On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors. Declining productivity, an artificially high fixed exchange rate between the ruble and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the reasons that led to the crisis. The economic cost of the first war in Chechnya, estimated at $5.5 billion (not including the rebuilding of the ruined Chechen economy), also contributed to the crisis. In the first half of 1997, the Russian economy showed some signs of improvement. However, soon after this, the problems began to gradually intensify. The US economy is now on this same path. Does any of this sound familiar? Russian inflation in 1998 reached 84 percent and welfare costs grew considerably. Many banks, including Inkombank, Oneximbank and Tokobank, were closed down as a result of the crisis. The salaries of miners alone were to consume $919 million, more than one percent of the federal budget. By August 1998, the government had paid $4 billion to settle miners’ strikes. Prices for almost all Russian food items had gone up by almost 100%, while imports had quadrupled in price.
Posted on: Mon, 07 Oct 2013 09:41:49 +0000
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