The Financial Crisis in Russia

  • Pekka Sutela


In August 1998, Russia experienced a classical financial crisis, combining a currency crisis, a banking crisis, and a debt crisis. As the ruble collapsed from about 6 Russian rubles for 1 U.S. dollar to 20-25 rubles for each dollar, the aggregate capital of the banking system dropped very close to zero, if not below. Even the payment system temporarily ground almost completely to a halt, and the country declared a moratorium on much private foreign debt and defaulted on all ruble-denominated public debt. Since that time, Russia has defaulted on many currency debts, as well. The main macroeconomic achievements of Russia’s stabilization policies since 1995—low inflation and a stable exchange rate—were gone. It was obvious that the possibility of economic growth, first visible in 1997, again had to be postponed. The 1997 stabilization was seen not as the natural outcome of consistent policies, but as a windfall created by an exceptional net capital inflow of 15 billion U.S. dollars (BUSD) to the federal government and 6.2 BUSD of foreign direct investment, 2.2 BUSD of portfolio investment, and 7.4 BUSD of net loans to the private sector. The year 1997 was also one of exceptionally large capital flight. Russia’s crisis, in spite of the country’s marginal position in the international trading system, sent shock waves through global financial markets, largely because of two reasons: the country had become a major borrower of short-term capital and a full-scale sovereign default was deemed possible. The debate on whether the Washington consensus “lost Russia” started a general discussion on the future of the international financial system. In retrospect, the peculiarities of the Russian crisis become more visible.


Exchange Rate Financial Crisis Central Bank Real Exchange Rate Asian Crisis 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Alexashenko, Sergey, 1999, Bitva za rubl’, Moscow: AlmaMater.Google Scholar
  2. Blasi, Joseph, Maya Kroumova, Douglas Kruse, and Andrei Shleifer, 1997, Kremlin Capitalism, Ithaca, NY: Cornell University Press.Google Scholar
  3. Boycko, Maxim, Andrei Shleifer, and Robert Vishny, 1995, Privatizing Russia, Cambridge MA: Massachusetts Institute of Technology Press.Google Scholar
  4. Dmitriyev, Mikhail, Mikhail Matovnikov, Leonid Mikhailov, and Lydmila Sycheva, 1998, “Russian stabilization policy and the banking sector, as reflected in the portfolios of Moscow banks in 1995-97,” Review of Economies in Transition, Bank of Finland, Vol. 7, pp. 29–57.Google Scholar
  5. Dmitriyev, Mikhail, and Sergey Surkov, 1999, “Dokhodnyi paternalism,” Ekspert, Sentyabr’ 13.Google Scholar
  6. Filatotchev, Igor, Mike Wright, and Michael Bleaney, 1999, “Privatization, insider control, and managerial entrenchment in Russia,” Economics of Transition, Vol. 2, pp. 481–504.CrossRefGoogle Scholar
  7. Halpern, Laszlo, and Charles Wyplosz, 1998, “Equilibrium exchange rates in transition economies: Further results,” Center for Economic Policy Research and East-West Institute, mimeo, November.Google Scholar
  8. —, 1996, “Equilibrium exchange rates in transition economies,” International Monetary Fund, working paper, No. WP/96/125, November.Google Scholar
  9. Korhonen, Iikka, 1998, “The sustainability of Russian fiscal system,” Review of Economies in Transition, Bank of Finland, Vol. 1, pp. 5–12.Google Scholar
  10. Malleret, Thierry, Natalia Orlova, and Vladimir Romanov, 1999, “What loaded and triggered the Russian crisis?,” Post-Soviet Affairs, Vol. 2, pp. 107–129.Google Scholar
  11. Montes, Manual F., and Vladimir V. Popov, 1999, The Asian Crisis Turns Global, Singapore: Institute for Southeast Asian Studies.Google Scholar
  12. Perotti, Enrico, 1999, “Financial-industrial groups and financial crisis: Lessons for Russia,” The Stockholm Report on Transition, Vol. 1.Google Scholar
  13. Powell, Bill, and Yevgenia Albats, 1999, “Summer of discontent,” Newsweek, January 18.Google Scholar
  14. Sapir, Jacques, 1999, “Russia’s crash of August 1998: Diagnosis and prescription,” Post-Soviet Affairs, Vol. 1, pp. 1–36.Google Scholar
  15. Shleifer, Andrei, and Robert Vishny, 1999, The Grabbing Hand of the State, Cambridge MA: Harvard University Press.Google Scholar
  16. Slay, Ben, 1999, “An interpretation of the Russian financial crisis,” Post-Soviet Geography and Economics, Vol. 3, pp. 206–214.Google Scholar
  17. Sutela, Pekka, 1998, The Road to the Russian Market Economy, Helsinki: Kikimora.Google Scholar

Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

  • Pekka Sutela
    • 1
  1. 1.Bank of FinlandFinland

Personalised recommendations