Evolution, Problems and Prospects
Edited by David Lane
Chapter 11: Progress Towards Financial Stability
11. Progress towards ﬁnancial stability Brigitte Granville1 INTRODUCTION However unforeseen, the consequences of the Russian default on over $40 billion-worth of debt in August 1998 extended to a perceived threat to the stability of the global ﬁnancial system. This perception was reﬂected in the actions of the US Federal Reserve in the autumn of 1998: rapid monetary easing, and the move to arrange a rescue for Long Term Capital Management (LTCM) from insolvency as a result of the Russian crisis. The experience of Russia and the other major emerging countries caught up in the ﬁnancial market crises of 1997–98 has informed IMF-led attempts to develop Codes and Standards (C&S) and measures for ﬁnancial crisis prevention and cure as part of a renewed ‘International Financial Architecture’ (IFA).2 Standards of good practice have been codiﬁed in Reports on the Observance of Standards and Codes (ROSCs). The IMF’s ‘Article IV’ report on Russia of July 2000 (made public by the Russian authorities in October 2000) referred to the fact that a ROSC had been completed. This paper begins with an overview of the state of the Russian economy against the background of the 1998 crisis and hence the systemic risks contained in the problems of Russia’s transition. This provides the necessary context for making sense both of detailed policy work related to the implementation of C&S and, in some areas, of the absence of any such work. In addition, the economic background is essential to distinguish the...
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