1998 Russian financial crisis

ekonomická krize v Rusku v polovině roku 1998

The Russian financial crisis (also called "Ruble crisis" or the "Russian Flu") hit Russia on 17 August 1998. It made the Russian government devaluing the ruble and defaulting on its debt.

Crisis and effects


On 17 August 1998, the Russian government devalued the ruble. They also defaulted on domestic debt and declared a moratorium on payments to foreign creditors.

  1. the ruble/dollar trading band would expand from 5.3–7.1 RUR/USD to 6.0–9.5 RUR/USD;
  2. Russia's ruble-denominated debt would be restructured in a manner to be announced at a later date; and, to prevent mass Russian bank default,
  3. a temporary 90-day moratorium would be imposed on the payments of some bank obligations, including certain debts and forward currency contracts.

On 17 August 1998 the government declared in the Joint Statement of the Government of the Russian Federation and the Central Bank of the Russian Federation that the state securities (GKOs and OFZs), with due dates through 31 December 1999, would be changed into new securities. The terms of the GKO/OFZ restructuring were also determined in the following acts:

  • Decree of the Government of the Russian Federation №1007 of 25 August 1998
  • Decree of the President of the Russian Federation №888 of 25 August 1998
  • Decree №1787-р of 12 December 1998 on novation of state securities
  • Federal Law on Top-Priority Measures in the Field of Budget and Tax Policy

Effects on other countries


The financial crisis spread panic throughout the world financial system.

Baltic states


The Russian crisis affected Baltic countries more than expected. Estonia, Latvia and Lithuania sank into recession. Figures for 1999 showed a heavy decline in exports from these countries to Russia, in addition to a big decline in growth rates of these economies. Foods and beverages have suffered the most.



Overall, economic activity slowed down due to the Russian crisis. Output growth has fallen from about 8.5 percent in 1998 to 3.4 percent in 1999. Both exports and imports contracted substantially, resulting in a drop in the current account deficit from a 6.1 percent GDP in 1998 to 2.2 percent in 1999.

Externally, exports to Russia, which was more than 60 percent of total exports, fell during the second half of 1998 by 10 percent. Demand for Belarusian products was weak through 1999, showing signs of recovery only during the final quarter, with the revival of economic activity in Russia. Also, in the first quarter of 1999, compared to 1998, except for investments, all budget expenditures were smaller. The biggest cuts were made in national security (a 1.9 GDP, compared to 2.5 percent in the first quarter of 1998) and social policy (1.5 and 2.4 percent of GDP, respectively) where expenditures were lowered almost by one third.



The Russian crisis was a hard blow to the Kazakh economy. Kazakhstan lost its pricing competitiveness and its exports were in shambles. On the other hand, cheap Russian goods were coming into here. This killed domestic industries. There was huge pressure on the tenge, the Kazakh currency, and Kazakhstan's balance of payments worsened. However, the NBK continued to keep the value of the tenge. In fact, they had spent close to a billion dollars to keep the level of tenge. Their foreign exchange reserves halved.



Moldova got an IMF special mission advising the government. This was about how to cope with the effects of the Russian crisis. At that time Russia bought 85% of Moldova's wine and brandy, as well as most of its canned goods and tobacco. After the ruble crashed, most Russian importers put deals with Moldova on hold. Moldovan president Petru Lucinschi was quoted as saying that the Russian crisis had cost Moldova as much as five per cent of its GDP. The country's parliament was discussing a program to reduce imports and find new markets outside Russia.



The crisis cost Ukraine a lot as well: the Hryvnia devaluated by 60%, domestic prices increased by 20%. The National Bank of Ukraine lost 40% of its gross reserves.

United States


The U.S. stock market began to slip in early August 1998. The Dow Jones Industrial Average fell 984 points, or 11.5%, in 3 days at the end of August, to a level 19% below its July peak. This more than erased the year's market gains. The U.S. stock market remained depressed until October, when a series of interest rate reductions by the Federal Reserve propelled it back upward.[1]



The government banned free unlicensed sales of food. Most of them are imported from Russia. The ban aimed to stop prices rising.


  1. David M. Kotz, "Russia's Financial Crisis: The Failure of Neoliberalism?", University of Massachusetts, 1998