1. 1998 Russian Financial Crisis
By: Heath Turner, Joel Firman, Malessa Hubbard, and Robert Warren

2. The Political Structure of Russia
A democratic federal law-bound state with a republican form of government.
Three Branches
Legislative Assembly
Executive Powers
Judicial Courts

3. Legislative Assembly
The Council of Federation
State Duma

4. Executive Powers Dual Executive President The Government of Russia
Boris Yeltsin
Two Terms: ; Independent Party
The Government of Russia
Prime Minister
Sergei Kiriyenko March August
Viktor Chernomyrdin August September
Yevgeny Primakov September May
Sergei Stepashin May August
Vladimir Putin August May

5. Judicial Courts Three Court system Constitutional Court Supreme Court
Supreme Court of Arbitration

6. The Central Bank of the Russian Federation
Chairmen
Sergeĭ K. Dubinin was Chairman of the Central Bank of the Russian Federation in (Bank of Russia 2015)
Viktor V. Gerashchenko was Chairman of the Central Bank of the Russian Federation in (Bank of Russia 2015)
Responsibilities

7. Timeline Summer 1997: Asian crisis causes an attack on the ruble
December 1997: Prices of oil and nonferrous metal drop and the Russian government was expecting a 2% economic growth in 1998, but real GDP ↓ 4.9%
February 1998: New tax code submitted to the Duma and Russia fails to agree on additional IMF funding
March 1998: President Yeltsin fires entire government

8. Timeline (coninued)
May 1998: Dubinin warns government ministers of debt crisis within 3 years with reports present, government bond yields increased to 47%, oil prices decrease to $11/barrel
August 1998: Russian government devalues ruble, defaults on domestic debt and declares moratorium on payment to foreign creditors, and stock market closed for 35 minutes as prices plummeted

9. High Government Debt and over-Valued Currency
Russia had to increase GKP’s and OFZ’s because they were not able to raise adequate taxes and the IMF prohibited borrowing from the Central Bank of Russia ( )
1. Cash plus noncash basis Source: Ministry of Finance, Goshomstat, and internal IMF reports

10. Source: Central Bank of Russia

11. Source: International Monetary Fund (IMF)
Not in slide, but what I will discuss: Inflation fell from 131% in 1995 to 22% in 1996 to 11% in Russia was promising relations with West (World Bank/IMF aid), then output recovered slowly. May 1998, the Central Bank of Russia is forced to defend the ruble with $1 billion. Russian oil and gas companies push for devaluation of the ruble to increase the value of their exports affected by the decrease in oil prices. The lending rate is now 150% by the CBR. In August 1998, the IMF approves emergency aid packages which raises the fears of devaluation by investors weakening the stock, bond, and currency markets. These series of events led to devalue of ruble on Aug 17, 1998, dramatic rise of inflation, and ruble is floated.
Source: International Monetary Fund (IMF)

12. Source: IMF

13. Source: Russian Statistics Committee and International Bank for Reconstruction and Development staff estimates

14. 1998 Stock Crash IMF loan trouble Stocks and Bonds plunge
Interest rates triples
Ruble Collapses
Market crashes, cash reserves dwindle under $14 billion
Sale of state-owned oil company shares fail
Trading suspended
Fear of Moscow running out of money
Devalue Ruble, Russians buy dollars
Russia defaults on IMF loans
Estimated losses at $100 billion for investors

15. Source: http://www.tradingeconomics.com/russia/stock-market

16. Oil Prices dropped from $23 to $11 in year
Oligarchs advocated devaluation of Ruble
March- oil companies lose $500 million
Reinvestment failed
Losses reached $23 billion

18. Unemployment 13% Wages suspended Dropped 2/3 Poverty- 40%
Source: Russian Statistics Committee and International Bank for Reconstruction and Development staff estimates

20. Resolution: Causes
Depreciation of the Ruble

21. Resolution: Causes This depreciation led to the recovery of oil prices
Helped Russian domestic markets: Specifically food industry
This is due to the impact that depreciation has on exports:
Depreciation can raise demand as domestic currency translates to more rubles.

22. Resolution: Causes
Price of Oil Recovers

23. Resolution: Causes
This effect leads to a trade surplus in following years

24. Resolution: Causes
Russia was excluded from capital markets after the default
This forced fiscal responsibility which reduced inflation and aided recovery
Russia’s recovery was surprisingly rapid
Both GDP and inflation improved

25. Resolution: Evidence
Inflation decreases

26. Resolution: Evidence
GDP recovers rapidly

27. References
Bank of Russia. (2015). The Central Bank of the Russian Federation.
Bank of Russia (April 2015) "The Russian Crisis 1998." Rabobank. n.d. Web.
Desai, Padma. “Why Did the Ruble Collapse in August 1998?” American Economic Review: Papers and Proceedings, May 2000, 90(2), pp
Gilman, Martin G. No Precedent, No Plan: Inside Russia's 1998 Default. Cambridge, MA: MIT, Print.
Kharas, Homi; Pinto, Brian and Ulatov, Sergei. “An Analysis of Russia’s 1998 Meltdown: Fundamentals and Market Signals.” Brookings Papers on Economic Activity, 2001, 0(1), pp
The Russian Federation. (1993). "The Constitution of the Russian Federation." The Russian Federation. December 25.
"Russia's 1998 Financial Crisis in the Regions: A Case Study." Stratfor. Accessed April 21,
"Historical Crude Oil Prices (Table)." Historical Oil Prices: InflationData.com. Accessed April 21,
"The Russian Crisis 1998." Rabobank. Accessed April 21,
PBS. Accessed April 21,
Pinto, Brian, and Sergei Ulatov. "Financial Globalization and the Russian Crisis of 1998."Policy Research Working Paper.