Page 35 - BNE_magazine_10_2020

bne October 2020 Cover Story I 35
in 2014 following Russia’s annexation of the Crimea; and most recently in 2020 with a double whammy of the collapse in oil prices and the start of the global coronavirus (COVID-19) pandemic.
However, after three decades each successive crisis does less damage. Russia remains an emerging market and so it still has not brought its economy up to the level of the more developed nations, but in the last 30 years it has made constant progress making it better able to weather the storm each time
1they hap9pen. 91
1991 crash
In 1991 the entire economy collapsed. The centrally planned five-year plans
to imports no one wanted to buy the shoddy consumer goods the state-owned dinosaurs were putting out. Almost everything went bust.
The ruble also completely collapsed. With hyperinflation soaring to 1400% the value of a lifetime’s worth of savings were reduced to pennies in a matter of months. People looked for alternative value stores and a favourite tactic was to buy
a washing machine as they were easy to turn back into cash by selling them again second hand. Unemployment doubled
1over the9next ten y9ears. 8
1998 crash
In 1998 the entire top tier of the banking sector went bust, with the household
GKOs (the precursor to the new Russian Ministry of Finance ruble-denominated OFZ treasury bills used now) to cover the budget deficits and the maturities of these bills had been getting longer while the interest rates they paid had been getting lower. However, from about May that year investors began to panic and on August 19, 1998 then Prime Minister Sergei Kiriyenko admitted defeat and defaulted on some $40bn worth of GKOs sending the economy into a tail spin.
The devaluation in 1998 turned out to be a blessing in disguise. It made the ruble so cheap it suddenly became competitive. The “virtual economy” based on barter as no one had any cash, gave way to a cash- based economy and oil prices, which had fallen to circa $14 a barrel, began their inexorable rise from about 2001
Russia poverty, mn ppl vs % population
poverty line: $1.90 a day (2011 PPP)
onwards. But the recovery had started well before oil revenues started to pour in: in 1999 the economy grew 10%,
a record that has never been neaten.
The oil sector was the biggest beneficiary and invested more into production in 1999 than it had invested in all of the proceeding seven years. Labour costs were still priced in rubles, which had been cut by three quarters, but their revenue was in dollars making them money-making machines. Profits from the oil sector primed the pump and started off an almost decade long boom as a virtuous cycle of profits- investment-wage rises-spending kicked in. At the same time the state, awash in petrodollars, started increasing state wages by around 10% a year to close the gap between the private and public
wn up for
and with the borders thrown open
were sho
the fakes
they were
Number of poor at $1.90 a day (2011 PPP)(millions)
Poverty headcount ratio at $1.90 a day (2011 PPP)(% of population)
6 4 2 0
bank, SBS
and Most Bank disappearing overnight,
taking people’s savings with them. The ruble devalued by 75%. Unemployment had been falling as new companies came into being, but it soared again rising from 5.1% in 1991 to its all time post- Soviet peak of 13.3% in 1998.
The crash in 1998 was actually caused by a currency crisis in Asia in 1997 that took almost a year to reach Russia. The Asian crisis fed through into pulling down commodity prices and that began to hurt Russia’s economy. The state
had been issuing the now notorious
names li
ke Unexim
Agro,
Source: Poverty and Equity
Russian unemployment % rate vs annual change
www.bne.eu
millions ppl, % population
1993 1996
1997 1998
1999 2000
2001 2002
2003 2004
2005 2006
2007 2008
2009 2010
2011 2012
2013 2014
2015 2016
2017 2018