Russia's refusal to pay off its foreign debt or the 1998 default dealt a tangible blow to the well-being of Russians. It led to the most serious economic crisis in Russia in recent years. Therefore, many fear the possibility of default in 2015.
Is a default inevitable in 2015?
Officials deny the likelihood of a default in Russia both in 2015 and in the short term. Of course, many are skeptical about the government's statements. After all, the 1998 default was announced three days after the president announced that he would not be.
The fears of Russians about the likelihood of a default in 2015 are reinforced by the emergence of news from foreign rating agencies. In January 2015, Bloomberg included Russia in the top five countries in which a default is most likely to occur in the near future. In this anti-rating, Russia is ahead of a number of countries that have a speculative rating - Lebanon, Portugal and Brazil.
The well-known economist D. Soros also did not rule out the possibility of default in Russia as a result of anti-Russian sanctions and low oil prices.
In early January, Fitch downgraded Russia's rating to 'BBB-'. This is the last investment grade of the rating, followed by the garbage level. What do these ratings mean? They are designed for investors and inform them about the likelihood of payment of financial obligations and the possible risks when buying government bonds. The higher the position in the rating, the lower the risks.
As the reasons for the downgrade, Fitch named the high dependence on oil prices, Western sanctions and the increase in the key rate of the Central Bank (this will entail the need for state support of the banking sector).
Russian ratings from two other agencies - Moody's and Standard & Poor's - stopped at the lowest pre-speculative level. Standard & Poor’s is expected to downgrade its sovereign credit rating to junk in the coming days. A decrease in the flexibility of monetary policy is cited as the reasons. If a downgrade of the sovereign rating does occur, it could lead to panic in the stock market, a massive sale of Russian securities and an even greater depreciation of the ruble.
However, many analysts do not share the pessimism of foreign agencies and consider their decisions to be politically biased. In reality, Russia in 2015 is far from what it was in 1998. The low level of public debt in Russia, the high size of accumulated reserves, and also a small budget deficit (less than 1% of GDP) make the likelihood of default very elusive.
Oil quotes are expected to grow during 2015. Moreover, the negative impact of falling oil prices is offset by the flexible exchange rate of the ruble. After all, the obligations of the Russian government are in rubles, while the main income is in foreign currency.
Default and devaluation in 2015
Many Russians confuse the concepts of default and devaluation and fear a possible default of the ruble in 2015. In reality, these economic phenomena differ from each other. Default means the refusal (impossibility) of the state to fulfill its obligations. For example, payments under loan agreements or bonds.
Devaluation is the process of depreciation of the national currency. In practice, a default is often accompanied by a fall in the exchange rate. For example, the 1998 default in Russia led to more than a twofold fall in the ruble against the dollar.
