IS THE RUSSIAN STATE BANKRUPT?

By A.V. Buzgalin and A.I. Kolganov

This question has long been asked figuratively. Today it has become relevant literally. Announcing a restructuring of its foreign debt, the Russian government has refused to meet its responsibilities. For the first time since they appeared, state short-term bonds (GKOs) will not be redeemed when they mature. GKO holders can count only on a restructuring of the debt by exchanging GKOs for new state securities, and the likelihood is that it will only be possible to cash even these gradually (and the state has not yet specified exactly how long a period that might be).

At the same time, devaluation of the ruble, the possibility of which had been categorically denied by the state’s highest officials–the president, the prime minister and the head of the Central Bank–became a fait accompli. The government was unable even to maintain the upper limit of the new hard currency corridor (9.5 rubles to the dollar) and the ruble continues to fall. Perhaps it will stabilize around the 12-13 ruble level, but the panic on the money markets is capable of upsetting this forecast too.

SO WHAT HAPPENED?