Chapter 308: Russian Nightmare

Yang Xing dared not take credit for his praise for Qian Yiming. After all, this was due to his rebirth memory. They were talking about the fact that when Yang Xing and Roberts attacked the Korean won and Japanese yen at the beginning of this year, Yang Xing secretly asked Qian Yiming to turn his attention to Eastern Europe, especially Russia. He smiled and waved his hand: "I just had a vague premonition at that time, thinking that Asia's economic turmoil is so turbulent, and other parts of the world will not be immune. As an economist in emerging countries, the situation in Eastern Europe and Asia is very similar. Some economic development indicators are not as good as Asia, but the investment attracted by European and American investment is no less than that in Asian countries, and the economic loopholes are similar. Robertson and Soros both have a lot of investment there. Since we want to move them, instead of confronting them head-on, it is better to surround Wei and save Zhao and cut off their food channels. Let their capital chain break and see how they call the wind and rain. I am not in Hong Kong during this period. Please tell me carefully about the situation in Russia."

Qian Yiming dared not neglect. During this period, he went to Russia several times, which was considered to have a basic understanding of the situation there, so he introduced the Russian emergency to Yang Xing in detail. In fact, in the contemporary world where finance is highly networked and capital flows are rapidly increasing, the scope of infection of the financial crisis far exceeds national boundaries. The Asian financial crisis has developed for nearly a year, and the potential impact has long affected European and American countries. During this Asian financial crisis, many European and American companies have suffered heavy investment losses in these emerging countries. Traditional European and American financial powers want to be completely immune.

What is impossible is that their family has a great business and strong capital to stop losses in time. In comparison, Eastern European countries that have only left the iron curtain for less than ten years have their economic strength, but their so-called "shock therapy" implemented when they turn to the capitalist model has greatly damaged their vitality. This round of Asian financial storm caused serious losses to Europe, the United States and other countries. Their choice is to withdraw investment in Eastern Europe and "demolition of the east wall to repair the west wall", and the direct consequence is that the economies of Eastern European countries are greatly hit, and the first to be affected are the fragile currencies of these countries.

Since the second half of 1997, major stock markets around the world have been turbulent. Traditional Western European financial institutions have withdrawn from emerging economies out of insurance mentality. The funds fleeing from Eastern European countries, as the focus of investment, have intensified, and the currency has also begun to depreciate sharply. Lithuania, Latvia, Poland and other Asian countries have followed the footsteps of Asian countries to announce that currency depreciation or apply for rescue from IMF. Russia, as the largest economy in Eastern Europe, is naturally unable to escape.

Since Russia implemented the "shock therapy" reform in early 1992, GDP has declined year by year in 1996, and it has only stopped falling and rebounded in 1997. Therefore, Russia has fully opened up to foreign capital since 1996, hoping to absorb foreign capital to get rid of the situation of the decline in GDP. The West was originally optimistic about the Russian financial market and has invested in the stock market and bond market. The Russian stock market is considered to have great potential for stock prices to rise and has a high return rate. The return rate of Russian government bonds in the bond market is also above 20%, and 80% of the treasury bond varieties are short-term government bonds for 3 to 4 months, which are quickly cashed in and have high returns, becoming the ideal investment target in the minds of many international financial speculators.

Robertson's Tiger Fund and Soros' Quantum Fund invested a lot of money on this. In addition, part of Soros' Quantum Fund was also invested in Russia's "national movement", which was his own factor. He was a descendant of Eastern European immigrants and had a deep hatred for the so-called Iron Curtain countries in the socialist camp. This is very similar to the life experience of Sergei Brin, the founder of Google, who was kicked out by Yang Xing. After the collapse of the Soviet Union, he was ecstatic and invested heavily in these countries, attempting to use economic power to promote the political "democratization" transformation of these countries. Many funds named after him left no effort to achieve this goal. As Russia, the largest political power in Eastern Europe, is of course the top priority of his investment.

Against the backdrop of the unanimous optimism of Russia's opening up to foreign finance, the first half of 1997 was the year when Russia absorbed the most foreign investment since its economic transition. Russia only injected US$23.75 billion from 1991 to 1998, while it accounted for more than 10 billion in 1997. By October 1997, foreign capital had mastered 60% to 70% of Russia's stock market trading volume and 30% to 40% of the treasury bond trading volume. However, there are great hidden dangers in this. Only about 30% of foreign capital invested directly in Russian industry, and about 70% is short-term capital, which comes quickly and goes quickly.

The financial crisis that broke out in Thailand in July 1997 had a small impact on the Russian financial market thousands of miles away. In August and September, a large amount of foreign capital poured into Russia. However, after October, as South Korea was affected by the financial crisis, it immediately had a chain reaction to the Russian financial market. Because South Korea had a considerable proportion of financial crisis, South Korea's capital accounted for a considerable proportion of the Russian financial market. In South Korea's financial crisis, South Korean capital was eager to go back to put out the fire and withdraw large amounts of funds, resulting in other foreign investors following the trend and withdrawing funds. As a result, from October 28 to November 10, 1997, due to a large amount of foreign capital selling stocks, the Russian stock price fell by an average of 30%. The bleak stock market also affected the bond market and foreign exchange market, and the latter was immediately in a hurry. Afterwards, although the Russian central bank took emergency measures to invest large amounts of foreign exchange to raise Russian bonds and wanted to attract foreign capital, in the end, even if the yield on Russian bonds was as high as 45%, foreign capital still fled more than US$10 billion.

If it were just like this, Russia's nightmare would not be very painful. After all, Asian countries, which are both in trouble, are much more painful than it. Many countries have suffered consecutive blows and their vitality is severely damaged. The regimes of Thailand, Indonesia and other countries have changed. Russia seems to have a great family and a lot of money to bear the financial blow. But in fact, since the collapse of the Soviet Union, Russia has barely maintained the shell of a world-class power with a deep foundation. However, the internal economic foundation has been inappropriately implemented the "shock treatment" of comprehensive privatization after years of disintegration, and its economic foundation has been riddled with holes and is shaking. The financial storm that happened to be encountered has become the last blow of the Russian economy completely falling into the abyss. Three consecutive rounds of financial storms came, which almost dragged the entire Russia into an abyss that would never be restored!

As a large number of international financial speculators traveled to Asia to hunt for gold, Russia, which lost a large amount of foreign capital, survived dying and fortunately avoided the greedy gaze of the first round of hunting of these funds. Unfortunately, after 1998, the Russian political turmoil was in turmoil, and the Prime Minister and the President fought one after another. The government was paralyzed for a month, seriously affecting the confidence of domestic and foreign investors. At the same time, after 1998, a large number of foreign debts owed by Russia began to mature, and the deficit problem that Russia had covered up for a long time suddenly broke out.

Russia has had a serious fiscal deficit since 1992. Because the government adopts so-called "soft deficit" methods such as issuing national debts, borrowing foreign debts, and delaying payments, and the debt repayment is not included in budget expenditures, the fiscal deficit that has been announced to the public does not seem to be high (about 3% to 4.6%). The public does not understand the severity of the actual deficit (between 8% to 10%), and is still immersed in the myth of singing and dancing, which greatly distorts the views of foreign investors on the Russian government's debt repayment ability. Now it is suddenly discovered that Russia actually owes much more debt than expected, panic begins to ferment, and a "crisis of trust" for Russia's foreign debt has erupted!

After fierce political struggle, then Russian President Yeli appointed Kiriyanko, the youngest prime minister of Russia, but this technocratic young prime minister obviously lacked the ability to deal with this crisis. In order to distinguish his previous government, he emphasized openness and transparency, he took the initiative to announce the debts of the Russian government in 1998. As a result, the world suddenly discovered that Russia's domestic debt was as high as US$70 billion and foreign debt of US$130 billion was US$200 billion! Many of them were short-term debts. In 1998, the combined repayment of old debts and replenishment of deficits accounted for 58% of the country's expenditure. The Russian Finance Minister admitted at the time that he would need to borrow at least US$10-15 billion in addition to government expenses in 1998 to overcome the difficulties.

What made the worse was that the Russian parliamentary state Duma made a fool of himself at this time, which severely damaged the confidence of foreign investors. After Yeltsin came to power, he implemented a comprehensive privatization policy, forming many financial oligarchs and increasing the gap between the rich and the poor in society. The Russian people were very dissatisfied with this. In order to win back the hearts of the people, the Russian Duma announced that it would consider revising the privatization policy, which caused dissatisfaction among foreign investors. At that time, 28% of the shares of the "Russian Unified Electric Power Co., Ltd." had been sold to foreign investors. However, the Russian country

Duma also specially passed a stock disposal method for the company, which stipulated that foreign capital's share of the company shall not exceed 25%. This caused foreign capital to distrust the Russian government and sold the company's shares. The company's stock fell by 40% in two weeks, causing other stocks in the stock market to fall by 25% to 40%. Affected by this, the price of Russian bonds fell sharply, and the yield rate was forced to rise again, from 50% to 80%, which further increased the burden on the government to repay debts.

Under the blow of this series of confidence crises in the Russian government, the exchange rate of the US dollar against the ruble rose to 1:6.2010-6.2030, exceeding the maximum limit stipulated by the Russian Central Bank. At the same time, the privatization policy that Russia has been promoting has also been seriously affected. The most obvious example is that the Russian oil company plans to sell 75% of its shares and no one is interested in the market. The government's idea of ​​selling assets to repay debts is shattered. Under the influence of these factors, the currency has depreciated, banks have run, foreign capital flocked to flee, and the most dangerous scene in the Asian financial crisis has reappeared on the land of Russia.

The Kiriyanko government rushed to respond. They launched three moves: one is to protect the ruble exchange rate, increase the discount rate, and sell the country's foreign exchange reserves and US dollars to intervene in the exchange rate. The second is to change the borrowing of domestic debts to foreign debt, and urgently issue US$6 billion in bonds in Europe, and bear high interest rates and get hard currency. The third is to negotiate with the debtors. Domestic and major banks and oligarchs, foreign and major multinational banks and hedge funds, including Soros and Robertson, etc., to exchange for debt restructuring with generous conditions, extending the long term of some of the foreign debts that are about to expire, or changing them to long-term debts, so that the debtors will bear certain losses to repay. The three moves temporarily endured this wave of crisis, but this is actually drinking poison to quench thirst. It did not solve the fundamental problem, but delayed the time of the crisis, which also indicates that a new round of greater crisis is coming soon!
Chapter completed!