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It has been even worse earlier: what is the 2020 crisis similarity and difference from the others?
21 October 2020, 11:02
It has been even worse earlier: what is the 2020 crisis similarity and difference from the others?
Photo: digitalmarketnews.com
Russia is following the road of a crisis, which has no end in sight. World forecasts are pushing the recovery date back to 2022.

Russian experts compare what happened to the economy and business in 1998, what became a "safe haven" in 2008, how the crisis turned out in 2014, and what makes them all different from the current situation.

Yelena Ivanova, Natalia Seibil

Despite assurances from the authorities about diversifying risks and reducing the dependence of the Russian budget on oil prices, all the crises of the 21st century, including the 1998 default, showed events that were regularly repeated from crisis to crisis. The reasons for the economic unrest were different, but some circumstances were always present: the price of hydrocarbons fell sharply, the dollar exchange rate also rose sharply, and people lost a lot of money.

What are the similarities and differences between the crises of 1998, 2008, 2014 and 2020?

1998 vs 2020

Both at the end of the last century, and now both crises are of a non-local nature: at the end of the last century, it came from Asia, now it has covered the entire world economy. In 1998, the Asian crisis hit Russia. According to experts, that economic storm knocked out the weak links in the economy, which Russia was at that time: taxes were not collected, this led to the fact that domestic borrowing became increasingly difficult to finance the budget. When the cost of loans is measured in tens of percent, and then in hundreds of percent, it leads to the construction of a pyramid. Then the GKO pyramid was built, which, as a result, exploded, says financier Vyacheslav Rabinovich. In addition, the ruble at that time was extremely overvalued, and the dollar was worth 6 rubles. The overvalued ruble stifled the entire economy. When the price of oil dropped to $ 9 a barrel, this whole pyramid of GKOs, non-payments and inability to collect taxes collapsed at once.

"The then Prime Minister Sergey Kiriyenko, who now fell under the sanctions of the European Union and Great Britain, had two options: either to devalue the ruble, or to declare a default. But Kiriyenko did both", - says Rabinovich.

Public debt has grown significantly in 2020 as well. If in 2008 the national debt was 6.5% of GDP, then in 2020 it has already become 20%. Unlike European countries, where the national debt in Italy is 130%, and in the UK - 150%, in Russia, servicing the public debt is expensive due to the sanctions.

"If there are sanctions against non-residents - owners of Russian bonds, and there are almost 30% of them now, they will, of course, dump these securities. In the West, there is nothing like this in relation to the owners of securities, but in relation to non-resident owners of Russian OFZs there is. This question has been raised more than once, including, therefore, the share of non-residents is decreasing. Even if sanctions are not introduced, but they are actively discussing, non-residents will withdraw from our papers. To prevent the market from collapsing, the state will be forced to buy them at the expense of the NSE", - says economist Igor Nikolayev.

The state decided that it would cope with the problems at the expense of the state debt, thereby entering into competition with business. Recently, the Ministry of Finance borrowed a record amount of 10 trillion rubles on the market through the sale of government bonds. This money did not go into investments in private companies or the purchase of private debt, thereby helping the business, but for the purchase of OFZs. The economy is deprived of investment resources, because this money is spent on fulfilling budgetary obligations, and not on economic growth. Due to the sanctions, the borrowing market is very limited, so the state takes resources from business, which is not the case in the West.

1998 became a symbol of the fiasco of the state's debt policy, although the state of the economy was incomparably worse, but there was no trace of sanctions.

"Fundamentally, I would not say that the situation is different from 1998. Then there was a buildup of debt and now, but only we are at different points so far. So far we are far from default, but if everything goes as it goes, then we can come there", - warns Igor Nikolayev.

1998 was a difficult year for business, but fast. The 2020 crisis promises to be difficult and protracted.

- The difference between 1998 and the current one is fundamental. Then the crisis was characterized by a rapid fall and a quick rebound. The crises of 2008 and 2014 are medium-slow and medium-strong. This crisis is sluggish, so most of the business is cooked like a frog in milk and doesn't really feel anything. Well, they die and die, - says Dmitry Potapenko, a Russian businessman and economist.

2008 vs. 2020

In 2008, the crisis came from America, when another financial bubble burst in the mortgage lending market and in the market for financial instruments related to real estate. This led to the fall of investment institutions and banks - for example, Lehman Brothers and Merrill Lynch , says Vyacheslav Rabinovich. Merrill Lynch found a buyer - bought by Bank of America . No buyer was found at Lehman Brothers , and this was an additional huge blow to the global financial system. As a result, the largest and most liquid segments of the financial market were frozen, including short-term debt obligations, including the highest ratings.

“The Coca-Cola Company, which had the highest AAA rating, could not issue these obligations in order to manage its liquidity, for example, to finance the salaries of its employees”, - Rabinovich says.

For Russia, the blow was big: the price of oil fell from $ 147 a barrel in May to $ 39 at the end of 2008. Back in January in Davos, Russian systemic liberals tried to convince the world economic elite that Russia would remain a "safe haven" and "an island of security". Of all the G20 countries, Russia showed the worst result - its GDP fell by 9%. After recovering from the 2008 crisis, the recovery of the Russian and world economies took place at different rates.

The world economy grew at more than 3% per year. The American economy has grown in some years at more than 3% per year. The Russian economy has not grown anywhere for the past 12 years, and for the 6th year in a row, household income has been falling. When Western countries fall from their high base through no fault of their own, but through the fault of global unforeseen circumstances, Russia is not sliding down at all from a high level, having had complete stagnation over the past 12 years, Rabinovich says. In May 2008, the RTS dollar index was at 2500 points. In 2020, it is in the area of 1000 points. In dollars, investors in Russia have lost 60% in 12 years.

- When money is simply withdrawn to the west, this is one thing. When Simonyan, Kiselev and other Solovievs are financed from taxpayers' money, paddy wagons are purchased, and citizens are hit on the head with clubs, this is more abrupt than just theft, - Vyacheslav Rabinovich believes.

2014 vs. 2020

Unlike 2008 and 2020, the 2014 crisis was purely Russian and man-made. Factors that were only in the Soviet Union - sanctions - returned to the Russian economy. In addition, oil prices fell sharply. This led to a serious depreciation of the ruble. If at the beginning of 2014 the US dollar cost 32.6 rubles, and the euro - 45 rubles, at the end of the year 56.2 were given for the dollar, and 68.3 for the euro. The weakening of the ruble was followed by inflation, a decrease in the real disposable income of the population and a drop in consumer demand. According to the Ministry of Economic Development, consumer inflation in Russia in 2014 was 11.4%.

- Currently in Russia, traditionally for the set of crises under study, there is a drop in the ruble exchange rate against the dollar and euro and a strong decrease in the cost of oil on world markets. But the difference between the crisis of 2020 and the crisis of 2014 is that it is global, says Svetlana Kazantseva, Associate Professor of the Department of Trade Policy of the PRUE. G.V. Plekhanov

Experts criticize the quality of the country's governance, which does not allow it to quickly recover from the crisis and start a new stage of development.

"If we are talking about the self-made, self-firing crisis of 2014, this speaks of the terrible government of the country. If this is a global crisis, it means that the country gets the worst result during the world crisis. It does not have a strong and fast rebound, as it happened in the world after 2008, but having fallen, it lies at the bottom", - Vyacheslav Rabinovich describes the picture.

2020 is not over yet, but the crisis is still very far from over. Economic growth in the third quarter in China was 4.9%. Oil is trading at $ 42 per barrel. Russian citizens lost 1 trillion rubles in salaries during the pandemic. At the same time, local quarantines were introduced in Europe. Hospital beds are filled with covid patients. The second wave of the pandemic has arrived. The crisis continues.