...The Russian Ruble Crisis of 1998 is termed as among the worst financial crisis to hit the Russian economy. The Crisis is believed to have been triggered by a number of factors. The Asian financial crisis of 1997 is a major cause of the crisis as it led to declines in the world commodity prices (Owyang, & Chiodo 2002, p. 7). Just to be appreciated is the fact that Russian economy was heavily dependent on oil. There are other reasons such as the downfall of the Soviet Union in 1991 and the economic difficulties it brought to the Russian nation. Another common cited reason is poor financial policy practices by the Russian government as well as political crisis that were witnessed in the nation earlier that year (Owyang, & Chiodo 2002, p. 7). The Russian financial crisis had various political and economic consequences. First, the crisis compromised the confidence of the citizens of Russian to the government of president Yeltsin. Indeed, facing much opposition in the parliament, Yeltsin was forced to fire Kiriyenko as the prime minister and nominated Foreign Minister Yevgeny Primakov to the position (Tarassova, Kraakman, & Black 2000, p. 12). On the economic front, the Russian crisis led to the collapsing of the Russian stock, bond, and currency market on august 13, 1998. This was a direct result of investors fear that the government could devalue the ruble as well as claims of failure by the government to repay its domestic debts. This paper gives a critical analysis...
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...A Case Study of a Currency Crisis: The Russian Default of 1998 Abbigail J. Chiodo and Michael T. Owyang currency crisis can be defined as a speculative attack on a country’s currency that can result in a forced devaluation and possible debt default. One example of a currency crisis occurred in Russia in 1998 and led to the devaluation of the ruble and the default on public and private debt.1 Currency crises such as Russia’s are often thought to emerge from a variety of economic conditions, such as large deficits and low foreign reserves. They sometimes appear to be triggered by similar crises nearby, although the spillover from these contagious crises does not infect all neighboring economies—only those vulnerable to a crisis themselves. In this paper, we examine the conditions under which an economy can become vulnerable to a currency crisis. We review three models of currency crises, paying particular attention to the events leading up to a speculative attack, including expectations of possible fiscal and monetary responses to impending crises. Specifically, we discuss the symptoms exhibited by Russia prior to the devaluation of the ruble. In addition, we review the measures that were undertaken to avoid the crisis and explain why those steps may have, in fact, hastened the devaluation. The following section reviews the three generations of currency crisis models and summarizes the conditions under which a country becomes vulnerable to speculative attack. The third section...
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...The Russian financial crisis occurred on August 17, 1998, exacerbated by the global recession caused by the Asian financial crisis in 1997. Russia was highly dependent on exports of raw materials, with petroleum, natural gas, metals and timber accounting for more than 80% of its exports. With the drop in global demand, prices of those commodities began to decline. This resulted in an impact on its foreign exchange reserves since Russia had a fixed exchange rate regime during this period of time, where the ruble was only allowed to move within a narrow band. With the speculative attacks caused by the Asian financial crisis along with the decline in global demand, the Central Bank of Russia stepped in to defend the ruble in the markets. Russia was also experiencing fiscal deficits and declining productivity in its economy. Foreign capital was initially attracted to the Russian market due to the high interest rates, which was then used to provide internal loans in the country. The Gosudarstvennoe Kratkosrochnoe Obyazatelstvo (GKO) bond interest rates soared to 150% in an effort to prop up the currency and to stop capital flight. Internally, debt on wages continued to grow and financing for major big budget items were impacted as debt grew. The Chechnya War from several years earlier further compounded these problems. Russia also suffered from a political crisis where the entire government was fired in 1998, causing for investor confidence to be further eroded. ...
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...fiscal year 2002. It’s the oldest Russian ice cream producer. It originated from the former state-run Soviet company Moshladokombinat N 8. In 1992 it was privatised and registered as a private jointstock company under the name Ice-Fili. Its CEO is Anatoliy Vladimirovich Shamanov. He transitioned the company to a privatized for-profit firm after the dissolution of the Soviet Union in 1991. The transition was successful; it could hold its good market position and remains the largest Russian ice cream producer in the year 2002. All information about the company, the competitive environment and the political situation used in the following article are derived from the Harvard Business School Case Ice-Fili (Rukstad, Mattu, & Petinova, 2003). 2. External Analysis In this part it will be looked at the Russian ice cream industry. Therefore, an industry definition will be given. Its structure will be highlighted and from there on, the threats for Ice-Fili will be examined. 2.1 The Russian ice cream industry In the case of Ice-Fili we deal with the Russian ice cream industry. It concerns the production of frozen ice cream products from the raw material to the selling of the different sorts of ice. The original Russian ice cream consists only of natural ingredients. The people love its unique flavour that comes mainly from the high percentage of milk fat which makes it less sweet and more aerated than the western products. The Russian ice cream industry had to suffer from...
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...A Case Study of Currency Crisis: The Russian Default of 1998 Background of Russia Russian Federation was formed in 1991. The country tried to maintain a fixed exchange rate however, Russia had a “fragile fiscal position”(Economic Report) which turned unstable as the world markets changed. Up until 1997 Russia had slow but eventually a year of positive economic growth, at which point the country started to stumble. Russia launched a reform program in 1992. At the time of 1992, the monetary inherited from Soviet times resulted in an increase over 350 percentage of price level in a month. Rumbles was introduced in July 1992, inflation became the central concern in the relief. With limited foreign reserves, Russia joined the IMF and World Bank on June 1, 1992 and agreed several economic transition programs that would bring fund of billions of US dollars. After 4 years of economic stabilization and control of inflation rate, Russia’s inflation fell from 197% in 1995 to 47.7% in 1996 and 14% in 1997. In 1993, a short debt term instrument, Government Short Commitments (GKO), was introduced. It provided the government with an extra, non inflationary to finance its budget deficit. Russia’s fiscal deficit fell significantly, from 11% of GDP in 1994 to less than 5% of GDP in 1995. CBR’s foreign reserves increased from 4 billion US dollars in 1994 to 14.4 billion US dollars in 1995. However, one third of ruble short-term debt was held by foreign investors. Direct foreign investments...
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...Matiukhin. 24, NOVEMBER 1998. Международный Институт Экономики и Финансов, 1 курс, Высшая Школа Экономики. ICEF, gr. 2. It is obvious almost to everyone, that 1/6 of the land is now in deep economical and political crisis and the whole world is waiting to see how the country will emerge from it. Russia’s chaos was caused by economic turmoil and political upheaval. Economic slump on the stock market, devaluation of the ruble, a default on foreign debt by banks and government are parts of a climax and the general instability of Russia is worsen by them. These things sometimes happen in the process of transforming a country from a command into a market economy.www.russiatoday.com; Fr. Aug. 21 1998. There was a sharp increase in the inflation level after it has been brought down to as little as 5.6% a year in July. The prices began to rise fast and a lot of people were thrown far beyond the poverty level. The anatomy of the financial crisis consists of several causes. The first cause is the so-called “Asian factor”. There was economic turmoil in Thailand first and then it spread all over Asia: South Korea, Hong Kong, Singapore and Malaysia in 1996- 1997. "All these countries and more have seen their economies wrecked over the last couple of years. Now Russia has its currency heading for the basement and is basically defaulting on its national debt". http://www.islamic.org.uk Aug. 39 1998.It has scared foreign investors...
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...Global Investor Publishing (GIP)’s financial problems are industry related. Two primary industry events lead to the 1998 Russian financial crisis: (1.) the onset of the Asian financial crisis in 1997 precipitated a speculative attack on the Russian ruble resulting in a loss of approximately $6 billion in foreign exchange reserves by the Central Bank of Russia for defending the ruble, and (2.) a decrease in demand for Russia’s largest exports, crude oil and nonferrous metals, triggered price drops that severely impacted foreign exchange reserves. On August 13, 1998, the Russia stock market, bond, and currency markets collapsed from investor fear of a government debt default and/or devaluation of the ruble. As a result, the Russian government was forced to default on its domestic sovereign debt, devalue the ruble, and suspend payments by commercial banks to foreign creditors for 90-days. Based on the timing of the Russian financial crisis, GIP’s 1998 net loss of -104.3% from the prior year (- $6,177 in 1998 vs. $144,710 in 1997), and the firm’s desperation to protect its market share from further decline, merging with Emerging Markets Fund Research (EMFR) makes sense. The merger would provide the combined firms with economies of scale, growth opportunities, diversification, increase revenues, expansion into new markets, defensive measures for protecting its market share, and management efficiencies. For a merger to successfully deliver an improvement in economies of scale...
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...Case Study Outlines Part One: A New Era Founding Performance P f Trading strategy Mutual Fund & Hedge Fund u ua u d edge u d Part Two: When Genius Failed Downturn: 1998 Russian Financial Crisis Chain Reaction In the end: Bailout & Characters Part Three: Enemies are ourselves Risk Measurement Diligence, Ethics and Honesty Dili Ethi dH t Part One: A NEW ERA Founding of LTCM LTCM was founded in 1994 by John Meriwether, the former vice‐ chairman and head of bond trading at Salomon Brothers t di tS l B th LTCM was a speculative hedge fund based in Greenwich, Connecticut that utilized absolute‐ h l d b l return trading strategies combined with high leverage. The fund's operation was designed to have extremely low overhead; trades were conducted through a partnership with Bear Stearns and hi i h B S d client relations were handled by Merrill Lynch. LTCM Partners John Meriwether Former vice chair and head of bond trading at Solomon Brothers; MBA, University of Chicago Leading scholar in finance; Prof. at Harvard Co-author of Black-Scholes model; Prof. at Stanford St f d Vice chairman of the Fed; Prof. at Harvard; Arbitrage g p at Salomon; former Harvard g group ; Prof. Arbitrage group at Salomon; former Harvard Prof. Arbitrage group at Salomon; Ph D MIT Ph.D. Arbitrage group at Salomon; Ph.D. MIT Bond trader B dt d Executive at Salomon Arbitrage group at Salomon; Master in Finance, LSE Robert C. Merton Myron Scholes David W. Mullins Eric Rosenfeld...
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...Intro to Economic Thought (ECO 105) Robert Ellmann Financial Crises Irina Sterpu __________________________________________________________________________________ OUTLINE Introduction into the topic and its origins The Great Depression 1929-1939 German Hyperinflation 1918-1923 The Great Recession 2008 1973 Oil Crisis European Sovereign Debt Crisis 2009, onward Ruble Crisis 1998 Black Monday 1987 Conclusion References Financial crises – definitions and origin The majority of economists and monetarists define financial crises as a manifestation form of banking crises, with an impact on financial stability and reaching the state of collapse of the financial infrastructure in the absence of central bank‟s intervention. Financial collapse which affects most of the companies generates quickly problems over the banking system as the following consequences: the panic of the clients, inability to distinguish between the efficiency and the difficulty of banks, deposit withdrawals. Jack Reed, an American politician mentions: “The financial crisis is a stark reminder that transparency and disclosure are essential in today's marketplace.” In economic literature, the problems in the banking system are the main sources of the financial crises. All the economic collapses require injections of liquidity or public financial funds, in some cases, private funds from banks and international institutions. Financial crises have usually...
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...Q1-1.What situation was Khemka family involve during the case? SUN Brewing was founded in 1992 by Shiv Khemka with Nand, his father, and his brother, Uday. The situation is set in March 1999, when the company was facing a major crisis. In 1998, the family had been planning to raise a $200-$400 million through equity and debt offering for the company on the NYSE (New York Stock Exchange), in aim to finance major investments because of the increasing competition from international beer companies in the Russian market. In August 1998, there was a massive devaluation of the rouble that led to a 90% decrease in the stock price of SUN Brewing listed on the Luxembourg stock exchange. The proposed NYSE listings have then been cancelled and there is a $40 million bridge loan outstanding that now needs to be repaid. Q1-2.What other options could they choose originally? Bring another strategic partner (and idea originally dismissed because the family didn’t want their power over the company threatened) Reinvest from the family pool (that option was highly overlook because the family already budgeted the project and they prefer to ensure a backstop reserve of capital for preservation and discipline, also for the family reputation. Quit the business (seriously consider if the best options for them is to move on to new opportunities in other industries. Q2.Why there are different financing ways in each period? There are many different stages of financing and operating...
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...2015/2016 The Analytical difference in Conceptualising the Russia-Ukraine Conflict in Realist and Materialist Terms Kofi Adu Frimpong Kholmati Kholik Global Political Economy Global Political Economy 33423968 33420343 kadfrimpong@yahoo.com kkholik@gmail.com 15/03/2016 Abstract The so called Euromaidan revolution – Ukraine’s struggle to move one step further to closer ties with Europe by liberating itself from the Russian orbit, have created the Russia-Ukraine Crisis. It has re-established and heightened the tensions between Russia and West. Realism has been on the fore front of the academic discussion in explaining the crisis as the power competition between Russia and the West. Alternatively, Materialism has provided a different yet deeper analytical perspective on the conflict by attributing it to the broadening of the transnational class capitalism. This paper will seek to explain and scrutinize the analytical differences in conceptualizing this crisis in Realist and Materialist terms. Keywords: Ukraine crisis, Realism, Security, Materialism, Lockean heartland, Contender states Table of Contents 1 Introduction 4 2 Theoretical framework 5 2.1 Theoretical underpinnings of the Realist school of thought 5 2.2 Theoretical underpinnings of Materialism: Amsterdam School Approach 7 2.2.1 The Lockean Heartland 8 2.2.2 Contender States 9 2.2.3 Ex-contender states, aspirant states, and capitalist class fraction 10 3 The Russia-Ukraine...
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...discusses some relevant issues. F oreign Direct Investment is seen growing faster than world GDP and is becoming a key factor of foreign investment. There has been a oneway flow of FDI between the developed and developing economies, and a two-way flow of FDI between the developed economies. Russian Finance Minister Alexei Kudrin’s handling of the country’s oil windfall was the mere indication for those who thought that Russia was able to pursue sensible fiscal. He has managed the petroroubles prudently and the contribution he has made to Russia’s economic stability is impressive. Industrial countries like the US, the UK, Japan, Italy, Russia, and Germany have long dominated the FDI flows and totaled to 94% of outflows and over 70% of inflows in 2001. During the period of 1990-2000, the inflows in developing countries grew by an average of 23% per year. Later in 2001, these inflows declined to 13% (US$215 bn) affecting inflows into Brazil, Argentina, and Hong Kong Special Administrative Region (SAR). Putting these three economies apart, the FDI inflows into developing countries rose by about 18%. An average US$225 bn were the FDI inflows into the developing countries in the period 1998-2001, and during the same period, the portfolio investment and other investment inflows to these countries were much lower with an aggregate of US$22 bn a year. FDI flows grew strongly during 1990s, at rates well above the growth...
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...Russian GDP Following the section about Russian output, we now turn to the BRICS country GDP, Inflation, and Monetary Policy. All three of these areas of the Russian economy depend immensely on the product that is 70% of Russian export: Oil. We see that each year there is a dip in the price of oil Russian (for example 1998 and 2008) we see a dip in GDP and a rise in inflation. Hence, the monetary policy set by the Central Bank of Russia is contingent upon the gas price. The Russian GDP has been growing staidly since 2008. We see that before the 2008 global financial crisis, Nominal GDP was on an annual rise of 7%. However, in 2008 the Oil price plummeted from 147.00USD/barrel to 50.00USD/barrel. This caused a government shortfall in the 08-09 fiscal years, and resulted in a sharp dip in nominal GDP from which Russia has yet to recover. However, despite the 2008 crisis, the Russian GDP has been growing 4.3% annually since 2008, as the price of oil continues to rise. In 2011, as Russian citizens are getting back to work, the current GDP per capita is $13,236 USD. The primary problem with the Russian economy is its historically high inflation. Only recently has the Russian economy seen an inflation number in the single digits (3.7% as of Feb. 2012). Nevertheless, in 2011, the inflation rate was a little bit under 10% and is has been in the general 10-15% range since 2004, with the 15% spike in 2008. The reason for the low inflation rate this year is based in three main...
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...Critical Book Review of Boris Yeltsin`s “Midnight Diaries” Boris Yeltsin was the first freely elected President of Russia. He was President during the first turbulent decade of Post-Communist Russia. In his third memoirs Boris Yeltsin talks about his last years in presidential office: the presidential election campaign in 1996 and the role of his daughter Tatiana; the special relationship between Germany, France and Russia, which had developed after 1997; the inclusion of Russia into the G8-summits in 1998 and his attempts to maintain Russians position as a global power; the economic decline after the financial crisis of 1998 and his efforts to reform the economy; the wars in Chechnya and in the Kosovo in 1999 and the crisis of the military; his last public appearance to an international audience - the OSCE summit in Istanbul in 1999. Yeltsin talks not less frankly about his clashes with the Duma and his maneuvers with the new domestic political forces; the qualities of his five Prime Ministers and the transfer of power to Vladimir Putin; the eastward enlargement of NATO and the EU and his attempts to include Russia in the political and economic institutions of the West; his relationships with the Western leaders (Bill Clinton, Helmut Kohl and Gerhard Schröder) and his health problems that prevented him repeatedly from performing his duties. Boris Yeltsin’s career reflects the changes in Russia throughout the 20th century. He was a communist apparatchik who supervised the...
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...instance, Safety jackets, winter jackets and so on and is seeking to expand its arm in the international market. And it has its eye on Russian market. There are various factors, which is taken into consideration by the company while choosing an international market. Since, Russia has 60 percent of middle class and lower wellness people who are also called working class for whom affordable safety jackets are mandatory. On the top of that, the Russian winter is considered as the most severe winters in the world where people needs high quality of winter jackets to stay warm during winters. This company has propensity to manufacture these kinds of high quality and long life sustaining jackets which is more convenient for the Russian market. Country Analysis: 1. Russian Trade & Economic situation: Facts: Because of high prices charged by Russia for the main exports like oil & gas primarily, the country had maintained the stability in macroeconomic by growing the real GDP by 40% followed with cutting down the annual average inflation rate by 6.5%. The public expenditure has also been brought under control. Due to the 1998 crisis, Russian government learnt how to overcome from this kind of situation. For instance, high revenues of oil has been taken in the four years of budget surplus, the currency exchange value loose during 1998 has been recovered to its 50 % of the value and still appreciating in real terms. Financial stabilization and the growth had led to the...
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