The Russian Financial Crisis and After
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Code : ECC0003
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Region : Russia |
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Background Russia was the largest republic state of USSR. USSR, also called the Soviet Union, existed as a union of 15 states for the period between 1922 and 1991. Russia is a vast country, with abundant wealth of natural resources. It has been a significant energy exporter. The major exports are oil and natural gas. It has a well-educated human resource and a diversified industrial base..... Russian Reforms after the Breakup of the Soviet Union Due to political instability, the Soviet Union was reorganized into 15 republic states in December 1991. These 15 states are together termed as the Commonwealth of Independent States (CIS). Russia is the largest among the CIS. Before the break up of the Soviet Union, the State Bank of the USSR, Gosbank, controlled the monetary system of USSR. It issued the roubles and functioned as the State Treasury. The Russian Central Bank, which was formed in July 1990, took over the functions of Gosbank in November 1991.13 The Gosbank was disbanded on December 20th 1991 and all the assets, liabilities and properties of Gosbank were transferred to the RCB.14 Russia introduced its own currency, the russian rouble, which replaced the soviet rouble at par.... |
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Beginning of the Crisis In October 1997, the Russian market received shocks following the Asian crisis, as the investor's confidence was shaken. The rouble came under speculative attack and the RCB had to defend the exchange rate by using around $6 billion of its foreign exchange reserves.25 It was estimated that the non-residents held about 30%of the total GKOs. These non-residents signed forward contracts with the RCB to exchange the roubles for foreign currency and reduce their currency risks. The Asian crisis had decreased the demand for oil. In December 1997, the world prices of oil and non-ferrous metal fell. This had a negative impact on the Russian economy as its export earnings in the first half of 1998, fell by 11% when compared to the previous year....
After Devaluation On August 17th 1998, Russia abandoned the exchange rate peg of the rouble (Exhibit 5) and allowed the rouble to float between 6 and 9.5 roubles per dollar. Prime Minister Kiriyenko announced a 90-day moratorium on servicing the foreign debts and restructuring of the GKOs bonds due before the end of 199931 (Box 1). The value of the GKOs was about $40 billion. The foreign investors held about one third of these GKOs....
