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No Precedent, No Plan

No Precedent, No Plan: Inside Russia's 1998 Default

Martin Gilman
Copyright Date: 2010
Published by: MIT Press
Pages: 360
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  • Book Info
    No Precedent, No Plan
    Book Description:

    In 1998, President Boris Yeltsin's government defaulted on Russia's debts and the country experienced a financial meltdown that brought its people to the brink of disaster. In No Precedent, No Plan, Martin Gilman offers an insider's view of Russia's financial crisis. As the senior representative of the International Monetary Fund in Moscow beginning in 1996, Gilman was in the eye of the storm. Now, he tells the dramatic story of Russia's economic evolution following the collapse of the Soviet Union and analyzes the 1998 crisis and its aftermath. Gilman argues that the default and collapse, although avoidable, actually spurred Russia to integrate its economy with the rest of the world's and served as a harbinger of the recent global economic crisis. Gilman details the IMF's involvement and defends it against criticism by economist Joseph Stiglitz and others. In the 1990s, the collapse of the Soviet Union left Russia in chaos, with a barely functioning government and no consensus on the path toward a democratic and economic transformation. The smooth transition to a market economy that had been accomplished in other countries in Eastern Europe was impossible. Gilman describes the ordeal of the 1998 crisis and argues that the IMF helped Russia avoid an even greater catastrophe. He recounts Russia's emergence from the IMF's tutelage and explains how the shell-shocked Russian public turned to Vladimir Putin in search of stability after the trauma of 1998. No Precedent, No Plan offers a definitive account--the first from an insider's perspective--of Russia's painful transition to a market economy.

    eISBN: 978-0-262-28942-9
    Subjects: Economics, History

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Foreword
    (pp. ix-xii)
    Michel Camdessus

    Chou En-lai once said that two hundred years later, it was a little bit premature to try to write the true story of the French Revolution. He was possibly right. Martin Gilman, in offeringNo Precedent, No Planto the public, is nevertheless demonstrating that when you have been both a key actor and an acute observer of unfolding events, if you go through all the existing records and patiently confront the testimonies of the other eyewitnesses, you can achieve the performance Chou En-lai would have dreamed about. And the story is worth telling.

    Modern history is replete with unanticipated...

  4. Preface
    (pp. xiii-xviii)
  5. Acknowledgments
    (pp. xix-xxii)
  6. Introduction
    (pp. 1-14)

    As a country, the Russian Federation is not even a generation old. At the outset, coinciding roughly with the beginning of 1992, it inherited an unusually large amount of historical baggage—such as the Russian Orthodox religion, Russia’s separation from Europe during the Mongolian period, the rule of the czars, and the pervasive experiment with Soviet Communism. The Russia that emerged from the latter experience was in a shambles, but, more important, it was dangerous. The West had little choice but to get involved. It used the IMF as its primary vehicle.

    The 1998 financial crisis represents a critical juncture...

  7. 1 Russia and the IMF
    (pp. 15-38)

    Looking back on the Russian financial crisis that culminated in the sovereign default on domestic debt obligations on August 17, 1998, it would be convenient—although wrong—to categorize the crisis as just one in a series, sandwiched between the Asian crisis of late 1997 and the Brazilian one of early 1999. It was not just that Russia’s default was the first major one of its kind since the 1930s, as no foreign debt was involved. Rather, Russia was just too dangerous to fail. The West, having won the cold war, could not risk placing the so-called peace dividend, much...

  8. 2 Growing IMF Involvement
    (pp. 39-62)

    As the IMF sought to normalize its involvement in Russia, it had to confront the realities of a largely dysfunctional state in which internal rivalries, divergent institutional interests, and bureaucratic infighting made a consensus on policies such as tax collection hard to achieve and sustain, especially in the atmosphere of complacency following Yeltsin’s reelection in mid-1996.

    In light of the success in achieving progress toward macroeconomic stabilization under their 1995 economic program, the Russian officials starting working on a much more ambitious successor program that would further stabilization combined with a major emphasis on structural reforms such as privatization, tax...

  9. 3 Russia Seems to Be Turning a Corner
    (pp. 63-100)

    Despite the heavy legacy, at the IMF we were hopeful that 1997 would be more promising for resolving Russia’s economic problems. The elections were out of the way, a three-year economic program supported by the IMF and World Bank was in place, and the global financial environment was benign. It seemed to us that if the Russian political class could harness and sustain sufficient political will to implement the policies in its program, then a corner really could be turned. Of course, life is often a question of whether opportunities are seized or missed. The same is true for countries....

  10. 4 Hope Disappointed
    (pp. 101-136)

    In retrospect, 1997 was a key period, in which a combination of bad luck in the external economic environment combined with intensified political infighting within the Russian governing class conspired to miss the opportunity for an early escape from penury. And practically no one foresaw where this lethal mix would lead.

    The difficult prospects for 1997 should not have come as such a surprise to the IMF. From the outset, there were indications that the combination of continuing economic dislocation, an ineffectual government operating in a power vacuum, and a newly reelected but virtually invisible president would not augur well...

  11. 5 How a Possible Crisis Becomes Probable
    (pp. 137-172)

    Even as late as the first few months of 1998, the coming financial collapse was not preordained and, despite plunging oil prices and a dramatic reversal of private capital flows, might have still been avoided. In principle, a determined effort to confront and resolve the macroeconomic imbalances on a permanent basis could have conceivably warranted a major G-7 support package, if not a market-based rollover. But politics again unexpectedly interfered.

    The events in Russia leading up to and following the August 1998 financial crisis are well-known. That said, they warrant a retelling, not least because the received wisdom reflects a...

  12. 6 How a Probable Crisis Then Becomes Unavoidable
    (pp. 173-206)

    By this point there were few options. In the absence of a large G-7 bailout, the Russians faced an excruciating choice between monetizing the debt (it was after all denominated in rubles) or forcing a restructuring/write-down of it. They chose the latter, and despite a last-ditch effort to involve the IMF, the handling of the default was a shambles. Seen from the outside, it appeared as if policy was being conducted by rank amateurs.

    As the managing director in charge of proprietary trading at a major London brokerage with one of the largest nonresident holdings of Russian government securities explained...

  13. 7 The Surprising Postcrisis Recovery
    (pp. 207-236)

    The political and economic aftermath of the August crisis took a surprising turn. Based on historical experience and expectations, the world waited for first an economic meltdown in Russia and then a bitter, revengeful political reaction. And events did start out in that direction. Then nothing happened. And then, from this limbo, the economy began to rebound and politically, in the end, Yeltsin was able to ensure a peaceful transition of power. With the new millennium approaching, the Russian economy was starting to boom.

    As the year began, there was little to cheer about. Although initial indications were that the...

  14. 8 The Friendly Divorce
    (pp. 237-254)

    From the Russian side, with a growing self-confidence from formulating and implementing its own homegrown economic policy program, the further strengthening of oil prices in autumn 2000, better economic results (and more important, some initial signs in some areas even outside of large cities that everyday life was starting to improve), the desirability of finalizing a program with IMF support was fading fast. The government no longer saw it as a top priority, but merely a worthwhile objective. And even here, the motivation was mainly to ensure the financing of the 2001 budget, in which the IMF and especially a...

  15. 9 The Legacy of the Crisis
    (pp. 255-276)

    Thus far, the focus has been on the factors that led to the 1998 financial collapse and its immediate consequences as well as the end of the IMF’s financial role in supporting Russian economic policy reforms. Now I turn to the obvious questions about the longer-term legacy of the crisis—seen from the vantage point of more than twelve years later—and whether the lessons of that earlier calamity have been applied in facing the financial turmoil that began in late 2008.

    Seen from the perspective of mid-2010, looking at the financial devastation and then the subsequent rebound of Russian...

  16. 10 History Is Not Doomed to Repeat Itself
    (pp. 277-292)

    The 1998 crisis represented the apogee of the IMF’s involvement in Russia’s transition to a “normal” country. It was a humbling lesson for the IMF and a wake-up call for Russia. The lessons learned helped to ensure that the impact of the recent global recession, as bad as it was, was not worse. It was also the fateful tipping point in Russia’s prevarication in deciding to become a modern, market economy. The future is of course uncertain, but the ground has been laid for a new generation of young Russians to avoid the mistakes of their parents.

    It was not...

  17. Appendix I: Data on Economic Performance
    (pp. 293-298)
  18. Appendix II: A Description of Names
    (pp. 299-304)
  19. Appendix III: A List of Abbreviations
    (pp. 305-308)
  20. Notes
    (pp. 309-314)
  21. References
    (pp. 315-320)
  22. Index
    (pp. 321-332)