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Kikimora Publications Series B9


Russian Crisis and Its Effects
edited by Tuomas Komulainen and Iikka Korhonen:

Kikimora Publications : Series B9. 2001
ISBN 951-45-9100-3
238 p.

The book has been sold out - download it here as pdf (20 MB)


Introduction and overview
Pekka Sutela and Tuomas Komulainen

The financial crisis in Russia
Pekka Sutela

In the third quarter of 1998, Russia experienced what seemed a classical financial crisis, combining a currency crisis, a debt crisis and a banking crisis. The Russian crisis was also evidently connected with the earlier Asian crisis, and sent shock waves across global financial markets. Still, a closer look shows that the Russian crisis was mostly home made, typically caused by excessive public sector debt, and the mechanisms of crisis can not be understood without an understanding of the peculiarities of the Russian economic system, including demonetisation and insider ownership. Such factors also go a long way in explaining the emergence of Russia from the crisis.

Russia: Virtual stabilization and real crisis
Anton Stroutchenevski

This article describes the main features of the Russian stabilisation program of 1995-1997 and examines factors contributing to the 1998 financial crisis. After a brief discussion of stabilisation programs implemented in other developing countries, the tendencies of Russian macroeconomic performance in 1996-1998 are considered. The main capital flows into the Russian economy during 1996-1998 are also analysed. The evidence presented argues that stabilisation in 1995-1997 was achieved at the cost of increasing indebtedness. The author favours that Russia should look to monetary-based stabilisation policies in the future.

The aftermath of the Russian debt crisis
Elmar Koch and Iikka Korhonen

In August 1998 the Russian Federation was forced to devalue the rouble and declare a moratorium on its debt servicing. Russia was badly hit by unfavourable external conditions, but the main reason for the crisis was the inability of the fiscal authorities to bring the budget deficit under control. When the rouble was devalued, the Russian Federation was unable to meet its domestic or external obligations. The holders of Russia's domestic debt were forced to accept unfavourable restructuring terms, and now also some holders of the old Soviet debt instruments have accepted a significant reduction in the value of their holdings. However, Russia has been willing and able to honour the debts incurred after the Soviet period. Russia's relations with its creditors and international financial institutions have been quite strained in the aftermath of the crisis, and it remains to be seen whether the recent restructuring deal with London Club creditors will mean Russia's re-entry into the international financial markets.

Russian economic reforms as perceived by western critics
Vladimir Mau

It has recently become customary to argue that Russian economic transformation since 1991 has failed because of bad policy advice and mistaken policy choices. Though Russia's performance leaves much to be desired, such criticisms are based on a failure to analyse the real choices available to reformers in the post-perestroika period. The paper, criticising in particular the views presented by Joseph Stiglitz, shows that the Chinese reform path was not available to Russia, that mass privatisation was influenced more by political necessity than theoretical choice, and also discusses the relation between doctrine and necessity in policy making more generally. The final section of the paper characterises Russia as a case of weak state, and identifies several of the consequences arising.

The Post-Soviet Russian economic system: An industrial feudalism?

Richard E.Ericson

In fifteen years, Russia has changed thoroughly. But what actually is the outcome so far of Russia's change? In this paper the leading US expert on the Russian economy argues that far from being a well-defined market economy, Russia is best characterised as an industrial feudalism with many peculiarities absent from the rest of the (non-post-Soviet) modern world. The author further argues that it can take a very long time before the proper institutions are place so that a modern market economy could develop.

Russia: The state and future of the economy
Pekka Sutela

This paper assesses the current state and future prospects of the Russian economy after the August 1998 financial crisis. The industrial growth visible since Autumn 1998 may well be unsustainable, as it is based on currency undervaluation and low real wages. Over a longer period, the characteristics of the economic system that has emerged in Russia cast a long shadow over the prospects of growth and prosperity. In fact, the whole country should be rebuilt.

Baltic economies in 1998-1999: Effects of the Russian financial crisis
Lauri Taro and Iikka Korhonen

Russian August 1998 economic crisis affected Baltic countries more than was expected. Estonia, Latvia and Lithuania sank into recession. The figures for 1999 show a heavy decline in Baltic's exports to Russia and a significant decline in the growth rates of these economies. Growth forecasts for each Baltic country were revised down, but now at least Estonia and Latvia have regained growth. Food and beverage as well as processing industries as a whole have suffered the most. The decline of purchasing power in Russia due to the rouble devaluation and the weaknesses in the Russian economy will restrain Baltic countries' exports to Russia for years to come.

The impact of the Russian crisis on selected Central and Eastern European countries
Peter Backé and Jarko Fidrmuc

The paper examines the impact of the Russian crisis on five Central and Eastern European countries (the Czech Republic, Hungary, Poland, Slovakia, and Slovenia) in 1998 and 1999. The analysis starts by discussing trade effects and their impact on GDP developments. Subsequently, the focus turns to the financial channel. After a review of immediate and temporary financial contagion effects, the medium-term impact on real interest rates and its implications for investment, consumption and output are scrutinized. Finally, the paper appraises the policy measures that were taken and the policy discussions that unfolded against the backdrop of the Russian crisis.