Economic crisis in Russia (Российский кризис 1998 года)
Работа из раздела: «
Иностранные языки»
ESSAY.
FINAL DRAFT.
By Anton Matiukhin.
24, NOVEMBER 1998.
Международный Институт Экономики и Финансов, 1 курс, Высшая Школа
Экономики.
ICEF, gr. 2.
It is obvious almost to everyone, that 1/6 of the land is now in deep
economical and political crisis and the whole world is waiting to see how
the country will emerge from it. Russia’s chaos was caused by economic
turmoil and political upheaval. Economic slump on the stock market,
devaluation of the ruble, a default on foreign debt by banks and government
are parts of a climax and the general instability of Russia is worsen by
them. These things sometimes happen in the process of transforming a
country from a command into a market economy.[1]
There was a sharp increase in the inflation level after it has been brought
down to as little as 5.6% a year in July. The prices began to rise fast and
a lot of people were thrown far beyond the poverty level.
The anatomy of the financial crisis consists of several causes. The first
cause is the so-called “Asian factor”. There was economic turmoil in
Thailand first and then it spread all over Asia: South Korea, Hong Kong,
Singapore and Malaysia in 1996- 1997. 'All these countries and more have
seen their economies wrecked over the last couple of years. Now Russia has
its currency heading for the basement and is basically defaulting on its
national debt'. [2]It has scared foreign investors. “This cooled their
enthusiasm for investment in riskier economies” (Russia today) and they
start taking their money out of its stocks and converting their rubles into
dollars. It will take a lot of time for them to gain confidence in Russian
“emerging” market again.[3]
Although the Russian government was insisting it would not devalue the
currency, it had to float the ruble three days later. For propping it up
the Central Bank drained its reserves- $1 billion a week for ruble’s
defense. This also increased the devaluation.
Poor tax collections forced Russian authorities to raise funds to cover its
expenses. It has been floating GKOs (short-term treasury bonds) which
provided as high as 240 percent interest. Although the state attracted
billions of dollars, it needed to borrow more to pay off the short-term
bonds. But without tax revenue, the government would not be able either to
pay the international bills or maintain essential services. It cannot
afford to pay state workers and without their wages, they cannot pump money
back into the economy. Large fiscal deficit makes Russia highly unprotected
from swings in market sentiment.
Another thing, which sank the crisis, was a drop in world oil prices.
Russia is the world’s third-largest oil producing country and oil is the
great hope of its economy, because unfortunately its production level is
not good enough not to let Russian huge natural resources to be sold out.
All these above-mentioned problems seem to be very complicated and, of
course, there are no quick fixes available. But, from my point of view, the
solution key word is not “help” but “self- help”. 'Currently institutions
such as the world bank and the IMF have been formed to be the lenders of
last resort to governments who themselves control the various central banks
which are the lenders of last resort for people within their countries.'[4]
However, these institutions are no longer really in effective control.
There are people at the top of this pyramid, those who are really making
money from it, who are more concerned about their relative power and wealth
than with the overall damage that is being caused by this current chain
reaction of a collapse. A fundamental reform of the world financial system
needs to happen to clear up this mess.[5]
The World Bank should not help the countries with “emerging” markets only
with money and then make itself richer from loans, but it must be
restructured into the knowledge bank. It must provide these countries with
specialists, teaching how to act themselves in critical situations. World
Bank must also exchange its experience with them to prevent them from
“inventing the bicycle” once more. It must teach these states how to help
themselves.
I do not know, whether it is possible, but it would be good if the IMF and
the World Bank cancel all loans given to developing countries with
“emerging” economies for the sake of the world’s safety. Otherwise their
economies would be doomed to be destroyed because of the short-term debts,
which these countries need to pay back. But on the other hand, if it have
had cancelled, no organisation including the IMF would have been looking
forward to further negotiations with such countries and provided them with
credits.
But the worst thing is that the economic crisis entailed the political
crisis. Because, as one of the most famous writers, philosophers and
politicians of the Renaissance Niccolт Machiavelli said, 'the only way to
reach prosperity of the country is to have a firm, determined and
intelligent leader, who will be an avatar of the majority's interests, and
who will have a great estimation among the people'. And the Russian
president Boris Yeltsin has already lost all the consideration, and the
things were getting worse and worse after the beginning of the crisis. The
recent ordered murder of the famous deputy and democrat Galina Starovoytova
was a signal that lawlessness in Russia has reached its apogee. She was
among those few people, who performed real action. As a peacemaker she went
to many 'hot spots' and tried to stop the bloodshed. But she was a real
obstacle for people who did not want human rights and laws to be the most
precious thing. After this incident, all democratic parties have realised
the necessity of joining their forces against their common enemies-
communists and fascists. It may seem unbelievable, but at the end of XX-th
century there is a serious threat of turning Russia into a nationalistic
and fascist country, because the number of people (especially young)
joining different nationalistic organisations. The opposition, which is
always very active, would not hesitate a second if there would be a little
chance to overtake the power.
I think that in the case with Russia, despite the IMF wants our authorities
to provide it with their economic program first and then they will be able
to give Russia credit, giving a loan now will prevent the country from a
possible revolution. And this is the urgent measure to be taken. For a
great amount of people the crisis was a proof of an insolvency of market
economy, at least they think it was. This caused the act of protest on the
7-th of October. Fortunately it has not such scale as it was expected to.
But, in my opinion, it was not a failure of market economy itself but of a
present inefficient and weak government. The important thing is that the
politicians stop playing politics and dividing the power and entrust
together to the serious and urgent measures that Russia needs. Although I
do not like the new government and the Prime Minister very much, I hope
they will be firm enough and well disciplined to continue working on
restructuring country’s economy.
Sources:
Anatomy of a Financial Crisis. Russia Today; www.russiatoday.com; Fr. Aug.
21 1998.
Russian Financial Crisis. http://www.islamic.org.uk Aug. 39 1998.
Global Capitalism. The Economist. Sept. 12 1998.
-----------------------
[1] Anatomy of a Financial Crisis. Russia Today; www.russiatoday.com; Fr.
Aug. 21 1998.
[2] Russian Financial Crisis. http://www.islamic.org.uk Aug. 39 1998.
[3] Anatomy of a Financial Crisis. Russia Today; www.russiatoday.com; Fr.
Aug. 21 1998.
[4] Global Capitalism. The Economist. Sept. 12 1998.
[5] Russian Financial Crisis. http://www.islamic.org.uk Aug. 39 1998.
-----------------------
[pic]
