"Black Thursday" in 1998. The 1998 default in Russia

After the Soviet Union ceased to exist, Russia almost constantly experienced financial problems. The state was in dire need of foreign financing, while it could not guarantee the servicing of external debt. As a result of the huge number of not only external, but also domestic loans, a large public debt has been formed. This was the prerequisite for the world-famous event, which went down in history as the "black Thursday" of 1998.

Growing public debt, or How it all began

According to the information provided by the Central Bank of the Russian Federation, by the time of the crisis, the country's RRA met $ 24 billion. At the same time, the debt to non-residents of the GKO / OFZ market and the stock market was $ 36 billion. The average annual debt to non-residents was approaching $ 10 billion a year. The situation was aggravated by a sharp drop in the cost of raw materials on the international market. The decline affected oil, gas and metals. At the same time, the global financial crisis began on the territory of Asia. Russia's foreign exchange earnings fell several times, the dollar rate in 1998 renewed its maximum, and foreign creditors began to have strong doubts and fears in terms of providing financial support to a state with an unstable economic situation.

Negative sentiment: it all started in July

Despite the critical state of affairs in the country, the "black Thursday" of 1998 brought the speech of Michel Camdessus, who at that time was the executive director of the IMF. Because of his words that even if all the conditions of the IMF are fulfilled by Russia, the fund will not be able to issue a loan of $ 15 billion, which was requested by the state, the alarms about the devaluation of the national currency became particularly acute.

Already on July 7, the CBR completely stopped issuing lombard loans to financial institutions. On July 9, negotiations took place, according to which the state had all chances to receive a loan of $ 22.6 billion. The next day, the UN announced that the devaluation of the ruble could bring unprecedented benefits to the country, and it is a phenomenon that is extremely necessary for the economy.

Fictitious change of mood

The events that took place in the country at the end of July gave hope that the 1998 default might not take place. So, on the 29th day the first tranche of foreign loans of an emergency type was allocated to the state. Its size was about $ 14 billion. The threat of devaluation receded. On the 24th of the same month, the refinancing rate of the Central Bank was reduced to 60%. The speech of Andrei Illarionov, who is the director of the economic institute, changed the positive mood a little. He officially criticized the policy of the government of the country and insisted on accelerating the devaluation of the national currency.

The events of August 1998 - the approaching crisis

The 1998 crisis in Russia began to worsen after a temporary calm on August 5, when the government asked to increase the borrowing limit from $ 6 billion to 14. The decision clearly indicated that the country simply can not finance its budget from internal sources.

Already on August 6, the state received the third tranche for the reconstruction of the economy in the amount of 1.5 billion dollars. Russian debt obligations in the world market fell to the lowest level. "Black Thursday" in 1998 was getting closer and closer.

The gradual collapse of the economy

The inevitable collapse of quotations of Russian securities took place on August 11. Shares in the RTS fell by 7.5% over the day. This was the reason for stopping trading. During the day, banks continued to buy foreign currency non-stop. Already on the evening of the same day, when the dollar exchange rate of 1998 reached its apogee, most of the country's largest banks stopped all their operations.

On August 12, a sharp interest in the currency became a prerequisite for a complete stoppage of the interbank credit market. The liquidity crisis began. Banks, which needed large sums of money to fulfill their obligations under forward contracts, faced difficulties in repaying loans. The Central Bank initiated the reduction of limits on the sale of currency to the largest commercial banks, which significantly reduced its expenses for maintaining the ruble exchange rate. On August 13, Moody`s and Standard & Poor's announced a sharp drop in the country's long-term credit rating. The finance minister and deputy director of the Central Bank reported in the press that the currency market and the government bond market from now on will be supported by the bankers themselves. On August 14, it was possible to see in the streets near the banks entire lines of depositors who tried to recover their funds.

Black Thursday, 1998

Black spot on the history of Russia under the name "Black Thursday" denoted the technical default of the country, its inability to pay on its obligations - neither external nor internal. August 17, after the speech of Sergei Kiriyenko, who holds the post of head of government, it became clear that the devaluation took place. He spoke about measures aimed at stabilizing and normalizing both financial and budgetary policies.

For 90 days, the fulfillment of obligations to foreign citizens on loans, on transactions within the futures market and on hypothetical manipulation was suspended. Trade in T-bills was completely stopped. Russia switched to a floating exchange rate. After expanding the corridor from 6 to 9.3 rubles per dollar to control the situation the government was not able to. The dollar exchange rate in 1998 increased by several times in just two months and already in October was 15.9 rubles per dollar compared to 6 rubles at the beginning of summer 1998.

What happened in the country after the announcement of default?

After the default of 1998 was officially announced, banks immediately stopped issuing deposits. The situation was explained by the fact that the obligations of financial institutions were expressed in dollars, and assets - in rubles. If you start issuing deposits in the presence of devaluation, there will be holes in the balance sheet, which can jeopardize the entire banking system of the state.

International organization Visa Int. Blocked the reception of cards of the country's largest bank, Imperial. All other financial institutions were advised to refrain from issuing cash on cards. The high dollar rate in 1998 became the basis for the ban on establishing the difference between buying and selling currency more than 15%. There was a natural selection of financial institutions, only the strongest remained. The introduction of provisional administrations was refused. Crediting of financial administrations took place on the condition of their transfer to the government of blocks of shares. Further, there was a decree on the removal of powers from the Cabinet of Ministers and on the dismissal of the head of state.

Financial losses

The real test and new perspectives were remembered by many residents of the country in 1998. The default in Russia caused a loss of only 96 billion dollars in August. The losses of the corporate sector were at least $ 19 billion. Commercial financial institutions suffered losses of $ 45 billion. Many experts of the financial world tend to believe that these figures are very understated.

GDP fell to $ 150 billion. The status of the largest world debtor was hung on Russia in August 1998. The ruble was practically depreciated, while the size of the external debt was at least 220 billion dollars. This amount corresponded to 147% of GDP. External debt is not the only thing that 1998 brought. The default in Russia caused domestic debt. The total state obligations to the citizens of the country amounted to $ 300 billion, which corresponded to 200% of GDP. In the west concentrated about 1.2 trillion dollars, but already according to unofficial data from America. The big plus that the country received after "black Thursday" is a complete abandonment of the economy based on the raw material model and the active development of almost all segments of the activity where the import was located before the crisis.