Russia’s Post-Stabilisation Decline, Crash and Revival (original) (raw)

[Real Effects of Exchange-Rate-Based Stabilization: An Analysis of Competing Theories]: Discussion

NBER Macroeconomics Annual, 1995

According to conventional wisdom, inflation can only be reduced at the cost of a short-term contraction in economic activity. Available evidence for industrial countries has been taken to support the notion that disinflation is contractionary (Gordon, 1982). The costs of disinflation are generally attributed to the presence of nominal contracts (Fischer, 1977; Taylor, 1980) and are thus expected to hold for open economies (Fischer, 1986). The last 15 years, however, have witnessed the emergence of a large body of evidence on the real effects of stabilization in high-inflation countries which clearly defies this conventional view.

Stabilization and Structural Change in Russia, 1992-94

IMF Working Papers, 1995

Macroeconomic stabilization and structural reforms in Russia since 1992 have been proceeding in a rather chaotic fashion. The Russian variety of economic gradualism has seen a sharp decline in output, though less than indicated by official statistics, and relatively resilient household consumption. Hyperinflation has been avoided so far by tightened financial policies, but remains a threat. Conventional macroeconomic wisdom on the relation between money, prices and output is relevant for Russia. Moreover, stabilization and structural change interact and are mutually reinforcing.

Give Macroeconomic Stability and Growth in Russia a Chance

The Economics of Transition, 2000

This paper identifies and investigates conceptual and empirical links among Russia's disappointing growth performance of the mid-1990s, its costly and eventually unsuccessful stabilization, the macroeconomic meltdown of 1998 and the spectacular rise of non-payments. Non-payments developed into a system that flourished in an atmosphere of fundamental inconsistency between a macroeconomic policy geared at sharp disinflation and a microeconomic policy of bailing-out enterprises through soft budget constraints. It embodies a large volume of untargeted, implicit subsidies in the order of 7-10 per cent of GDP, which has stifled growth, contributed to the 1998 meltdown through its impact on public debt and made at best a questionable contribution to equity. The overwhelming priority at this point is to dismantle this system, thereby promoting enterprise restructuring and growth (by hardening budget constraints) and medium-term macroeconomic stability (by reducing the size of the subsidies).

The Dollarization Curse: The Hard Peg Choices to Cure the Currency

Layal Mansour, 2021

Executive Summary Lebanon is one of the most highly dollarized countries in the world. The experience of the past two years of its multi-tiered economic crisis – already notorious as a crisis of historic proportions – leaves no doubt that any rescue attempt undertaken at this critical junction will need to hinge upon a solution to the problem of the Lebanese lira and its explosive depreciation over the past two years. It is a survival issue to design the exchange rate regime at the greatest possible speed and with the greatest possible diligence. In choosing the exchange rate regime, the main economic factors to consider are factors such as dollarization, government temptation to inflate (which is in line with the prediction of political economy theories), and exposure to exchange rate risks. Considering the implications of Lebanon’s extreme dollarization, which not only exceeds today a rate of 80 percent, but which also has for several decades been rooted in this country, is of utmost importance. Any exit strategy that seeks resolution of Lebanon’s economic crisis under-utilization of a soft pegged arrangement or flexible exchange rate regime will indubitably lead to a more severe financial crisis that could last forever, unless the country adopts a hard peg as a “normal next step following dollarization” [92]. The present report incorporates and builds upon economic-empirical research that economists, including scientists at the International Monetary Fund (IMF), have undertaken on exchange rate regimes, forms, and effects of each currency regime type. However, it is not a mere paper in the field of theoretical-academic economics as it takes into account the globally unique, institutional and political specificities of Lebanon in the past 50 years. In the first part of this paper, I discuss the pertinent aspects of dollarization, which plays a decisive but rarely discussed role in the genesis of the current crisis. This is followed by an examination of different de-dollarization scenarios and exchange rate regime options in part two, and my arguments for a hard peg last resort solution in part three. In the fourth part of this project, I played the devil advocate to ask critical questions that I have encountered in discussions of the currency crisis and in addressing the hard peg as last resort solution for Lebanon. The conclusion presents economic and behavioral arguments in condensed reiteration. In sum, this report represents a plea to urgently institute the most responsible currency regime for the sake of Lebanon. It aims to spread awareness of how incompatible and dangerous it could be for Lebanon to de-dollarize by adopting a floating exchange rate regime, as it is suggested by the IMF. The report stresses upon adopting a currency regime of a hard peg, and more precisely the currency board as the solution that best fits Lebanon’s dollarized economy, advocating for adoption of a currency board as the first step towards economic reforms and recovery. Layal Mansour, PhD

The Renminbi’s Dollar Peg at the Crossroads

2006

In the face of huge balance of payments surpluses and internal inflationary pressures, China has been in a classic conflict between internal and external balance under its dollar currency peg. Over the longer term, China’s large, modernizing, and diverse economy will need exchange rate flexibility and, eventually, convertibility with open capital markets. A feasible and attractive exit strategy from the essentially fixed RMB exchange rate would be a two-stage approach, consistent with the steps already taken since July 2005, but going beyond them. First, establish a limited trading band for the RMB relative to a basket of major trading partner currencies. Set the band so that it allows some initial revaluation of the RMB against the dollar, manage the basket rate within the band if necessary, and widen the band over time as domestic foreign exchange markets develop. Second, put on hold ad hoc measures of financial account liberalization. They will be less helpful for relieving exc...

Russia's Struggle with Stabilization: Conceptual Issues and Evidence

The World Bank Economic Review, 1994

The most important question aburt Russian economic reform is bow to avoid a collapse of Russia's nascent demecracy in the face of highly wistable political and economic conditions. The precanous situation could ii nrauei i a spiral of self-reinmforcig destructive responses: criminadly, regronal sep tm, tax evasion, and flght from the currency. A combination of monetay tightening, an early pegging of the ecchange rate, and large-se international assistce to support stabilizaton offers Russia the most reaistc cance of avoiding politica catastrophe. International assistace to Russia during the past three years has bee iadequate in amount and without a proper conceptua framework The artice offers a strategy for Rusi stabilization and Western assistance based on theoretical and empical analysis. Te concerns raised aply not only to Russia, but more generally to weak stes in acute fiancial crisis, for which the current methods of delivering aid are typically too slow and too oblivious of the risks of state collapse. R ussia faces at least three fundamental economic challenges. The first is to overcome the state insolvency that is a legacy of the defunct Soviet regime. The second is to establish a market system on the ruins of central planning. The third is to manage the profound problem of structural adjustment, as workers and resources move from heavy industry to light industry and services. And it must manage these three enormous tasks while attempting to consolidate democracy and transform itself from empire to nation-state. Any one of these economic tasks would challenge a society's stability and forbearance. The combination of all three is historically unprecedented in scale and extent. It is not surprising, therefore, that Russia has lived perilously close to hyperinflation and social instability during the first three years of post-Soviet reform and adjustment. This article discusses the design of macroeconomic policies that are most appropriate in the face of Russia's extreme economic crisis.