The 1998 financial crisis in Russia was one of the most dramatic
economic breakdowns and symbolized the failure of the transition process
as it had been conducted since the end of the Soviet Union. There is no
general agreement on the nature of the rouble collapse; a number of
contradictory interpretations have been discussed among economists. This
book argues that the Russian 1998 financial turmoil is best predicted by
Krugman's and Sargent-Wallace's models. The currency collapse had its
origins in the peculiar way in which the transition was managed. In
particular, the Russian government became entrapped in the double
constraint of a tight monetary policy imposed by the IMF on the one
side, and a loose fiscal policy to support the private sector on the
other. Those policies were inconsistent, and led to inflationary
processes that were postponed through emission of a large amount of
Treasury Bonds to finance the fiscal deficit. At the same time, a tight
monetary policy retarded the recovery of the industrial sector. While
the particular timing of the crisis was co-determined by other factors,
such as the Asian financial crisis and the fall of the oil price, it was
this incoherent monetary and financial policies mix that constituted the
main cause of the rouble's spectacular collapse in August 1998. The book
provides extensive coverage of a decade of Russian reforms. It
critically analyzes neo-liberal ideology and the course of the
transition process supported by the Washington Consensus.
