The Debts of Russia
As far as none of the countries in “The post-Soviet space” had foreign currency to pay for the debts of the USSR, the entire debt was shouldered upon Russia alone with the promise of its restructuring. Russia began its market reforms not only without any Western financial support but also with weighty Soviet debts, which of course it could not service. Until a solution to the problem of the restructuring of these debts was found, no one was allowed to give new loans to the Russian government. By the beginning of the price reforms in Russia, the ruble was devaluated by 80 times, or 8000%, in regard to its “official” exchange rate. The Introduction of free prices in a condition of such an enormous discrepancy between the purchasing power of rubles and dollars should have lead to uncontrollable inflation. The situation was further aggravated by the fact that under the agreement about the creation of The Commonwealth of Independent States in place of the USSR, the Central banks of all Commonwealth members were given the right to distribute “rubles without cash transfer” to credited enterprises and institutions. Under these conditions inflation in 1992 totaled 2500% according to the general purchasing index. However, for many goods of popular demand and especially for food, the prices of which had earlier been subsidized, prices rose by 50 and sometimes even 100 times.
Inflation was lowered somewhat by the end of 1992 after the Baltic states and the Ukraine passed their own currency and lost the right to generate “rubles without cash transfer.” In the summer of 1993 the Central Bank of Russia terminated the general “ruble region”, introduced new Russian rubles and deprived all other members of the Commonwealth of the right to generate “rubles without cash transfer.” Russia’s transition to its own currency and a series of other measures led to a decrease in inflation from 2500% to 800% in 1993. Nevertheless, the errors of the government of the Russian Federation based on estimates of likely levels of inflation were costly both to the country’s population and industry. The citizens of Russia lost practically all of their savings, which was estimated at 370.8 billion rubles by the end of 1991. Enterprises were deprived of so called “circulating assets” which led to massive non-payments for mutual transfers and to the development of barter trade. The peak of chief payments (percentage and cancellations) on 80 billion rubles of Soviet foreign debt occurred in 1992 and 1993. In 1992 it was necessary to pay creditors $12 billion, and $17 billion in 1993.
Russia could by no means afford such payments while waiting for the promised restructuring.
Real credit help from the West to Russia in 1992-1993 was less than 1% of Russia’s GNP for these years. Hence, Western assistance did not render any serious impact on the course of reforms or economic processes in Russia. But the general foreign debts of Russia, which approached $100 billion, proved to be the greatest in the world.
The domestic debt of the USSR was considerably greater than the foreign if the official exchange rate of the dollar is taken into account. For the first of January 1990 the domestic debt of the USSR mounted to nearly 400 billion rubles. Over a period of 3 years this debt “evaporated” almost without a sign. The devaluation of the ruble in relation to foreign currency in 1990-1991 decreased the currency value of the domestic debt by 60-70 times. The remainder of the debt was swallowed up by inflation in 1992. The Government left itself only a “moral responsibility” for the disappearance of savings in the Savings Bank and for the devaluation of insurance polices.
The problem of domestic borrowing again came under discussion in 1993. In 1992-1993 the budget was mainly financed by means of printing banknotes and growth of the money mass.
In Russia the majority of banks as well as ordinary citizens preferred to keep their savings in the form of foreign currency. The inflation rate in 1995 decreased to 130%. The government suggested securities sales to the banks that gained the provisory name “State short-term obligation” (SSTO) with a yearlong return of 200%. The creation of the domestic debt by the sale of SSTOs assumed the character of a so-called “financial pyramid.” Under this system the payment of interest by the cancellation of short-term SSTOs was not carried out by earnings of real sectors of the economy but by the sale of a new series of SSTOs to the ever-growing number of members of this scheme. With the SSTO sale in 1995, the Ministry of Finance and the Central Bank of Russia managed to draw nearly 20 trillion rubles into the budget and cover a quarter of the budget deficit.
Domestic loans through SSTOs and mortgage auctions allowed inflation to decrease to 21.8% in 1996. It made SSTOs more appealing with the yearly interest providing a redoubling of capital during the course of one year, and sometimes
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