The Russian Public Debt and Financial Meltdowns

281 Pages·2010·4.808 MB·English

by  Andrey Vavilov (auth.)

The Russian Public Debt and Financial Meltdowns
The Russian Public Debt
and Financial Meltdowns
Andrey Vavilov
© Andrey Vavilov 2010
Softcover reprint of the hardcover 1st edition 2010 978-0-230-24893-9
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First published 2010 by
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ISBN 978-1-349-32062-2 ISBN 978-0-230-28208-7 (eBook)
DOI 10.1057/9780230282087
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To my wife, Mariana, and my daughter, Goya-Vivienne
Contents
List of Figures, Tables, and Boxes ix
Acknowledgements xiii
Introduction 1
1 The External Debt Crisis of the 1990s 11
Introduction 11
1.1 The Soviet debt 12
1.2 The Russian debt: beginning of management 25
1.3 External debt and macroeconomic policy 40
2 The Domestic Financial System and Inflation 50
Introduction 50
2.1 The origination of financial markets 51
2.2 Macroeconomic stabilization and public debt 69
2.3 The fragile banking system 78
3 Virtual Economy and Fiscal Crisis 87
Introduction 87
3.1 Virtual economy 88
3.2 Fiscal crisis 100
4 The Risks of Domestic Debt Expansion 121
Introduction 121
4.1 Dynamics of public debt in 1995–98 122
4.2 Domination of short-term debt 128
4.3 Opening the domestic debt market 132
Appendix A4.1 140
Appendix A4.2 142
5 The Causes of the Russian Financial Crisis of 1998 144
Introduction 144
vii
viii Contents
5.1 A brief history of the Russian crisis 145
5.2 The fundamental factors of the crisis 151
5.3 The Central Bank policy 157
6 The Debt Crisis and Default 164
Introduction 164
6.1 Failure to normalize the state budget 164
6.2 Belated debt management 167
6.3 17 August – the debt default 171
6.4 A post-crisis inflation trade-off 178
Appendix A6.1: A model of banks supporting devaluation 182
7 Recovery After the Crisis 187
Introduction 187
7.1 The results of the ruble devaluation 187
7.2 Fiscal discipline, consolidation and the end of
financial chaos 194
7.3 The debt burden easing after the default 203
7.4 Conclusion 207
Appendix A7.1: R estructuring of obligations
to the London Club 209
8 Yet Another Crisis, 2008–2009 213
Introduction 213
8.1 Two crises: how much in common? 214
8.2 Anti-crisis policy 226
8.3 Impact of the crisis 233
8.4 What is next? 235
Notes 237
References 256
Index 262
List of Figures, Tables and Boxes
Figures
I.1 The real oil price, 1979–2008 ($/barrel) 4
1.1 The Soviet external debt and the oil price, 1970–93 14
1.2 Russia’s external debt payments and debt increase in the
1990s ($ billion) 38
1.3 Inflation rate and the consolidated budget deficits in the
1990s 43
1.4 IMF credits to the Russian government in 1992–98
($ billion) 44
2.1 The CPI inflation and the nominal exchange rate in 1992 52
2.2 Refinance rate and inflation in 1992–94 (per cent per
month) 57
2.3 Inflation and the ruble-to-dollar exchange rate in 1993–95 59
2.4 Foreign currency exchange regimes and inflation, 1995–97 73
3.1 Dynamics of arrears in 1992–98 (per cent of GDP) 89
3.2 One-dimensional model of transition 94
3.3 Two-dimensional model of transition 96
3.4 Federal tax arrears and tax revenue in cash
(percentage of GDP) 104
4.1 Domestic debt in 1994–97 in GKO-OFZ (trillion rubles) 124
4.2 Dynamic of real debt in market instruments
(trillion rubles, base December 1993) 125
4.3 Real annual GKO-OFZ yields (per cent) 127
4.4 The ratio of gross debt expenditure to budget revenue 127
5.1 The timeline of main crisis events 146
5.2 Real GKO yields and real ruble effective exchange rate
in 1995–98 152
5.3 Oil price and RTS index 156
ix
x List of Figures, Tables and Boxes
5.4 Fundamental causes of the Russian crisis 157
5.5 The refinancing rate and the average GKO-OFZ yield in
1997–98 (per cent per year) 161
5.6 Official foreign currency reserves and net domestic assets
($ billion) 162
6.1 The nominal ruble exchange rate in 1998–99 (rubles/$) 179
6.2 Monthly inflation and the ruble devaluation in 1998–99 180
A6.1 Zero-devaluation equilibrium 185
A6.2 Two equilibria under dollarization 185
7.1 The dynamics of exports and imports of Russian goods
($ billion) 189
7.2 The price of oil ($/barrel) 189
7.3 Trends in GDP and industrial production (billion rubles) 192
7.4 The dynamics of compensation and productivity,
1997 = 100 193
7.5 UES OF RUSSIA income structure (per cent) 195
7.6 Money supply and reserve requirement movements 201
7.7 Banking assets and equity movements (percentage of GDP) 202
7.8 Corporate loans and government bonds
(percentage of assets) 202
7.9 The dynamics of returns of government bonds in
1996–2001 (per cent per annum) 204
8.1 Russian Stock Market vs. MCSI World, 2000–2009 (in logs) 221
8.2 Budget surplus/deficit in Russia, 2005–2009
(per cent of GDP) 228
Tables
1.1 Oil production by the USSR in 1988–91 (million tonnes) 16
1.2 Nominal wage growth and consolidated state budget deficit
in the USSR in the period of Perestroika, 1985–91 17
1.3 The number of banks in the USSR in 1988–90
(end of period) 18
1.4 Russian external debt ($ billion, end of period) 36
List of Figures, Tables and Boxes xi
1.5 Dynamic and structure of new Russian debt in the 1990s
($ billion, end of period) 37
1.6 Sovereign debts owed to the Russian Federation by the
end of 1991 ($ billion) 38
1.7 Russian Eurobond issues in the 1990s 48
2.1 Annual growth rates of nominal and real macroeconomic
indicators in 1992–97 (per cent) 53
2.2 Russian domestic debt in securities in 1993–96
(end of year, percentage of GDP) 68
2.3 Characteristics of domestic public debt in securities in
1994–98 75
2.4 Federal budget of Russia in 1995–98 (percentage of GDP) 77
2.5 Russian banking system under market transformations 80
3.1 Size and structure of arrears in the first quarter of 1998 90
3.2 Tax revenues of consolidated budget in 1992–98
(per cent of GDP) 103
3.3 Federal budget 1993–97 as approved and executed,
three items: total spending, total income, budget deficit
(IMF definition) all as a percentage of GDP 107
3.4 Results of the ‘loans-for-shares’ deal 115
4.1 Russian public debt in the 1990s 123
4.2 Russian external debt in the middle of 1990s ($ billion) 124
4.3 Domestic debt of the federal government (end of period,
percentage of GDP) 125
4.4 Share of foreign currency bank credits (per cent, beginning
of period) 137
5.1 Indicators of monetary policy in 1996–1998 (end of period) 159
6.1 Federal budget performance in the first half year in 1997
and 1998 (percentage of GDP) 165
6.2 Value of maturing GKO and OFZs, June–December 1998 168
6.3 Growth rates of monetary policy indicators after August
1998 (per cent) 180
7.1 The rate of growth of industrial production (per cent) 192
7.2 Cash and non-cash payment transactions between large
companies 194