron s. During the ensuing decline in world commodity prices, countries heavily dependent on the export of raw materials were among those most severely hit.
A main focus of this paper is to use this simulation exercise to find out what was the origin of this financial crisis. The main goal is to emphasize the role of financial panic as an essential element of the asian crisis. You need speed to put out a forest fire, anatoly b. The timing of the events led academic and policy making observers to suspect that there was a contagion from the russian crisis to brazil. The crisis is believed to have been triggered by a number of factors. In this respect, therefore, russian crisis of august 1998 was. One example of a currency crisis occurred in russia in 1998 and led to the devaluation. Since the 1998 crisis, the russian government has managed to keep social and political pressures under control, and this has played a vital role in bringing about the current recovery. Russian financial crisis of 1998 2 since the great depression to the recent economic recession that started in the united states of america, countries across the globe have had a share of unique economic and financial crisis. Pdf the russian financial crisis and its consequences for.
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