17.11.2019

New August – a new crisis: 20 years ago defaulted

Augustus in Russia is always anxious. This is a month-Zen – to him for some time, increased attention, as the New Year. However, the reason for this is not festive. It is in August that our country is regularly attacked by all kinds of misfortunes. They should not be listed, but on August 17, 1998 – it’s just a special day. This is a scar on the body of the Russian economy. And politicians. Crises do not surprise us, but he was the brightest.

Twenty years ago, the budget, banks, and the ruble almost simultaneously collapsed. The state refused to pay its debts. The largest credit organizations of the country have gone into non-existence. The Bank of Russia refused to support the ruble, so the rate already by early September 1998 collapsed from 6.3 to 9.3 rubles per dollar, and by the end of 1998 – almost to 21 rubles. Depreciation of savings, a decrease in the standard of living, many of the currency savings of citizens have disappeared, public distrust of the state has strengthened.

With surgical precision, economic reasons can not be separated from political reasons even by an economist-pathologist. Quite exactly one thing: in that crisis cocktail the political taste was. Which one?

In the dead loop

From the very beginning, it is possible to try everything, as now it is customary, to bring down Americans who controlled and continue to control the IMF, who first lured Russia into their networks, and then, at the most acute moment, abandoned them. It will be modern, but completely wrong. And not only because 20 years ago relations between Moscow and Washington were very far from today’s confrontation.

The bottom line is that at the center of events was the Russian budget with its gaping holes. The holes arose not only because of the fall in oil prices, but also because the government’s policy was inconsistent and, moreover, did not have support in the State Duma, which pandered to inflating unsustainable expenses. As a snowball, debts increased, 38% of government spending went to their services. It was a budget dead loop.

They tried to get out of it by all means. The most “effective” appeared to be issues of state treasury obligations (T-bills). This form of internal borrowing was a “fire” way of attracting money to the budget, in which they were sorely lacking, naturally, under constantly increasing interest and for a very short time. “MMM” Sergei Mavrodi – a children’s game compared with the budget pyramid of T-bills, collapsed 20 years ago.

That the risk of a collapse is overshooting, it was clear, but the powers that beer said that IMF money was coming soon (counting the tightening of the loop and delaying building the GKO pyramid) and the situation would improve. On August 17, 1998, Anatoly Chubais, who was in charge of relations with the IMF and other international financial and financial institutions, commented on what had happened, practically reading aloud Gaidar’s fairy tale (not the reformer, but his grandfather) “Malchish-Kibalchish”: nothing was not, if it was possible to stand still the day and the night to hold out. But, Chubais testified, the main tranche did not come.

The mystery of the price of $ 4.8 billion

The fate of the IMF money allocated in the amount of $ 4.8 billion for Russia as early as July 20, 1998, and having gone into an entangled journey through bank accounts in four tranches, to the end remains unknown. It is formally admitted that the money reached the Bank of Russia and the Russian Ministry of Finance (in any case, the IMF eventually returned the IMF), but in August 1998 they fled to the banking postings from Sydney to London and from Frankfurt and Lausanne again to New York, settling, as it was possible to find out, on the accounts of some companies that had no relation to the support of the Russian budget.

The money was sought by the Russian Prosecutor General’s Office and the Accounts Chamber, Swiss investigators, auditors of PricewaterhouseCoopers, hired by the IMF. The results, however, are sparse. In Washington, almost immediately, charges were brought of plundering the IMF’s money “by the immediate entourage of President Yeltsin,” but without providing convincing evidence, the tricks of the Central Bank’s reports to the IMF on Russia’s foreign exchange reserves were revealed, but “piling banks” did their job. Part of the trenches of the IMF, in fact, and remained “volatile Dutch.” Periodically, there were reports that some part of them had allegedly been found (most often in Switzerland), but not in full volumes.

You can look at this story from a different angle. Was the atmosphere at the top of the Russian government at that time disposing of money from a poor budget?

Mortgage auctions have already “successfully” passed. They, it is worth recalling, were justified by the disastrous state of the budget. Buyers put up for these auctions of objects contributed to the federal budget a certain deposit, and the budget reserved the right of repurchase. In fact, everything went “along the curve.” Even money for a security deposit in some cases was provided by state-owned banks. From the repayment of the state always refused. As a result, the budget was in a double loss. First, state money was the collateral money. Secondly, the pledge payment turned out to be the final payment, that is, the state lost in price. These transactions, no matter how legally interpreted, are clearly unclean. At least ethically. And this unscrupulousness was beneficial to buyers, future oligarchs, and sellers – not to the state, of course, but to those of its officials,

Для кого-то «вкусной» была и пирамида ГКО. Кто был в гарантированном выигрыше? Тот, кто отлично знал, будут ли вовремя погашены с полагающимися процентами выпуски ГКО и будет ли ЦБ удерживать вопреки логике курс рубля. Те, кто знал, получал постоянно растущие ежемесячные процентные выигрыши в рублях, которые можно было обменять по почти фиксированному курсу, и толстая пачка долларов падала в карман просто с неба. И, конечно, среди игроков в эту беспроигрышную игру было немало чиновников финансового блока правительства, минфиновцев и служащих ЦБ. О том, как он сам таким образом повышал свое благосостояние, позже с шокирующей прямотой написал в книге «10 безумных лет» Борис Федоров. В августе 1998 года он был вице-премьером правительства и руководителем госналогслужбы. Формально чиновники, игравшие в ГКО, закон не нарушали, тогда не было законодательного запрета на использование инсайдерской информации, но та же этическая нечистоплотность налицо.

Conclusion: the habit of cashing in on the deplorable state of the Russian budget for officials by August 1998 was already there. If we return to the quoted Washington accusations about the IMF’s embezzlement, then we can agree that they have grounds – there is a new edition of the series about the “gold of the party”, just this time the party is different.

Two decades later

Over the past twenty years, the main budget lessons from the crisis of August 17, 1998 were extracted. Since then, there are no “dead loopholes” in the Russian federal budget. The current budget, for example, is still surplus. Efforts of the multi-year head of the Ministry of Finance under Putin Alexei Kudrin have created reserve funds, filled during high oil prices and are a “safety cushion” during low prices. They, and not the expansion of export potential that has not taken place, represent the basis for the independence of the budget from the oil market. On their account is a painless for the budget passage of the 2009 crisis.

Another important lesson learned is the floating exchange rate of the ruble. This is, in a sense, insurance not only from sharp and radical changes in the exchange rate, but also from sudden large-scale economic fluctuations.

Russia has strengthened relations with Saudi Arabia and OPEC. Moscow actively participates in decision-making, which ultimately affects the dynamics of oil prices.

Economists did their part in principle: maybe not to the end, but at least diligently. And politicians?

Of course, you can not enter into the same river twice. None of the following crises will be a repeat on August 17, 1998. But Paul Krugman, a Nobel laureate in economics, for example, believes that the next crisis in developing countries will be similar to the “Asian crisis” of 1998, a very peculiar part of which was on August 17 in Russia. His main argument: raising the rate of the US Federal Reserve will cause capital outflows from developing countries, which will push them to the crisis. It should be added that in the unfolding world trade war, the main sides of which are the US, China and the EU, the countries with open, dependent on world markets and weak economies will be the hardest hit. All these characteristics are directly related to Russia.

There is also a “gift” from politicians – the over-scale degree of confrontation between Moscow and the United States and, in general, with developed countries. This is an obvious weakening of Russia’s position in the face of a new potential crisis, even compared to 1998.

Today, for example, we are facing a rising new wave of sanctions from the United States. Projects are one more bloodthirsty than another. If we proceed from the quietest, we are waiting for new sanctions against individuals and companies, and new sectoral sanctions, this time sharpened against those structures that, according to Washington, may be involved in “harmful cyber-activities,” and a ban on cooperation with the Russian energy sector and investments in new issues of government debt bonds. Such sanctions will lead to an even greater outcome of Western investment from Russia and to a direct fall of the ruble, which so far supports foreign investment in public debt. There are estimates that the ruble in this, let us emphasize, the softest of the variants of new anti-Russian sanctions discussed in Washington, “will grow thin” by 5%.

What does the default of 20 years ago? The then crisis was aggravated by those officials who were close to making political decisions, which were engaged in some kind of shadow activity in the interests of their own gain. Now the possible crisis will be sharper and more destructive because of the actions of those politicians and officials who are not in the shadows. They are the face of Russian geopolitics. It’s sad. At least because the masters play in their pocket among Russian officials, alas, has not significantly diminished.

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