1998 Russian financial crisis
Russia's vast amount of mineral and natural resources allowed it to export those, pay back its debt, and then increase foreign reserves to revalue its currency.
Declining productivity, a high fixed exchange rate between the ruble and foreign currencies to avoid public turmoil, fatal financial imprudence, and a chronic fiscal deficit led to the crisis.
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, severely impacted Russian foreign exchange reserves.
A $22.6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market by swapping out an enormous volume of the quickly maturing GKO short-term bills into long-term Eurobonds.
On 29 July, Yeltsin interrupted his vacation in Valdai Hills region and flew to Moscow, prompting fears of a Cabinet reshuffle, but he only replaced Federal Security Service Chief Nikolay Kovalyov with Vladimir Putin.
For instance, during the year before the crisis, the Central Bank aimed to maintain a band of 5.3 to 7.1 RUB/USD, meaning that it would buy rubles if the market exchange rate threatened to exceed 7.1 rubles/dollar.
The inability of the Russian government to implement a coherent set of economic reforms led to a severe erosion in investor confidence and a chain reaction that can be likened to a run on the Central Bank.
This forced the Central Bank to spend its foreign reserves to defend Russia's currency, which in turn further eroded investor confidence and undermined the ruble.
[16] This made Deutsche Bank the fourth-largest money management firm in the world after UBS, Fidelity Investments, and the Japanese post office's life insurance fund.
A week later, on 23 August 1998, Yeltsin fired Kiriyenko and declared his intention of returning Chernomyrdin to office as the country slipped deeper into economic turmoil.
[18] Powerful business interests, fearing another round of reforms that might cause leading enterprises to fail, welcomed Kiriyenko's fall, as did the Communists.
Yeltsin, who began to lose his hold on power as his health deteriorated, wanted Chernomyrdin back, but the legislature refused to give its approval.
Primakov promised to make payment of wages and pensions 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 7 October 1998 and called on President Yeltsin to resign.
As enterprises were able to pay off debts in back wages and taxes, consumer demand for goods and services produced by Russian industry began to rise.
The crisis was praised by James Cook, the senior vice president of The U.S. Russia Investment Fund, on the basis that it taught Russian bankers to diversify their assets.
[22] Economist Anders Åslund credits the 1998 financial crisis with providing the decisive push towards real market economy in Romania and most of the post-Soviet countries (which, until then, had only liberalized slowly and partially).
