Russia Presentation
Transcript: Result of Crisis: Stock market loses 75% in total value GDP decrease: 4.9% in 1998 CPI Inflation near 90% Reforms Failed! Why? Asian Financial Crisis forces Central Bank to "defend" ruble by using $6 billion of foreign exchange reserves to keep ruble pegged to USD. Asian crisis causes price of crude oil to fall by nearly 50% Boris Yeltsin fires all cabinet, and taps 35-year-old unknown banker, Sergei Kiriyenko, to be new Prime Minister The international community, rattled by Asian crisis, does not respond well. This is compounded by additional public relations blunders that fail to communicate Russian efforts to undertake austerity measures AN INCREASE IN COUNTRY RISK (A), CAUSING AN INCREASE IN RUSSIAN INTEREST RATES (particularly on Russian T-Bills, TKOs) THEREBY INCREASING DEBT FURTHER! Post-Soviet Economic Reform Rise of the Managerial Class Reforms in two Stages Stage 1: Macro Reform: Financial and Monetary stabilization Stage 2: Consolidate reform and initiate mass privatization Российская Федерация Sharp depreciation in currency cut demand for imports and increased domestic production. Also made Russian goods more competitive!!! Provided policy window for Putin to implement sweeping economic reforms, specifically austere fiscal policy (higher taxes on oil revenue, plus lower government spending). Spitting in the Wind <<Higher investment needed for higher y Blessing in Disguise? GDP growth on average 6.9% between 1999-2008 (fas.org) Russian Economy at a Glance Russian Privatization On August 17, 1998, the Russian government was forced to float the ruble and default on on it’s domestic debt (halting payments on primarily Russian GKOs), and declare a 90-day moratorium for Russian banks on payments to foreign creditors. Crushing debt from USSR: $56.5 Billion (Russian Federation) 9th Largest Economy, 6th by PPP (IMF) Economic Activity Breakdown (CIA Factbook, 2012): 3.9% Agriculture 36% Industry 60.1% Service Population/Workforce: Labor Force: 75.6 million Unemployment: 5.7% (but high underemployment) Under Poverty Line: 12.7% (CIA Factbook) Exports: 530.7 Billion in 2012 (CIA Factbook) include petroleum (2nd in exporting petroleum only to Saudi Arabia, 8th Largest petroleum reserves, natural gas (global #1), metals, wood and wood products, chemicals, and a wide variety of civilian and military manufactures = VULNERABLE Primary Export Partners: Netherlands 12.2%, China 6.4%, Italy 5.6%, Germany 4.6%, Poland 4.2% (2011) Imports: $335.4 Billion; machinery, vehicles, pharmaceutical products, plastic, semi-finished metal products, meat, fruits and nuts, optical and medical instruments, iron, steel Primary Import Partners: China 15.5%, Germany 10%, Ukraine 6.6%, Italy 4.3% (2011) Current Account $81,300,000,000 (by comparison, US: negative 487,200,000,00. Money Supply WHY?! Solutions to inequality? -Due in large part to oligarchs, there is a large level of inequality in Russia today 2008 Gini was 42.3 - lower than all other BRICS, as well as the US (Telegraph) -Gini does not show the entire picture: Billionaires - overseas accounts Low cu (CU/DEP): Russians do not trust banks, and often store rubles in mattresses Max Gross, Daniel Robbins, Simon Jerome SPECULATIVE ATTACK! Roman Abramóvich Vladimir Potánin Vitaly Málkin Mikhail Frídman Russians call them "nuvorishy" (nouveau riche) 14 Republics issuing credits in Rubles Russians Abandon Peg -Due in large part to oligarchs, there is a large level of inequality in Russia today 2008 Gini was 42.3 - lower than all other BRICS, as well as the US (Telegraph) -Gini does not show the entire picture: Billionaires - overseas accounts Low cu (CU/DEP): Russians do not trust banks, and often store rubles in mattresses -GNI growth on the whole, but not equally distributed Despite an $11.2 Billion dollar rescue package from the IMF, between May and August nearly $4 billion dollars left Russia in capital flight, while they simultaneously lost an estimated $4 billion in revenue due from a decrease in oil prices. Despite calls to devalue ruble by many, the Russian Finance Minister declares that people should "spit in the eye" of anyone who suggest devaluation. On August 13, 1998, Russian stock, currency, and bond market all collapse on investor fear that the government would devalue to ruble, default on it's debt, or both. Stock market had to be closed for 35 minutes as a result of the hemorrhaging. "Privatization check" Simultaneously, the multiplier decreased and the money supply further contracted.The government began collecting taxes in cash and Russians began keeping money away from banks (CU/DEP ratio increases). Russian banks also became skeptical about purchasing Russian t-bills (TKOs) and began to lend significantly less (effectively increasing RES/DEP ratio). Wealthy Russians put money in real estate - does not encourage growth -Late '80s: legislature decides to privatize state-owned enterprises -'80s-early '90s: bulk of privatization through voucher program Had been
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