In 1998, a new and terrible word default appeared in the vocabulary of Russians . What this is - few really know, but everyone does not have to expect anything good from default. And this word came from the English default and it means default. More precisely, this is when the debtor refuses to pay his debt or interest on it.
Actually, there are three default options. And the one that happened 14 years ago refers to the first of them, state or sovereign default. This event thoroughly shocked Russia and led to a severe economic crisis. And there are several reasons that led the Russian Federation to this. And the main reason was Russia's populist economic policy, as well as a whole pyramid of state short-term obligations (T-bills). By that time, the Russian Federation managed to accumulate a huge public debt, which was generated by the collapse of the economies of Asia. The liquidity crisis and the fall in world prices for raw materials, which was the basis of Russia's exports, also became the reasons for the Russians to know what default is on their own skin.
The consequences of this crisis have significantly changed the development of the economy and the whole country. The ruble fell sharply. If before default one dollar was given 6 rubles, then six months later this ratio was already 21 rubles for one dollar. And this led to a loss of confidence in the country's population, and foreign investors in the state itself, in the Russian banking system and, of course, in the national currency. What is default understood well by numerous small enterprises and small banks. They could not stand such a shock and “safely” went broke. And the entire banking system of the country was in collapse for another six months.
But most of all, ordinary citizens suffer from this state in the state. What is default for ordinary hard workers? This is, first of all, the loss of all labor accumulations. But this is only half the trouble. As a result of the crisis, many enterprises in which these people worked went bankrupt. And those who did not close, all the same, stopped paying workers wages. People had to look for any earning opportunities just to survive. After all, prices for essential goods rose along with the growth of the dollar, that is, 3-4 times. And this, accordingly, contributed to the growth of crime.
Then, in 1998, Russia had three opportunities to overcome the crisis. It was possible to print more rubles and plunge the country into another round of inflation. But the hyperinflation of the early 90s had not yet been forgotten, and therefore the government did not dare to take such a step. One could also refuse to pay foreign debts. But this option was considered unacceptable. Therefore, they chose the third scenario for overcoming the crisis, and the government refused to pay on domestic debt (T-bills). And then what is the default learned by the Russians themselves.
In the entire history of the development of the world economy there have been many state defaults. And a classic example of this is the story that happened to Edward III - the King of England. In 1327, he refused to pay the debts of his predecessor, who was heavily indebted to Italian bankers. And in 1650, Oliver Cromwell intensely sought money to conquer Ireland. And then he went into debt to the London rich, as well as to many Protestants from all over Europe. After the victory, he promised to pay with them, as well as with the officers and soldiers of his army, Irish lands. But these lands, naturally, were not enough for everyone. And then foreign investors Cromwell learned what default is. He simply “forgot” to settle accounts with them.
Also, the concept of default is used not only on a national scale. For example, a corporate default is the bankruptcy of a private company. A private default is when a private borrower refuses or cannot repay his debt to the creditor. Also, all types of defaults can be divided into two classes. This is an actual default, that is, the complete inability of the borrower to pay his debts either on a specific date or in the future, in other words, real bankruptcy. And what is technical default? This is an option when the lender still has a chance to get his money. That is, the borrower is not able to repay the loan on time, but after a certain time he will be able to fulfill all the conditions of the loan agreement.