The crisis of 1998 and its consequences

The 1998 crisis in the sphere of economy (default) is one of the most difficult in the whole history of the Russian Federation. The reason for this phenomenon was the huge debt of the state, which arose as a result of the Asian economy's decline, as well as world prices for raw materials, which were the basis for exports, and Russia's economic policy, including the creation of state short-term bonds.

Before this happened, the IMF allocated a loan to Russia of twenty-two million dollars, but the state's revenues failed to cover even interest payments on debt.

The financial crisis of 1998 fell on the seventeenth of August. On this day, the government of the Russian Federation announced the failure to fulfill the loan agreement. This event was unexpected for foreign investors who believed that Russia is a fairly strong and prosperous state.

It should be noted that in the world history there was no case of declaring a default, which is denominated in national currency. However, in this case, there was a default on GKOs, according to which the income before the crisis of 1998 began was one hundred and forty percent per annum. Usually in such cases in other countries began to print money, and when the national currency depreciated, there was a repayment of debts. It was this scenario that investors who made contributions to T-bills from Russia were waiting for. These contributions were due to fixing the exchange rate of the national currency against the US dollar.

It should be noted that Russia had several ways out of the current situation. First, it was possible to print banknotes, thereby launching the inflation mechanism. It was also possible to declare a default both on external and internal debt. The Russian Federation chose the latter option because the new inflation was not possible, because in the early nineties a similar phenomenon took place, and the nonpayment of external debts for Russia was unacceptable.

The crisis of 1998 had serious consequences for the development of the economy, both negative and positive. Thus, the standard of living of citizens has decreased, many banks and enterprises have gone bankrupt, the confidence of foreign investors in Russian banks, as well as in its national currency has fallen, the ruble exchange rate has significantly decreased. However, all these events made it possible for the Russian economy to become competitive, in addition, budget discipline significantly increased. The default also allowed the Russian industry to gain greater strength by fencing it off from imports and increasing exports.

When the 1998 crisis in Russia was announced, investors began to negotiate with the Russian government, but payments amounted to only one percent of the total debt.

Thus, for Russia, the default brought more positive moments than negative ones. He helped cleanse the economy of the elements hindering its development, as well as more responsible attitude to the planning of the country's budget . At the same time, small business took a course to develop into large enterprises. After the default, the light and food industries began to develop at a rapid pace, consumer demand grew.

It should be said that the result of the crisis is the development of those sectors of the economy that were earlier replaced by imports, for example, the production of screwdrivers by the leading automobile companies of the state. Also, the crisis of 1998 contributed to the fact that investments in foreign companies started flowing into the Russian economy, which opened their own production facilities in the country, so soon the development of the stock market began, and as a result, Russian companies entered the international market.

Today in Russia there are ups and downs in the economy. There is a possibility that the next possible default will be even larger.