Question

Briefly describe Russia’s Ruble Crisis 1990,1996 and 1998.

Answer 1

In 1994, Russia decided ti reduce it's inflation levels to a single digit number and for that it decided to adopt a stabilization policy. The highlighted feature of this policy was kept totbe the currency peg. Currency peg is basically a policy in which the national government decides to set a fixed exchange rate for its currency. As a result of this, the russian ruble started fluctuating around 5 ruble per one dollar. Another objective of adopting this plan was to reduce Russia's fiscal deficit to a number less than 3% of the GDP by the year 1998. This plan did help in reduced inflation as it reduced from 197% in 1995 to 47.7% in 1996 and further to 14% in 1998. As a result of this plan fiscal deficit for the country also fell down to 5% of the GDP in 1995 from 11% of the GDP in 1994. This also led to increase in the GDP growth.

The main reason's for the crisis were high fixed exchange rate between the ruble and the foreign currencies. Russia's foreign exchange reserves were severely affected by the asian crisis and the fall in demand of crude oil. Interest rates were increased to 150% in June 1998. This led to the IMF and the World Bank approving a package of $22.6 billion in to support and stabilize the Russian economy. It thus led to the russian government and the russian central bank devaluing the ruble and thus defualting on its debt. The crisis however had a positive impact on the russian economy as it taught the russian banks how to diversify their assets.