Economic crisis helped Putin rise to power. It could also be his downfall – New Statesman
The 1998 default set a precedent because Russia defaulted on its domestic currency obligations while remaining current on its foreign currency debts. Scholars had long thought such a scenario fanciful after all, a country can simply print more of its own currency. Yeltsin s Kremlin was seen as prioritising foreign capital over its own people. International financial institutions lost any legitimacy they might have still had with the Russian people.
The ramifications of this are still felt today. Putin s Kremlin does not see such international financial institutions as legitimate. Although they were not a particular target of Putin s ire during his early years, he has spent over two decades claiming that Russia s economic boom in the early 2000s was entirely due to his iron rule.
It would not have been possible without Western support, however. The last vestige of the 1998 crisis was the 2000 restructuring of Soviet-era debts by Western banks, who then went on to turn on the spigot of lending to companies such as Rosneft, Rusal and Gazprom. This enabled such large Russian firms to expand and reap the benefits of the oil boom during Putin s early years, with small and medium businesses lagging behind.
Such support is impossible now. The sanctions introduced on Russia s central bank in response to the invasion of Ukraine have left it without access to a large chunk of its reserves. International financial institutions and private banks cannot lend to Russia while the sanctions remain, as they are likely to do long after the war ends.
The Kremlin made this choice, willingly the West had outlined the sanctions it would impose if Putin invaded Ukraine. But Putin has long made clear he sees such international financial institutions, and their market structures, as an enemy and he tried to undermine them through a convoluted loan structure for the regime of the pro-Russian Ukrainian president Viktor Yanukovych in its dying days. Dmitry Medvedev, Putin s erstwhile presidential placeholder, declared Russia s open hostility to the IMF in 2016.
Yet Russia has pursued a traditional market agenda in recent years, building up the reserves that have now been frozen at the expense of domestic investment. Russia s economy has been stagnant since 2014, when Moscow annexed Crimea and invaded the Donbas region of Ukraine. This was thanks in part to a fortress balance sheet strategy. It has rapidly failed.
Putin s choices will further impoverish the Russian people. The sanctions extent, Russia s stock market closure and Putin s own capital controls and threats spell the collapse of Russia s market economy, a shake-up reminiscent of the 1990s. Putin will be hoping that the authoritarian power that he has built something Yeltsin could only have dreamed of will stop the economic crisis from morphing into a political one.
Yeltsin only barely survived, and turned to Putin as his successor. Less hardline alternatives such as the former prime minister Viktor Chernomyrdin were too discredited. Yet Chernomyrdin s phrase, uttered in 1993 to describe another failed economic reform, rings true once again: We wanted the best, but it turned out like always.
Putin is turning Russia into a giant version of North Korea. The amount of suffering he is going to inflict on his own people will rival (but not exceed unfortunately) that he is inflicting on the Ukrainians. He really is a sort of uncharismatic and second rate (if you’re looking at a hierarchy of evil) version of Hitler.