Will 1998 crisis happen again in Russia?

Will 1998 crisis happen again in Russia?

Russia's budget must coincide with the current economic situation, otherwise any spontaneous "adjustment" may negatively affect the population through high inflation, as happened in the 1998 Russian financial crisis, Russian Finance Minister Anton Siluanov said at the Gaidar Forum.

"Our current task is to bring the budget into line with the new realities. If we don't do it, there will be the same thing as in 1998-1999," he pointed out.

Siluanov recalled that the budget of the country independently adjusted to new economic conditions through the rapid growth of inflation, it decreased by 10% in relation to GDP. "But it was done spontaneously, through inflation growth, through a decrease in real terms of all costs. Can we afford to let it happen again? Of course not, this is wrong. This is the worst case scenario," the minister stressed.

The director of the Centre for Research on Regional Reforms of the Institute of Applied Economic Research (IPEA) RANHiGS, Alexander Deryugin, in an interview with a correspondent of Vestnik Kavkaza, said that the federal budget for 2016 is calculated at an oil price of $50 per barrel and 60 rubles per dollar. "Now the price of oil is 60% of the projected price. This is a fundamental difference, so the budget does require adjustments. If the oil price suddenly changes in a positive way for us, there will be additional revenues, which can be further distributed," he said.

"I think that everything except for intergovernmental transfers, social benefits and costs of defense and law enforcement will be cut. The scheme will be the same as it was a year ago, when the costs were reduced by about 10%," Alexander Deryugin explained.

At the same time, the expert does not expect a repetition of the hyperinflation in 1998. "We have a floating ruble exchange rate and I see no reason for big jumps of the dollar. In addition, we have to print money in the case of the high inflation rate, but neither the Central Bank nor the Ministry of Finance, as I understand it, have ever called to do so. Of course, inflation may be higher than the budget level, but it still won't be like in 1998," the director of the Centre for Research on Regional Reforms of the Institute of Applied Economic Research (IPEA) RANHiGS said.

Professor of the Russian Academy of Justice, Anatoly Selyukov, in his turn, said that he believes that there is a need to change fiscal policy. "We must ensure the national interests in the first place," he said, adding that a repetition of the 1998 Russian financial crisis, which worsened the socio-economic situation in the country, will require an urgent change of government.

Selyukov also expects the use of sequestration. The urgent need for "a real struggle with setbacks in the public sector, the need to save money though all sorts of corruption schemes" was pointed out. To some extent, we need to cut costs in all budget items, except for the protected ones. Then, we need to give more freedom to our business to ensure the normal development of the economy," Professor of the Russian Academy of Justice said, expressing confidence that there will be no repetition of 1998.