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A comparison of past Russian economic crisis
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The permanent lesson of Russian crises is that companies that take a long-term view and remain committed to the market despite short-term performance problems tend to perform better than competitors. This remains true today, and companies should determine if their businesses are ready to commit to Russia in the face of what is likely to be a prolonged economic crisis, followed by a lackluster recovery.
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1998 |
2009 |
2015f |
Cause of the crisis |
Unsustainable public sector debt, default on government obligations |
Global financial crisis + oil price crash cause contraction in lending and external demand |
Structural slowdown + oil price crash + crisis of confidence cause capital outflows |
Currency |
Substantial currency devaluation |
Central bank defends the currency, preventing a sharp devaluation |
Central bank allows currency to depreciate sharply |
Government response |
Institute business-friendly reforms; reform government finances |
Enact large stimulus; bail out companies; protect social spending |
Bail out the banking system; promote import substitution; cut government spending |
Consumer demand |
Contraction followed by swift recovery |
Real wages continue to grow, but unemployment rises quickly |
Unemployment is low, but real wages contract sharply |
Business demand |
Ineffective enterprises cease operations or are acquired by investors |
High levels of forex debt weigh on industrial enterprises, causing bankruptcies |
Ineffective enterprises go bankrupt or are acquired |
Recovery curve |
Growth resumes within two years on the back of reforms, rising oil prices, competitiveness gains, and higher capacity utilisation |
Growth returns within a year, as capacity utilisation increases, oil prices rebound, and public spending supports consumer spending power |
Global demand and oil prices unlikely to rebound, structural inefficiencies will depress growth even in favorable external environment, foreign policy hurts FDI |
Business strategies |
Invest in cheap assets and a build a local presence to capture recovery in demand |
Scale back costs, but maintain a presence in the market to capture recovery spending, and buy local assets/compaines at a premium |
Improve efficiency through localisation and restructuring to ensure profitability even with low revenue growth
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Source: IE Singapore