The 1998 financial crisis in Russia was one of the most dramatic economic breakdowns of the
last decade and symbolized the failure of the transition process as it had been conducted since
the end of the Soviet Union. There is no general agreement on the nature of the rouble collapse
a number of contradictory interpretations have been discussed among economists. This book
argues that the Russian 1998 financial turmoil is best predicted by Krugman's and
Sargent-Wallace's models. The currency collapse had its origins in the peculiar way in which
the transition was managed. In particular the Russian government became entrapped into the
double constraint of a tight monetary policy imposed by the IMF on the one side and a loose
fiscal policy to support the private sector on the other. Those policies were inconsistent
and led to inflationary processes that were postponed through emission of a large amount of
Treasury Bonds to finance the fiscal deficit. At the same time a tight monetary policy
retarded the recovery of the industrial sector. While the particular timing of the crisis was
co-determined by other factors such as the Asian financial crisis and the fall of the oil
price it was this incoherent monetary and financial policies mix that constituted the main
cause of the rouble's spectacular collapse in August 1998. The book provides extensive coverage
of a decade of Russian reforms. It criticizes neo-liberal ideology and the course of the
transition process supported by the Washington Consensus.
