Abstract

The Russian Transformation Crisis: Monetary and Real Aspects as well as Policy Options

On the one hand, this paper analyses the transformation crisis in Russia including its elements and causes while presenting possible policy options for overcoming this crisis on the other. Besides an emergency in the Russian banking sector, an inability to respond in an adequate manner to the need for adjustment to structural change - which is the reason impeding economic growth - has been identified as the severest element of the crisis. Inappropriate economic policy decisions, illusory reform programmes and premature liberalisation of capital movements together with a system of quasi-fixed exchange rates adopted in 1997 unleashed a dramatic situation in August 1998. Russia’s specious success in transforming its system of macroeconomic management has thus disappeared again, but this success was - to a certain extent - only an illusion; a move towards a market-economy and a transportation system based on more intensive competition has not been made in actual fact, as can be seen from the ongoing decline in the goods haulage volume atypical of transformation. The first seven years of Russia’s transformation were characterised by a decline in the gross domestic product and in the real money balances relative to the gross domestic product as well as by rising unemployment. Alongside the Russian economy’s increasing dollarisation and a general loss of confidence on the part of workers, businessmen and foreign investors, there is now a threat of an aggravating economic crisis for which parts of the IMF’s Board of Directors including their inappropriate strategy in support of transformation in Russia as well as their partly naive assessment of international irritations are to be held responsible to a certain extent. A thoroughly revised approach toward transformation strategies - with the emphasis being laid on functioning institutions - as well as energetic policy-making with the EU, the EBRD and the IMF/World Bank supporting this process are urgent in the interest of containing and overcoming the crisis in Russia that involves potentially grave global irritations. For Russia’s transformation, the marginal benefit of applied economic theory and Western transfer payments could have been substantial, but it could not materialise in the first phase of the process in the absence of meaningful IMF approaches and because of Russia’s internal policy-making mistakes.