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Russia's Debt Crisis and the Unofficial Economy

  • Claudia M. Buch
  • Ralph P. Heinrich
  • Lusine Lusinyan
  • Mechthild Schrooten

Russia's foreign debt problems worsened substantially after the financial crisis of 1998. The paper focuses on the key role of the government in servicing foreign debt and promoting institution building by showing how foreign debt influences the choice between official and unofficial taxation. The enterprise sector is assumed to reallocate its resources between domestic investment and capital flight. It is discussed under which conditions debt rescheduling may create incentives for the government to promote institution building. The results of this paper shed light on the conditions under which the recent agreement with the London Club to write off substantial amounts of former Soviet debt can be successful.

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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 208.

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Length: 28 p.
Date of creation: 2000
Date of revision:
Handle: RePEc:diw:diwwpp:dp208
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  1. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World: Size, Causes, and Consequences," IMF Working Papers 00/26, International Monetary Fund.
  2. Buch, Claudia M & Heinrich, Ralph P, 1999. "Twin Crises and the Intermediary Role of Banks," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 4(4), pages 313-23, October.
  3. Kamau Thugge & Anthony R. Boote, 1997. "Debt Relief for Low-Income Countries and the HIPC Initiative," IMF Working Papers 97/24, International Monetary Fund.
  4. Leijonhufvud, Axel & Ruhl, Christof, 1997. "Russian Dilemmas," American Economic Review, American Economic Association, vol. 87(2), pages 344-48, May.
  5. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  6. Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
  7. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics 83, International Economics Section, Departement of Economics Princeton University,.
  8. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  9. Ilan Goldfajn & Rodrigo O. Valdés, 1997. "Capital Flows and the Twin Crises: The Role of Liquidity," IMF Working Papers 97/87, International Monetary Fund.
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