We have to recognize that the Russian financial meltdown is a product of two factors: (A) a policy of accumulating debt to cover huge Russian fiscal deficits, which had been pursued since 1995, and was unsustainable in the long run, and (B) the increased volatility of global capital markets in the wake of the Asian crisis. Russian policymakers and international investors made bad bets, as is obvious in hindsight, but neither the timing nor the severity of the current crisis is attributable to "economic fundamentals." As long as the psychology of the market remained rosy, the Russian financial position was sustainable; as soon as it shifted, meltdown was unavoidable. This diagnosis leads to three main policy implications. […]
Memo #:
33
Series:
1
PDF:
PDF URL:
http://www.gwu.edu/~ieresgwu/assets/docs/ponars/pm_0033.pdf
