Russian Debt Crisis: Fear Not Your Debt, But Fundamentals

DEBT, DEFAULT AND IRELAND: ESSAYS ON THE IRISH CRISIS, Brian M. Lucey, Constantin Gurdgiev, Charles Larkin, eds., Blackwell Publishers, April 2012

15 Pages Posted: 16 Jan 2012  

Constantin Gurdgiev

Trinity College, Dublin; Middlebury Institute of International Studies at Monterey (MIIS)

Date Written: January 1, 2012

Abstract

In 1998, following some 10 years of structural reforms that began during the late Soviet era under the Perestroika processes and continued after the collapse of the USSR, Russia has recorded its first year of economic growth. Then, with virtually no advanced warning, by the of August 1998, Russia found itself in a financial pariah state position, having defaulted on foreign-held sovereign debt, devalued its currency, imposed strict capital controls and bankrupted a large number of domestic firms. Long-evolving sovereign crisis, having morphed into a fast-moving currency and banking crisis, has left deep scars on socio-economic environment.

Despite the dramatic disruption caused by the crisis, Russian economy staged an impressively swift comeback. The pain of the immediate crisis aftermath lasted relatively brief period of time - ca. 6 months - and the economy was able to rebound quickly and sharply. A decade-long economic boom followed the painful adjustments.

This historically unprecedented experience offers interesting insights and important lessons for European crisis, and in particular for Ireland, as it highlights the overall importance of growth dynamics in determining the sustainability of post-default or post-debt restructuring adjustment path. Although in the Russian case, growth dynamics were driven by a combination of domestic and foreign factors not open to the Euro area member states today, from the point of view of the impacted states with strong potential growth fundamentals, such as Ireland, the lessons from Russian default present a hope for some significant upside potential for swiftly resolving debt overhang problems via a structured default or restructuring.

Keywords: Russian Crisis 1998, Debt Crisis, Debt Overhang, Euro Area Crisis, Eurozone Crisis, Default

JEL Classification: E42, E44, E52, E58, E62, E63, E65, F32, F33, F34, F36, F42

Suggested Citation

Gurdgiev, Constantin, Russian Debt Crisis: Fear Not Your Debt, But Fundamentals (January 1, 2012). DEBT, DEFAULT AND IRELAND: ESSAYS ON THE IRISH CRISIS, Brian M. Lucey, Constantin Gurdgiev, Charles Larkin, eds., Blackwell Publishers, April 2012. Available at SSRN: https://ssrn.com/abstract=1985618

Constantin Gurdgiev (Contact Author)

Trinity College, Dublin ( email )

Trinity College
Dublin 2

Middlebury Institute of International Studies at Monterey (MIIS) ( email )

460 Pierce St
Monterey, CA 93940
United States

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