Market without economy

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The 1998 financial crisis in Russia marked a significant economic breakdown, highlighting the failures of the transition process post-Soviet Union. Economists have debated the reasons behind the rouble's collapse, but this analysis suggests that it aligns best with Krugman’s and Sargent-Wallace’s models. The crisis stemmed from the Russian government's struggle with a dual constraint: a tight monetary policy imposed by the IMF and a loose fiscal policy aimed at supporting the private sector. This inconsistency led to inflationary pressures, which were temporarily masked by issuing a large volume of Treasury Bonds to cover the fiscal deficit. Concurrently, the stringent monetary policy hindered the recovery of the industrial sector. While external factors like the Asian financial crisis and declining oil prices influenced the timing of the crisis, the primary cause of the rouble's dramatic collapse in August 1998 was the incoherent mix of monetary and financial policies. The book also offers a comprehensive overview of a decade of reforms in Russia, critiquing the neo-liberal ideology and the transition strategy endorsed by the “Washington Consensus.”