Inkombank was one of the most high-profile casualties of the events of August 1998. Once one of Russia's largest banks, whose billboards proudly announced its motto "We are for real, we are here to stay", it closed its doors almost overnight. Their Nizhny Novgorod building, which was one of the city's symbols of the new Russian capitalism, looks rather shabby in the above picture, taken 2006. But above the name of its current owner, one can still see a not-quite-erased Inkombank logo.

The Russian financial crisis hit Russia in August 1998. It was exacerbated by the global recession of 1998, which started with the Asian financial crisis in July 1997. Given the ensuing decline in world commodity prices, countries heavily dependent on the export of raw materials, such as oil, were among those most severely hit. (Petroleum, natural gas, metals, and timber accounted for more than 80% of Russian exports, leaving the country vulnerable to swings in world prices. Oil was also a major source of government tax revenue.^[1]) The sharp decline in the price of oil had severe consequences for Russia. However, the primary cause of the Russian Financial Crisis was not the fall of oil prices directly, but the result of non-payment of taxes by the energy and manufacturing industries. Image File history File links Metadata Size of this preview: 800 × 600 pixelsFull resolution (2048 × 1536 pixel, file size: 1. ... Image File history File links Metadata Size of this preview: 800 × 600 pixelsFull resolution (2048 × 1536 pixel, file size: 1. ... Nizhny Novgorod (Russian: ), colloquially shortened as Nizhny, is the fourth largest city in Russia, ranking after Moscow, St. ... Year 1998 (MCMXCVIII) was a common year starting on Thursday (link will display full 1998 Gregorian calendar). ... The Asian financial crisis was a financial crisis that started in July 1997 in Thailand and affected currencies, stock markets, and other asset prices in several Asian countries, many considered East Asian Tigers. ... Year 1997 (MCMXCVII) was a common year starting on Wednesday (link will display full 1997 Gregorian calendar). ... Pumpjack pumping an oil well near Lubbock, Texas Ignacy Łukasiewicz - inventor of the refining of kerosene from crude oil. ... Natural gas is a gaseous fossil fuel consisting primarily of methane but including significant quantities of ethane, butane, propane, carbon dioxide, nitrogen, helium and hydrogen sulfide. ... Hot metal work from a blacksmith In chemistry, a metal (Greek: Metallon) is an element that readily loses electrons to form positive ions (cations) and has metallic bonds between metal atoms. ... Timber in storage for later processing at a sawmill Timber is a term used to describe wood, either standing or that has been processed for use—from the time trees are felled, to its end product as a material suitable for industrial use—as structural material for construction or wood...

Course of events

Prior to the culmination of the economic crisis, the GKO bonds issuance policy was described as similar to a pyramid scheme or Ponzi scheme^{[citation needed]}, with the interest on matured obligations being paid off using the proceeds of newly issued obligations. It has been suggested that this article or section be merged into Russian financial crisis. ... The unsustainable geometric progression of a classic pyramid scheme A pyramid scheme (also known as Pyramid Scam [1]) is a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered. ... A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns (profits) to investors out of the money paid in by subsequent investors, rather than from net revenues generated by any real business, named after Charles Ponzi. ... Maturity may refer to: Sexual maturity Maturity, a geological term describing hydrocarbon generation Maturity, a financial term indicating the end of payments of principal or interest Look up Maturity in Wiktionary, the free dictionary. ...

Declining productivity, an artificially high fixed exchange rate between the ruble and foreign currencies to avoid public turmoil, and a chronic fiscal imbalance were the backcloth to the meltdown. Two external shocks, the Asian financial crisis that had begun in 1997 and the following declines in demand for (and thus price of) crude oil and nonferrous metals, also impacted Russian foreign exchange reserves. A political crisis came to a head in March when Russian president Boris Yeltsin suddenly dismissed Prime Minister Viktor Chernomyrdin and his entire cabinet on March 23. ^[2] Yeltsin named Energy Minister Sergei Kiriyenko, aged 35, as acting prime minister (see also: Sergei Kiriyenko's Cabinet). On May 29, Yeltsin appointed Boris Fyodorov Head of the State Tax Service. In an effort to prop up the currency and stem the flight of capital, in June Kiriyenko hiked GKO interest rates to 150%. A fixed exchange rate, sometimes (less commonly) called a pegged exchange rate, is a type of exchange rate regime wherein a currencys value is matched to the value of another single currency or to a basket of other currencies, or to another measure of value, such as gold. ... The Asian financial crisis was a financial crisis that started in July 1997 in Thailand and affected currencies, stock markets, and other asset prices in several Asian countries, many considered East Asian Tigers. ... January 7: Due to the continuing Asian economic crisis, South Koreas refiners have reportedly cut operations to around 80 percent of capacity. ... One method of classifying metals is by their content, and one common division is into ferrous metals and non-ferrous metals. ... List of Presidents of Russia Boris Yeltsin1 (July 10, 1991 – December 31, 1999) two terms. ... Boris Nikolayevich Yeltsin (Russian: ) (February 1, 1931 – April 23, 2007[1]) was the first president of the Russian Federation, serving from 1991 to 1999. ... Viktor Stepanovich Chernomyrdin (Russian: Ви́ктор Степа́нович Черномы́рдин) (born April 9, 1938) is a Russian politician. ... March 23 is the 82nd day of the year (83rd in leap years) in the Gregorian calendar. ... Sergei Vladilenovich Kiriyenko (Russian: ) (b. ... Sergei Kiriyenkos Cabinet (March 23, 1998, - August 23, 1999) was the sixth cabinet of government of the Russian Federation, preceded by Viktor Chernomyrdins Second Cabinet and followed by Yevgeny Primakovs Cabinet. ... May 29 is the 149th day of the year (150th in leap years) in the Gregorian calendar. ... Boris Grigoryevich Fyodorov (Russian: Борис Григорьевич Фёдоров) (born 1958) was a significant Russian economist, political figure, and reformer. ...

A $22.6 billion International Monetary Fund and World Bank financial package was approved on July 13 to support reforms and stabllize the Russian market by swapping out an enormous volume of the quickly maturing GKO short-term bills into long-term Eurobonds. This had started to be implemented with some success^{[citation needed]} by July 24, yet the Russian government decided to keep the exchange rate of the ruble within a narrow band, although many economists, including Andrei Illarionov and George Soros, urged the government to abandon its support of the ruble. On August 14 the exchange rate of the Russian ruble to the US dollar was still 6.29. Despite the bailout, Russia's monthly interest payments still well exceeded its monthly tax revenues. Additionally, on July 15 the State Duma dominated by left-wing parties refused to adopt most of government anti-crisis plan so that the government was forced to rely on presidential decrees. On July 29 Yeltsin interrupted his vacation in Valdai Lake region and flew to Moscow, prompting fears of a Cabinet reshuffle, but he only replaced Federal Security Service Chief Nikolai Kovalyov with Vladimir Putin. This article needs additional references or sources to facilitate its verification. ... ... July 13 is the 194th day of the year (195th in leap years) in the Gregorian calendar. ... It has been suggested that this article or section be merged into Russian financial crisis. ... A Eurobond is a bond that has been issued in one countrys currency but is traded outside of that country and in a different monetary system. ... is the 205th day of the year (206th in leap years) in the Gregorian calendar. ... Andrei Nikolayevich Illarionov (Андрей Николаевич Илларионов) is the economic policy advisor to Russian President Vladimir Putin. ... George Soros (pronounced ) [Shorosh] (born August 12, 1930, in Budapest, Hungary, as György Schwartz) is an American financial speculator, stock investor, philanthropist, and political activist. ... August 14 is the 226th day of the year (227th in leap years) in the Gregorian calendar. ... is the 196th day of the year (197th in leap years) in the Gregorian calendar. ... For other uses, see State Duma (disambiguation). ... July 29 is the 210th day of the year (211th in leap years) in the Gregorian calendar. ... Valdai Lake (Russian: Валдайское озеро, Валдай) is a lake in the middle of the Valdai Hills in Novgorod Oblast, Russia. ... The Federal Security Service of the Russian Federation (Федера́льная слу́жба безопа́сности Росси́йск&#1086... Nikolai Dmitrievich Kovalev (Russian: ) (born 1949) was the former Director of the FSB from July 1996 to July 1998, and was succeeded by Vladimir Putin. ... Vladimir Vladimirovich Putin (Russian: ) (born October 7, 1952) is the current President of Russia. ...

Realizing that this situation was unsustainable, investors continued to flee Russia despite the IMF bailout. Weeks later the financial crisis resumed as the real value of the ruble resumed its decline. Russians sought frantically to buy dollars, but these had become scarce. Foreign investment rushed out of the country, and the ensuing financial crisis triggered an unprecedented flight of capital from Russia.

It was later revealed that about $5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds' arrival in Russia on the eve of the meltdown.^[3][4] ... This article needs additional references or sources to facilitate its verification. ...

On August 17, 1998, Russia was forced by an escalating payments crisis to devalue the ruble dramatically, declared its intention to restructure all official domestic currency debt obligations by the end of 1999 and imposed a 90 day moratorium on the repayment of private external debt, to aide its commercial banks suffering from the ongoing investors frenzy. On September 2 the Central Bank of the Russian Federation decided to float the ruble. By September 21 the exchange rate had reached 21 rubles to the US dollar. On September 28 Boris Fyodorov was fired from the position of the Head of the State Tax Service. August 17 is the 229th day of the year (230th in leap years) in the Gregorian calendar. ... Year 1998 (MCMXCVIII) was a common year starting on Thursday (link will display full 1998 Gregorian calendar). ... September 2 is the 245th day of the year (246th in leap years) in the Gregorian calendar. ... Bank of Russia (Russian:Банк России) or The Central Bank of the Russian Federation (Russian: Центральный банк Российской Ф&#1077... September 21 is the 264th day of the year (265th in leap years) in the Gregorian calendar. ... September 28 is the 271st day of the year (272nd in leap years) in the Gregorian calendar. ... Boris Grigoryevich Fyodorov (Russian: Борис Григорьевич Фёдоров) (born 1958) was a significant Russian economist, political figure, and reformer. ...

Russian inflation in 1998 reached 84 percent and welfare costs (pegged to inflation) grew considerably. Many banks, including Inkombank, Oneximbank and Tokobank, were closed down as a result of the crisis. The salaries of miners alone were to consume $919 million, more than 1 percent of the federal budget. By August of that year, the government had paid $4 billion to settle miners’ strikes. Look up budget in Wiktionary, the free dictionary. ...

Political fallout

The financial collapse resulted in a political crisis as Yeltsin, with his domestic support evaporating, had to contend with an emboldened opposition in the parliament. A week later, on August 23, Yeltsin fired Kiriyenko and declared his intention of returning Chernomyrdin to office as the country slipped deeper into economic turmoil.^[5] Powerful business interests, fearing another round of reforms that might cause leading concerns to fail, welcomed Kiriyenko's fall, as did the Communists. ostensibly fair use; no source info listed http://www. ... August 23 is the 235th day of the year (236th in leap years) in the Gregorian calendar. ... Communist Party supporters attend a May Day rally in Moscow The Communist Party of the Russian Federation (Russian: Коммунистическая партия Российской Федерации = КПРФ; translit. ...

Yeltsin, who began to lose his hold on power as his health deteriorated, wanted Chernomyrdin back, but the legislature refused to give its approval. After the Duma rejected Chernomyrdin's candidacy twice, Yeltsin, his power clearly on the wane, backed down. Instead, he nominated Foreign Minister Yevgeny Primakov, who on September 11 was overwhelmingly approved by the Duma. This article or section does not adequately cite its references or sources. ... September 11 is the 254th day of the year in the Gregorian calendar (255th in leap years). ...

See also: Yevgeny Primakov's Cabinet

Primakov's appointment restored political stability, because he was seen as a compromise candidate able to heal the rifts between Russia's quarreling interest groups. There was popular enthusiasm for Primakov as well. Primakov promised to make the payment of wage and pension arrears his government’s first priority, and invited members of the leading parliamentary factions into his Cabinet. Communists and the Federation of Independent Trade Unions of Russia staged a nationwide strike on October 7 and called on President Yeltsin to resign. On October 9, Russia, which was also suffering from a bad harvest, appealed for international humanitarian aid, including food. Yevgeny Primakovs Cabinet (September 11, 1998, - May 12, 1999) was the seventh cabinet of government of the Russian Federation, preceded by Sergei Kiriyenkos Cabinet fallen as a result of the Russian financial crisis and followed by Sergei Stepashins Cabinet. ... The Federation of Independent Trade Unions of Russia (FNPR, Федерация Независимых Профсоюзов России, Federatsia Nezavisimiikh Profsoyutz Rossia ) is the largest national trade union center in Russia, with a membership estimated between 28 and 31. ... October 7 is the 280th day of the year in the Gregorian calendar (281st in leap years). ... is the 282nd day of the year (283rd in leap years) in the Gregorian calendar. ...

Recovery

Russia bounced back from the August 1998 financial crash with surprising speed. Much of the reason for the recovery is that world oil prices rapidly rose during 1999–2000 (just as falling energy prices on the world market helped to deepen Russia's financial troubles), so that Russia ran a large trade surplus in 1999 and 2000. Another reason is that domestic industries, such as food processing, had benefited from the devaluation, which caused a steep increase in the prices of imported goods.^[6][7] Also, since Russia's economy was operating to such a large extent on barter and other non-monetary instruments of exchange, the financial collapse had far less of an impact on many producers than it would had the economy been dependent on a banking system. Finally, the economy has been helped by an infusion of cash; as enterprises were able to pay off arrears in back wages and taxes, it in turn allowed consumer demand for the goods and services of Russian industry to rise. For the first time in many years, unemployment in 2000 fell as enterprises added workers. Nevertheless, the political and social equilibrium of the country remains tenuous to this day, and power remains a highly personalized commodity. The economy remains vulnerable to downturn if, for instance, world oil prices fall at a dramatic pace.

References

See also

• Long-Term Capital Management
• GKO
• 1997 East Asian financial crisis

Long-Term Capital Management (LTCM) was a hedge fund founded in 1994 by John Meriwether (the former vice-chairman and head of bond trading at Salomon Brothers). ... It has been suggested that this article or section be merged into Russian financial crisis. ... The East Asian Financial Crisis was a period of economic unrest that started in July 1997 in Thailand and South Korea with the financial collapse of Kia, and affected currencies, stock markets, and other asset prices in several Asian countries, many considered Four Asian Tigers. ...

External links

• The Crisis in Russia: Some Initial Observations by Brian Henry and James Nixon, Economic Outlook, Vol. 23, No. 1, November 1998 (subscription required).
• An Analysis of Russia's 1998 Meltdown: Fundamentals and Market Signals by Homi Kharas, Brian Pinto and Sergei Ulatov, Brookings Papers on Economic Activity, #1, 2001 (subscription required).
• Lessons from the Russian Crisis of 1998 and Recovery by Brian Pinto, Evsey Gurvich, and Sergei Ulatov, The World Bank, February 2004.
• Why Did the Ruble Collapse in August 1998? by Padma Desai, The American Economic Review Vol. 90, No. 2, 2000 (subscription required).
• The Bank of Russia and the 1998 Rouble Crisis by William Tompson. In Vladimir Tikhomirov (ed.), Anatomy of the 1998 Russian Crisis (Melbourne: CERC, 1999).
• A Case Study of a Currency Crisis: The Russian Default of 1998 by Abbigail J. Chiodo and Michael T. Owyang.
• Chronology of the Russian Financial Crisis 1998 by Clifford Chance.
• Lessons of the Russian Crisis for Transition Economies by Yegor Gaidar, Finance and Development, Vol. 36, No. 2 (June 1999).
• Welfare Impacts of the 1998 Financial Crisis in Russia and the Response of the Public Safety Net] by Michael Lokshin and Martin Ravallion, The Economics of Transition 8 (2), July 2000 (subscription required).
• Overview of Structural Reforms in Russia after 1998 Financial Crisis by S.A. Vasiliev, International Monetary Fund, 16 February 2000.
• International investors, contagion and the Russian crisis by Alexei Medvedev, BOFIT #6, 2001.
• Financial crisis in the Russian Federation by Thierry D. Buchs, Economics of Transition 7 (3), 1999 (subscription required).
• The Russian Default by Saul Estrin, Business Strategy Review 9 (3), September 1998 (subscription required).
• Russia's Tax Crisis: Explaining Falling Revenues in a Transitional Economy by Daniel Treisman, Economics & Politics 11 (2), July 1999 (subscription required).
• 1999 IMF World Economic Outlook, Interim Assessment, Ch. II: The Crisis in Emerging Markets, International Monetary Fund, December 1999.
• Russia and the IMF by Nigel Gould-Davies and Ngaire Woods, International Affairs 7 (1), January 1999 (subscription required).
• Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints by Enrico Perotti, International Finance 5 (3), 2002 (subscription required).