What the media wrote about the August 1998 crisis
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25 years ago, on August 17, 1998, the Russian government defaulted. The crisis, which became a turning point in the post-Soviet history of the country, was preceded by a massive issuance of government short-term bonds (GKOs) in an attempt to cover the budget deficit, the introduction of a currency corridor and the failure of an attempt to approve an anti-crisis program. What Russian and foreign media wrote about the economic and political situation in the Russian Federation at that time – in the material “Kommersant”.
A few days before
On August 11, 1998, quotes of Russian securities on stock exchanges collapsed, a sharp increase in demand for foreign currency led to a halt in the interbank credit market and a liquidity crisis. Two days later, the banks were on the verge of ruin. American financier George Soros said that the crisis in Russia “has reached its final stage”, and the devaluation of the ruble is inevitable. On August 13, Russian Prime Minister Sergei Kiriyenko held a government meeting.
“What’s happening today is more in the realm of psychology than finance,” Sergei Kiriyenko said to the astonished representatives of the mass media, who were expecting at least a statement about the devaluation of the ruble from the premier who had gathered them. As if in response to Kiriyenko’s words, Moody’s rating agency downgraded Russia’s credit rating last night. For the first time, he moved from the quite decent category of “speculative” to the category of “outsider”. However, weak government and there is nothing left but to pretend that everything is under control and “there are no financial prerequisites for a crisis.” At the same time asking for protection and patronage from the President” (Kommersant, August 14).
“Yesterday Russia’s banking system was in a semi-paralyzed state. In the morning, queues of depositors lined up in front of branches of Moscow banks, wishing to return the money put on deposits …. A Kommersant correspondent called the SBS-Agro branch, where he had the following conversation:
— Can I withdraw money from a foreign currency deposit?
– No.
— Even in rubles?
– We do not have money.
– When will they be?
– Never…
… The Central Bank still denies even the minimal possibility of devaluation of the ruble and was able to win over the president. This situation can be resolved quite deplorably.” (Kommersant, August 15).
“The impression is that the government is not working today, but is fighting the Serpent Gorynych – it cuts off one head, and three new ones grow in its place. Moreover, it receives information about what is happening exclusively from the TV. And then the TV reports what has been done. (“Arguments and Facts”, August 19).
“Only numismatists are interested in Russian securities. The largest banks are on the verge of collapse and lined up for stabilization loans from the Central Bank. The dollar exchange rate on the interbank market is conquering more and more heights, and the devaluation of the ruble seems to be the lesser of the evils. All these are the realities of today’s Russian economy, which only the government allows itself to ignore.” (Kommersant, August 14).
“There will be no devaluation, I state this firmly and clearly. And I’m not just fantasizing here – it’s all calculated”– Boris Yeltsin firmly and clearly stated in Novgorod literally on the eve of the government’s decision to sharply expand the boundaries of the currency corridor, that is, in fact, the devaluation of the ruble … And in the end, when the country learned about the new exchange rate on Monday, the impression was that the president, to put it mildly, was ill-informed» (Kommersant, August 26).
Announcement of default
On August 17, the state acknowledged its inability to pay its debts. Sergei Kiriyenko announced the introduction of “a set of measures aimed at normalizing financial and budgetary policies,” which actually meant a default and devaluation of the ruble. For 90 days, the fulfillment of obligations to non-residents on loans, on transactions in the futures market and on pledge transactions was suspended. The purchase and sale of GKOs has ceased. The Central Bank switched to a floating exchange rate of the ruble, expanding the boundaries of the currency corridor from 6 rubles. up to 9.5 rubles per dollar.
“As always, in the best Russian traditions, global changes were made by the government and the Central Bank overnight, literally like snow on the head. And George Soros is hardly to blame for the manifestation of such haste, unfairly, as he believes, accused of inciting devaluation. (Izvestia, August 18).
“Bankruptcy is the key word spoken by Sergei Kiriyenko. The Russian prime minister, who hastened to call a press conference in a vain attempt to calm the mood, used it in denial: “We did not declare bankruptcy, in fact there was not even a devaluation.” But absolutely for all international analysts, American investment bankers and other experts who follow the state of affairs in Moscow, it was precisely Russia’s declaration of bankruptcy” (Repubblica, August 18).
“The devaluation of the ruble nullifies the only success of the Yeltsin government – the stability of the currency. The Russian economic crisis has brought down stock prices around the world. For four months, Kiriyenko heads the government, like a graduate suddenly appointed to the post of school director. Therefore, among the people, the young prime minister came up with the nickname Kinder Surprise. Last Monday, Sergei Kiriyenko showed that he can surprise adults too. The long-suffering ruble de facto depreciated twice, prices for foreign goods may rise to the same extent. (Spiegel, August 24).
“Dollars are offered at eight to eight and a half rubles, and no one is rushing for them. If there is a sign with a lower rate hanging at the exchange office, next to it you can find another one: “No currency” or “Technical break 15 minutes”. 15 minutes in this case means “seriously and for a long time.” The only pleasant exception that we found was an inconspicuous tent near the Belorussky railway station. There is almost any currency up to the Spanish pesetas. The dollar exchange rate is only 7.70. It’s funny, just a week ago, such a currency price would have seemed monstrous. (“Komsomolskaya Pravda”, August 19).
“The roots of the current Russian crisis must be sought in the country’s painful transition to a market economy after the collapse of communism. Unlike Poland or the Czech Republic, where output and employment fell sharply followed by a rapid rebound, the process of economic reform in Russia was slow and painful. Besides, he was too late.” (The Guardian, August 18).
“What happened last week in the Russian financial markets most of all resembled death cramps … The market took a step back to the 80s” (Kommersant, August 18).
Consequences
On August 21, all factions of the State Duma made official statements about the need for the resignation of the Cabinet of Ministers. Visa Int. sent out a letter to all foreign banks, in which it recommended not to issue cash on cards of a number of Russian banks. Two days later, Boris Yeltsin signed a decree on the resignation of Sergei Kiriyenko and assigned the duties of prime minister to Viktor Chernomyrdin.
“As the country plunges into an economic crisis, the likelihood of a loan from the International Monetary Fund is questioned, especially in connection with the fact that Anatoly Chubais, who was in charge of the negotiations, was dismissed again” (BBC, 28 August).
“The likelihood that Yeltsin will lose his post is very high. His only hope is to form a coalition of experienced politicians, including communists, with a new reform strategy. The alternative is the rise to power of someone like the retired General Alexander Lebed, with absolutely unpredictable and truly unpleasant consequences for foreign policy. (Los Angeles Times, August 18).
“It would be easy to mock or dismiss the financial disaster that the Russians have brought upon themselves. However, this approach is wrong. Russia still has enough nuclear weapons to destroy the West: the country must not be allowed to descend into chaos.” (Baltimore Sun, August 20).
“Desperate attempts to obtain additional international loans, their receipt and then immediately a massive devaluation and unilateral, with virtually no consultation with creditors, deferment of debt payments, de facto default; demonstrated helplessness; an awkward change of government — all this practically closes the possibility of obtaining additional loans and investments for the coming years. The state of the president and the presidency becomes obvious to the leaders of the outside world, it can no longer be ignored. (Kommersant, August 28).
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