Implications of the Russian Crisis

The financial crisis of August 1998 caused grave consequences for Russia. Although the mechanism of financial crises in emerging market economies has been thoroughly studied, the role of transition specificity is still underestimated. In the West, there is a widely accepted opinion that fiscal problems were the main driving force behind the crisis. The article contests this view and reveals a number of fundamental reasons that have brought a decade of market romanticism to a bitter end. In fact, the crisis disclosed serious misalignments in the strategy of reforms. Premature liberalisation and a far-fetched reliance on monetarist tools coupled with a lack of institutional, microeconomic and legal transformation hampered the development of market forces, provoked glaring macroeconomic discrepancies and, finally, led to a dramatic decline in production. Present Russian economic policy is aimed at reconciling market reforms with the Soviet economic heritage and the particular transition needs of the country.