Financial Globalization and the Russian Crisis of 1998

Russia had more-or-less completed the privatization of its manufacturing and natural resource sectors by the end of 1997. And in February 1998, the annual inflation rate at last dipped into the single digits. Privatization should have helped with s...

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Bibliographic Details
Main Authors:	Pinto, Brian, Ulatov, Sergei
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING ACCOUNTING STANDARDS ARBITRAGE ARREARS ASSET QUALITY AUCTION AUCTIONS BAILOUT BAILOUTS BALANCE SHEET BALANCE SHEETS BALANCE-OF-PAYMENTS CRISES BANK DEBT BANK DEPOSITS BANK PORTFOLIOS BANK SUPERVISION BANKING CRISIS BANKING SYSTEM BANKRUPTCY BASIS POINTS BENCHMARK BONDS BID BOND BOND SPREAD BOND SPREADS BORROWING COSTS BROAD MONEY BUDGET CONSTRAINTS CAPITAL ACCOUNT CAPITAL ALLOCATION CAPITAL FLOW CAPITAL FLOWS CAPITAL INFLOWS CAPITAL MARKETS CASH SETTLEMENTS CENTRAL BANK COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS CONSUMER GOODS CORPORATE BONDS CORPORATE GOVERNANCE COUPON CREDIBILITY CREDIT RISKS CREDIT SPREADS CREDIT SQUEEZE CREDITORS CRISIS COUNTRIES CURRENCY CURRENCY CRISIS CURRENCY DEPRECIATION CURRENCY MISMATCHES CURRENT ACCOUNT DEFICIT CURRENT ACCOUNT SURPLUS CURRENT ACCOUNT SURPLUSES DEBT BURDEN DEBT FINANCING DEBT INSTRUMENTS DEBT OBLIGATIONS DEBT OUTSTANDING DEBT PAYMENTS DEBT RESTRUCTURING DEBT SWAPS DEFAULT RISK DEPOSIT DEPOSITORS DEPOSITS DERIVATIVES DEVALUATION DEVELOPING COUNTRIES DIRECTED CREDITS DISBURSEMENT DOLLAR DEBT DOMESTIC CREDIT DOMESTIC CURRENCY DOMESTIC INTEREST RATE DOMESTIC INTEREST RATES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS ENTERPRISE OPERATIONS EUROBOND EXCHANGE RATE EXCHANGE RATES EXPENDITURE EXPORTERS EXTERNAL DEBT EXTERNAL DEBTS EXTERNAL FUNDING FACE VALUE FEDERAL RESERVE FEDERAL RESERVE BANK FEDERAL RESERVE SYSTEM FINANCIAL CRISIS FINANCIAL LIBERALIZATION FINANCIAL MANAGEMENT FINANCIAL STABILITY FINANCIAL SUPPORT FINANCIAL SYSTEM FISCAL DEFICIT FISCAL DEFICITS FISCAL POLICY FIXED EXCHANGE RATE FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY DEBT FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES FOREIGN INTEREST FOREIGN PORTFOLIO INVESTMENT FORGIVENESS FUND MANAGERS GLOBALIZATION GOVERNMENT BORROWING GOVERNMENT DEBT GOVERNMENT DEBT MARKET GOVERNMENT FINANCING GOVERNMENT PAPER GOVERNMENT SECURITIES GROSS DOMESTIC PRODUCT HEDGE FUND HEDGE FUNDS HOLDINGS IMPLICIT SUBSIDIES IMPLICIT SUBSIDY INDEBTEDNESS INFLATION INFLATION RATE INTEREST DIFFERENTIAL INTEREST PAYMENTS INTERNATIONAL BANK INTERNATIONAL BOND INTERNATIONAL BOND MARKETS INTERNATIONAL CAPITAL INTERNATIONAL CAPITAL MARKETS INTERNATIONAL ECONOMICS INTERNATIONAL FINANCE INTERNATIONAL FINANCIAL INSTITUTIONS INTERNATIONAL SETTLEMENTS INVESTING LIQUID ASSETS LIQUIDATION LIQUIDITY LOAN LOAN REPAYMENTS LOAN SIZE LONG-TERM CAPITAL MACROECONOMIC CRISES MACROECONOMIC ENVIRONMENT MACROECONOMIC INSTABILITY MACROECONOMIC STABILITY MACROECONOMIC STABILIZATION MARKET ACCESS MARKET ECONOMY MARKET PARTICIPANTS MARKET VALUE MARKET YIELD MATURITIES MONETARY POLICY MONEY MANAGER MONEY MANAGERS MORAL HAZARD NON-PERFORMING LOANS NONPAYMENTS OIL PRICE OIL PRICES OUTPUT LOSS OUTSIDE INVESTORS OUTSTANDING STOCK PENSION PENSION FUNDS PHYSICAL ASSETS POLITICAL RISK PORTFOLIO PORTFOLIO FLOWS PORTFOLIO INFLOWS PORTFOLIOS PRICE CHANGES PRIMARY DEALERS PRIVATE BANKS PRIVATE CAPITAL PRIVATE CAPITAL INFLOWS PRIVATE INVESTORS PROMISSORY NOTES PUBLIC DEBT PUBLIC FINANCES REAL EXCHANGE RATE REAL INTEREST REAL INTEREST RATE REAL INTEREST RATES RENEGOTIATION REPO REPOS RESERVES RETURN RETURNS RISK MANAGEMENT SAVINGS BANK SECONDARY MARKET SHORT-TERM EXTERNAL DEBT SHORT-TERM INTEREST RATES SOLVENCY SOVEREIGN BONDS SOVEREIGN DEBT SOVEREIGN DEBT PROBLEMS SOVEREIGN LIABILITY SOVEREIGN RISK STOCK EXCHANGE STOCK MARKET STOCK MARKETS SWAP SWAPS TAX TAX COLLECTIONS TAX EXEMPTIONS TAX POLICY TAX RATE TOTAL DEBT TRADING TRANCHES TRANSITION COUNTRIES TRANSITION ECONOMIES TREASURY TREASURY BILL TREASURY BILLS TREASURY NOTE UNDERLYING ASSETS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20100517152914 http://hdl.handle.net/10986/3797

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Summary:	Russia had more-or-less completed the privatization of its manufacturing and natural resource sectors by the end of 1997. And in February 1998, the annual inflation rate at last dipped into the single digits. Privatization should have helped with stronger micro-foundations for growth. The conquest of inflation should have cemented macroeconomic credibility, lowered real interest rates, and spurred investment. Instead, Russia suffered a massive public debt-exchange rate-banking crisis just six months later, in August 1998. In showing how this turn of events unfolded, the authors focus on the interaction among Russia's deteriorating fiscal fundamentals, its weak micro-foundations of growth and financial globalization. They argue that the expectation of a large official bailout in the final 10 weeks before the meltdown played an important role, with Russia's external debt increasing by $16 billion or 8 percent of post-crisis gross domestic product during this time. The lessons and insights extracted from the 1998 Russian crisis are of general applicability, oil and geopolitics notwithstanding. These include a discussion of when financial globalization might actually hurt and a cutoff in market access might actually help; circumstances in which an official bailout could backfire; and why financial engineering tends to fail when fiscal solvency problems are present.

Financial Globalization and the Russian Crisis of 1998

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