August 1998 default in Russia will not happen again, expert says
Such rapid changes in the economy and politics that occurred back then and which partially provoked the crisis are not being observed now, the expert said
MOSCOW, August 17. /TASS/. The default Russia declared in August 1998 will not happen again, Yevgeny Yasin, an economist and scientific supervisor of the Higher School of Economics told TASS.
"August 1998 will not happen again, partly because such rapid changes in the economy and politics that occurred back then and which partially provoked the crisis are not being observed now," he said.
According to the economist, Russia had accumulated the problems that led it to the economic crisis default in 1998 since 1988 and the technical default of 1998 was predetermined.
"From this point of view, liberal economic reforms were aimed at not destroying the country, as many people say, but at moving away from terrible inefficiency of the Soviet economic system. The technical default of 1998 was predetermined, and we should rather talk about the causes of it, not the perpetrators," he said. Among the causes of the default the expert named the debt of the former the USSR, the 1989 economic crisis and the fall in oil prices.
By the early 1998, Russia's foreign debt had reached $182 bln (40% of GDP). Of this amount $167 bln fell to the share of the state. The government spent 30% of the federal budget to service the national debt.
The crisis in the countries of South-Eastern Asia in mid-1997 fueled a sharp deterioration in the financial situation in Russia. It led to a decrease in foreign investment in the developing markets and a drop in demand for Russia’s short-term bonds.
By August 1998, the authorities had run out of resources to finance public debt and maintain the ruble. By that time the national debt totaled almost $200 billion (44% of GDP).
On August 17 1998, Russia declared technical default on main types of state liabilities which triggered a grave financial crisis.
Despite the devastating consequences of the default, the devaluation of the ruble helped the Russian economy become more competitive. A sharp decline in imports pushed the development of domestic production expanding opportunities for exports. The government also took measures to improve collection of taxes, in particular, in 2001 it set a flat schedule of personal income tax for individuals at 13%.