The Financial Crisis in Russia

  • Pekka Sutela

Abstract

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.

Keywords

Income Dition Rium Defend Plague 

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Copyright information

© Springer Science+Business Media New York 2000

Authors and Affiliations

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

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