The Russian Crash of 1998,
CENTER FOR NAVAL ANALYSES ALEXANDRIA VA
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A while back, former Russian Prime Minister Viktor Chernomyrdin said, We wanted to make things better, but they turned out as usual. A joke making the rounds in Moscow is that there are two scenarios for the recovery of the Russian economy the optimistic scenario is that aliens will descend from outer space and solve the crisis the pessimistic scenario is that it will be left to the Russians themselves. In any event, while there were some hopes at the end of 1997 that the Russian economy had turned the corner and would now begin to grow, these hopes were dashed all across 1998, as the government got deeper into debt, was unable to collect enough taxes, and finally the flight from risk by international investors that began in East Asia struck Russia as well, with a consequent moratorium on debt payments and a devaluation of the ruble by the government. The net result is not only no growth, but a further decline in the Russian GDP. Successive changes in prime ministers, from Chernomyrdin to Kiriyenko back to Chernomyrdin and finally to Primakov failed to solve these problems-after all, this was a powerless President Yeltsin rearranging the deck chairs on a sinking Titanic. In this paper, Dr. Sergey Rogov, Director of the Institute for USA and Canada Studies of the Russian Academy of Sciences ISKRAN, lays out the decline and fall of the Russian financial system across 1998 in great detail. At times this story is hard to follow, given all the negotiations with the IME IMF strictures, and attempts to get more taxes out of an economy that was at the same time demonetizing. But it was hard for the Russian government to follow as well. One is reminded of Alexander Kerensky rushing about the Winter Palace in 1917 looking for solutions, though luckily this time there are no revolutionaries outside waiting to storm the palace.
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