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SPILLOVER IN RUSSIA
SANDIP SHAKYA
APRIL 30, 2009
PRECEDENCE
 Massive currency depreciation
 Interrelated markets
 Strong ties to the Asian economic crisis
IN RUSSIA
 Breakdown of the Soviet Union
 Traumatic transition
 Rapid inflation
 Steep output decline
 Unemployment (largely unknown at the time in
planned economies)
THE TRANSITION
 Privatization of the entire economy
 Financial markets and banking practices largely
unknown
 Lack of Legal framework for Private economic
relations or Corporate Governance
 Ambiguous Property rights
LACK OF FISCAL MACHINERY
 Lack of modern Fiscal machinery for Collection of
Taxes
 Absense of Domestic Capital markets and cautious
foreign investors
 Monetary printing press, the only means to finance
needed social expenditures
REAL OUTPUT GROWTH – RUSSIA AND POLAND, 1991-2003
(percent per year)
15.00
10.00
5.00
0.00
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000-2003
Poland
Russia
-5.00
-10.00
-15.00
-20.00
INFLATION– RUSSIA AND POLAND, 1991-2003
(percent per year)
1800.00
1600.00
1400.00
1200.00
1000.00
800.00
600.00
400.00
200.00
0.00
Russia
Poland
SHRINKING OUTPUT
AND MASSIVE INFLATION
 Inability to collect taxes
 No control over government spending
 Burrowing instead of Seigniorage slowed inflation
 Decrease in the prices of oil and other key Russian
commodity exports
 Increase in rates on government burrowing
THE IMF
 Agreement with Russia to back up Russian ruble’s
exchange rate
 Billions in credit
 Fear of a Russian collapse
 Nuclear threat
RUSSIA’S ACTIONS
 Mid-August 1998, Abandoned its exchange rate




target
Defaulted on debts
Froze international payments
Panic around the world
U.S. Federal Reserve lowered dollar interest rates
sharply averting to a worldwide financial collapse