Реферат: Economic crisis in Russia (Российский кризис 1998 года)


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By Anton Matiukhin.

24, NOVEMBER 1998.

Международный Институт Экономики и Финансов, 1 курс,Высшая Школа Экономики.


ICEF, gr. 2.

Itis obvious almost to everyone, that 1/6 of the land is now in deep economicaland political crisis and the whole world is waiting to see how the country willemerge from it. Russia’s chaos was caused by economic turmoil and politicalupheaval. Economic slump on the stock market, devaluation of the ruble, adefault on foreign debt by banks and government are parts of a climax and thegeneral instability of Russia is worsen by them. These things sometimes happenin the process of transforming a country from a command into a market economy.<span Times New Roman",«serif»;mso-fareast-font-family:«Times New Roman»; mso-ansi-language:EN-GB;mso-fareast-language:RU;mso-bidi-language:AR-SA">[1]Therewas a sharp increase in the inflation level after it has been brought down toas little as 5.6% a year in July. The prices began to rise fast and a lot ofpeople were thrown far beyond the poverty level.   

Theanatomy of the financial crisis consists of several causes. The first cause isthe so-called  “Asian factor”. There waseconomic turmoil in Thailand first and then it spread all over Asia: SouthKorea, Hong Kong, Singapore and Malaysia in 1996- 1997. «All thesecountries and more have seen their economies wrecked over the last couple ofyears. Now Russia has its currency heading for the basement and is basicallydefaulting on its national debt». <span Times New Roman",«serif»;mso-fareast-font-family:«Times New Roman»; mso-ansi-language:EN-GB;mso-fareast-language:RU;mso-bidi-language:AR-SA">[2]Ithas scared foreign investors. “This cooled their enthusiasm for investment inriskier economies” (Russia today) and they start taking their money out of itsstocks and converting their rubles into dollars. It will take a lot of time forthem to gain confidence in Russian “emerging” market again­­.<span Times New Roman",«serif»;mso-fareast-font-family:«Times New Roman»; mso-ansi-language:EN-GB;mso-fareast-language:RU;mso-bidi-language:AR-SA">[3]

Althoughthe Russian government was insisting it would not devalue the currency, it hadto float the ruble three days later. For propping it up the Central Bankdrained its reserves- $1 billion a week for ruble’s defense. This alsoincreased the devaluation.Poortax collections forced Russian authorities to raise funds to cover itsexpenses. It has been floating GKOs (short-term treasury bonds) which providedas high as 240 percent interest. Although the state attracted billions ofdollars, it needed to borrow more to pay off the short-term bonds. But without taxrevenue, the government would not be able either to pay the international billsor maintain essential services. It cannot afford to pay state workers andwithout their wages, they cannot pump money back into the economy. Large fiscaldeficit makes Russia highly unprotected from swings in market sentiment.Anotherthing, which sank the crisis, was a drop in world oil prices. Russia is theworld’s third-largest oil producing country and oil is the great hope of itseconomy, because unfortunately its production level is not good enough not tolet Russian huge natural resources to be sold out.

Allthese above-mentioned problems seem to be very complicated and, of course,there are no quick fixes available. But, from my point of view, the solutionkey word is not “help” but “self- help”. «Currently institutions such asthe world bank and the IMF have been formed to be the lenders of last resort togovernments who themselves control the various central banks which are thelenders of last resort for people within their countries.»<span Times New Roman",«serif»;mso-fareast-font-family:«Times New Roman»; mso-ansi-language:EN-GB;mso-fareast-language:RU;mso-bidi-language:AR-SA">[4]However, these institutions are no longer really in effective control. Thereare people at the top of this pyramid, those who are really making money fromit, who are more concerned about their relativepower and wealth than with the overall damage that is being caused bythis current chain reaction of a collapse.

A fundamental reform of the world financial system needs to happen toclear up this mess.<span Times New Roman",«serif»; mso-fareast-font-family:«Times New Roman»;mso-ansi-language:EN-GB;mso-fareast-language: RU;mso-bidi-language:AR-SA">[5]

The World Bank should not help the countrieswith “emerging” markets only with money and then make itself richer from loans,but it must be restructured into the knowledge bank. It must provide thesecountries with specialists, teaching how to act themselves in criticalsituations. World Bank must also exchange its experience with them to preventthem from “inventing the bicycle” once more. It must teach these states how tohelp themselves.

I do not know, whether it is possible, but itwould be good if the IMF and the World Bank cancel all loans given todeveloping countries with “emerging” economies for the sake of the world’ssafety. Otherwise their economies would be doomed to be destroyed because ofthe short-term debts, which these countries need to pay back. But on the otherhand, if it have had cancelled, no organisation including the IMF would havebeen looking forward to further negotiations with such countries and providedthem with credits.   

But the worst thing is that the economic crisisentailed the political crisis. Because, as one of the most famous writers,philosophers and politicians of the Renaissance Niccolò Machiavellisaid, «the only way to reach prosperity of the country is to have a firm,determined and intelligent leader, who will be an avatar of the majority'sinterests, and who will have a great estimation among the people». And theRussian president Boris Yeltsin has already lost all the consideration, and thethings were getting worse and worse after the beginning of the crisis. Therecent ordered murder of the famous deputy and democrat Galina Starovoytova wasa signal that lawlessness in Russia has reached its apogee. She was among thosefew people, who performed real action. As a peacemaker she went to many«hot spots» and tried to stop the bloodshed. But she was a realobstacle for people who did not want human rights and laws to be the mostprecious thing. After this incident, all democratic parties have realised thenecessity of joining their forces against their common enemies- communists andfascists. It may seem unbelievable, but at the end of XX-th century there is aserious threat of turning Russia into a nationalistic and fascist country,because the number of people (especially young) joining different nationalisticorganisations. The opposition, which is always very active, would not hesitatea second if there would be a little chance to overtake the power.

I think that in the case with Russia, despitethe IMF wants our authorities to provide it with their economic program firstand then they will be able to give Russia credit, giving a loan now willprevent the country from a possible revolution. And this is the urgent measureto be taken. For a great amount of people the crisis was a proof of aninsolvency of market economy, at least they think it was. This caused the actof protest on the 7-th of October. Fortunately it has not such scale as it wasexpected to. But, in my opinion, it was not a failure of market economy itselfbut of a present inefficient and weak government. The important thing is thatthe politicians stop playing politics and dividing the power and entrusttogether to the serious and urgent measures that Russia needs. Although I donot like the new government and the Prime Minister very much, I hope they willbe firm enough and well disciplined to continue working on restructuringcountry’s economy.


Anatomy of a Financial Crisis. Russia Today; www.russiatoday.com;Fr. Aug. 21 1998.

Russian Financial Crisis.www.islamic.org.uk Aug.39 1998.

Global Capitalism. The Economist. Sept. 121998.

<span Times New Roman",«serif»;mso-fareast-font-family: «Times New Roman»;mso-ansi-language:RU;mso-fareast-language:RU;mso-bidi-language: AR-SA">[1]

Anatomyof a Financial Crisis. Russia Today; www.russiatoday.com

<span Times New Roman",«serif»;mso-fareast-font-family: «Times New Roman»;mso-ansi-language:RU;mso-fareast-language:RU;mso-bidi-language: AR-SA">[2]

RussianFinancial Crisis.www.islamic.org.ukAug. 39 1998.

<span Times New Roman",«serif»;mso-fareast-font-family: «Times New Roman»;mso-ansi-language:RU;mso-fareast-language:RU;mso-bidi-language: AR-SA">[3]

Anatomyof a Financial Crisis. Russia Today; www.russiatoday.com;Fr. Aug. 21 1998.

<span Times New Roman",«serif»;mso-fareast-font-family: «Times New Roman»;mso-ansi-language:RU;mso-fareast-language:RU;mso-bidi-language: AR-SA">[4]

GlobalCapitalism. The Economist. Sept. 12 1998.

<span Times New Roman",«serif»;mso-fareast-font-family: «Times New Roman»;mso-ansi-language:RU;mso-fareast-language:RU;mso-bidi-language: AR-SA">[5]

RussianFinancial Crisis.www.islamic.org.uk
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