Underground Financing in Russia

Abstract

According to Russian common opinion “Nothing is as strong or as weak in Russia as it seems.” This includes the financial system. Few claim to understand fully either the origins of the August 1998 financial crisis or the postcrisis recovery. Post-1998 analyses suggested that reforms did not work as expected because the institutional environment required by market democracies was not in place.This in turn was explained by sociohistorical and cultural factors responsible for the lack of civil society, civic responsibility, and business ethics.As The Economist put it, a healthy banking system requires

honest administrators backed by determined politicians, a legal system in which loans make sense and a financial climate in which people want to lend. All the above are missing in Russia. This is why a whole year since August 1998, not a single significant bank pushed into insolvency has been properly wound up. The World Bank estimated that at the top 18 banks alone, liabilities exceed assets by $9.8 billion. Of the few banks that have lost their licences in 1999, most were those trying to deal honestly with their creditors … Strangest of all, there has been no official censure of the widespread asset-stripping and book-fiddling which followed the August crisis