Russia » Economics
Author`s name zamiralov tech

Another Default Possible in Russia

Saving money in someone else's pockets is a very interesting thing to do

Five years since the Russian financial default (when Sergey Kiriyenko was the prime minister) - this is the date that no one wants to celebrate. However, a lot of serious specialists have been talking about a possibility of a new default in Russia. The default is dead - long live the default!

The story started when the government decided to play the game of a financial pyramid - the affair was connected with state treasury liabilities. The state was borrowing money from firms and private persons, paying a high interest yield to them. The interest was very high, and several serious economists predicted, the affair would end very soon. Indeed, one had to invest money in a very lucrative business to hope to have it back with a very good interest.

The government was desperately borrowing money, trying to save the collapsing budget. The result was becoming more and more clear with every day. Sergey Mavrodi, founder of the notorious Russian pyramid MMM, gave a very precise forecast on the issue - just two weeks before August 17th, 1998, when the ruble collapsed.

Certain naive politicians were hoping for a five-billion-dollar loan from the IMF, which had been given to Russia to stabilize the financial situation. However, the Russian government had other views regarding the loan. Twenty-four hours before the announcement of the default, Boris Yeltsin signed decree 308 (the president signed the document in his country house), that ordered to transfer the IMF's loan to the Central Bank "without transferring the funds on the accounts of the Russian Finance Ministry." That document still horrifies specialists. Finance Ministry's accounts have certain fixed codes. Every ruble that is transferred from or on those accounts is profoundly controlled. When the money is transferred to the Central Bank, it becomes a part of a big pile of money, and it is practically impossible to trace it afterwards. Those five billion dollars are still missing, although they could have eased the economic disaster at that period of time. Moreover, it is not the Russian government that is searching for the billions - Swiss prosecutors are. Domestic VIPs do not deal with such "things of little importance." The then president became a pensioner, having found himself a member of a special group of people who enjoyed the legal immunity. The then prime minister, the "godfather" of the default, became an envoy of the incumbent president in a specially established administrative district.

One may continue with the list on and on, but the essence is clear: almost the entire "vertical of power" that existed in Russia in August of 1998 still rules the country now. No one was punished for the default. It is not impossibe that there could be a repeat of 1998 - the temptation has always been there. It seems that Russian officials can not do anything but cut the Russian budget and assets. This is their mission and talent, they would agree to bury it only in London, in Switzerland, or in Bahamian or Caribbean offshores. Russia apparently is not good for investments, from officials' point of view.

The Russian government de jure pronounced the principle to separate the economy from the state, although de facto it looks as follows: officials' have rights to obtain profits from the national product, but they are not responsible for its volume and the structural development whatsoever. No one takes seriously the talks about the doubling of the GDP over ten years: it would be naive to expect such an accomplishment from the Russian economy.

About 80 percent of Russia's reserve funds - more than $64 billion - are being currently stored in foreign banks in the form of the US Treasury liabilities and other "stocks." Russian money is working for Americans. Saving money in someone else's pockets is a very interesting thing to do. Do Kremlin officials know what is going to happen, if they attempt to invest that money in Russia? It would be enough to recollect the events of the year 1917. The world's largest country had a self-sufficient economy and the richest gold reserve. The national currency was converted on the base of the gold standard. As a result, the foreign capital started developing the Russian national wealth very actively, and the golden money started flowing abroad. Then the country experienced a "small" revolution. Sly people advised the country's ruler to transfer gold reserves to foreign banks to get out of harm's way. The interest was saved for six years, then there was a world war, a "bigger" revolution, the collapse of the state, the execution of the Tsar. Western banks simply appropriated the Russian gold - towards the debt and their citizens' losses.

Is there a need to repeat history? A "small" revolution in the form of the default took place in August of 1998. The golden reserve has been taken abroad too. One shall assume, one should prepare for a "bigger revolution" to happen. Probably, the affair with five billion dollars will pale in comparison.

Nikolay Konkov

In response to the unlawful December 1 arrest and detention of Chinese tech giant Huawei's chief financial officer Sabrina Meng Wanzhou by Canadian authorities in Vancouver at the behest of the Trump regime, facing possible unacceptable extradition to the US, Beijing warned its high-tech personnel last month against traveling to America unless it's essential.

China Warns Against Travel to US and Canada