Ruble, at its worst moment 25 years after Russia’s bankruptcy

He ruble goes through bad times 25 years after Russia declared bankruptcy. A quarter of a century after the crisis that forced Russia to declare bankruptcy and drastically devalue its currency, the ruble is going through bad times again, this time due to Western sanctions over the war in Ukraine.

The Russian currency, which will trade at 93.7 units to the dollar on Friday after the Central Bank of Russia (BCR) raised interest rates by 350 basis points this week, surpassed 101 rubles on Monday, causing cold sweats in the Kremlin.

Sinister background

On August 17, 1998, the Government and the BCR announced the suspension of payments for 90 days to non-residents and canceled operations with short-term state obligations (GKO, for its acronym in Russian) that matured before December 31, 1999. .

The sale of the GKO, with a return of close to fifty%, At that time, it was one of the main sources of State income, despite the fact that many economists warned that these instruments had become an unsustainable financial pyramid.

The prime minister at the time, Sergei Kiriyenko, currently deputy head of the Russian Presidency Administration, admitted that the debt service alone meant weekly payments to the state of between US$4 billion and US$5 billion.

As a result of the suspension of payments, the ruble came to lose almost two thirds of its value and the Russians saw their foreign currency accounts captive.

The recovery was slow and painful, but Russia managed to come back thanks to the great rise in the following years of the prices of oil, its main export product.

The oil bonanza allowed the country to face the global financial crisis of 2008 without major losses and instilled optimism in its economic players. Not even the “gas wars” with Ukraine clouded Russia’s macroeconomic dovishness.

The ruble, victim of the annexation of Crimea

But in March 2014, following the ouster in a popular revolt of the then pro-Moscow president of Ukraine, Viktor Yanukovych, Russia annexed Ukraine’s Crimean peninsula.

The European Union, the United States and other countries reacted by imposing harsh sanctions on Russia, to which Moscow responded with countermeasures, such as banning the import of agricultural products from European countries.

It did not end there. The one known as “Black Tuesday” On December 16, 2014, the ruble, hit by sanctions and falling oil prices, plummeted in a few hours from 59 to 80 rubles for each greenback.

To stop the bleeding, the BCR raised interest rates on the 10.5% to the 17% after spending nearly $2 billion in a single day to strengthen the currency.

war wounded

However, the real Western economic punishment began to descend on Russia after the Russian Army, on the orders of President Vladimir Putin, stormed into Ukraine on February 24 last year to “demilitarize” and “denazify” the neighboring country.

In the Kremlin they maintain that the sanctions, which affect key sectors such as metallurgy, oil or gas, do not have a great impact on the country’s economy.

As in 1998, the Russian authorities immediately imposed tight control over the circulation of foreign currency, medical records that still stand.

Although these measures took effect during the first months after the start of the war campaign in Ukraine and prevented the devaluation of the ruble, in 2023 the Russian currency has suffered a considerable depreciation.

In the first seven months of the year the ruble has lost almost a 30% in its value, mainly due to the drop in exports, the Western cap on crude oil prices and Western sanctions.

The alarms went off this Monday when the Russian currency exceeded the psychological barrier of 100 units per dollar, which led the Central Bank to raise the rates the next day to 12%.

The emergency measure propped up the Russian currency, but the ruble, cornered by sanctions, has yet to say its last word.

Some experts warn that without more drastic decisions, such as the compulsory sale by exporters of all the currencies that enter, the Russian currency could fall in the coming weeks to 110 rubles per dollar.

Source: EFE