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  • A comparison of past Russian economic crisis
    Russians have significant experience dealing with economic crises; however, the current situation is different from both 1998 and 2009, and requires and adapted response.

    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.










    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


    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



    Source: IE Singapore

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