The Russia Debt Default Saga

Our economic historian and writer in Moscow, Sergei Pahkomov, has written a very timely series of 3 articles about the Russian Debt Great Default of 1922 – just 100 years ago. The articles are long and detailed but are worth a good read. The situation in Russia was terrible after the First World War and the new Russian government wanted to get their economy on a stronger footing. In “Russia’s Home Front, 1914-1922: The Economy” by Mark Harrison and Andrei Markevich from the University of Warwick write:

“Between 1913 and 1919 Russia, the largest territory, the third largest population, and the fourth largest economy of any in the world was reduced to an average level not seen in Europe since the Middle Ages, and found today only in the poorest countries of Africa and Asia. By the time recovery was under way, 13 million people – nearly one in ten of the prewar population – had suffered premature death. Meanwhile, powerful political and social forces propelled the economy onto a new trajectory away from a relatively decentralized market economy with predominantly private ownership of land and capital towards state ownership, permanent mobilization, and the allocation of resources by centralized plans. In due course this became the basis for an industrialized, nuclear-armed, global superpower.”

The history of the Great Default could not be more topical today for Europe and the USA when considering recent events by activist hedge funds who are now trying to overturn the later defaults of Soviet Russian debt. These funds have purchased these bonds and they are seeking repayment plus lost interest payments!

Sergey Pahkomov writes two very pertinent paragraphs:

“During the Genoa Conference and subsequent negotiations on the debt problem, the Bolsheviks managed to impose their “solution to the problem” on the Western countries and actually free the devastated country from the debt burden. However, 80 years later, the problem returned.”

… and the following paragraph from the same third article illustrates how keen the German were to extract benefits from exclusive big deal with the Russians. Today we see this happening again with the German NordStream gas pipeline project that will pump Russian gas under the Baltic Sea directly to Germany when completed…

Sergey writes: “Soviet Russia took a different path. In 1922-23, a third of all Soviet imports already came from Germany, from where more than 2,000 industrial engineers came to work in the USSR. Germany provided loans for the supply of industrial equipment, and Soviet-German military cooperation began to develop intensively.”

Site Footer