Publication: Financial Globalization and the Russian Crisis of 1998
Loading...
Published
2010-05-01
ISSN
Date
2012-03-19
Author(s)
Editor(s)
Abstract
Russia had more-or-less completed the privatization of its manufacturing and natural resource sectors by the end of 1997. And in February 1998, the annual inflation rate at last dipped into the single digits. Privatization should have helped with stronger micro-foundations for growth. The conquest of inflation should have cemented macroeconomic credibility, lowered real interest rates, and spurred investment. Instead, Russia suffered a massive public debt-exchange rate-banking crisis just six months later, in August 1998. In showing how this turn of events unfolded, the authors focus on the interaction among Russia's deteriorating fiscal fundamentals, its weak micro-foundations of growth and financial globalization. They argue that the expectation of a large official bailout in the final 10 weeks before the meltdown played an important role, with Russia's external debt increasing by $16 billion or 8 percent of post-crisis gross domestic product during this time. The lessons and insights extracted from the 1998 Russian crisis are of general applicability, oil and geopolitics notwithstanding. These include a discussion of when financial globalization might actually hurt and a cutoff in market access might actually help; circumstances in which an official bailout could backfire; and why financial engineering tends to fail when fiscal solvency problems are present.
Link to Data Set
Citation
“Pinto, Brian; Ulatov, Sergei. 2010. Financial Globalization and the Russian Crisis of 1998. Policy Research working paper ; no. WPS 5312. © World Bank. http://hdl.handle.net/10986/3797 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Publication The Economic Value of Weather Forecasts: A Quantitative Systematic Literature Review(Washington, DC: World Bank, 2025-09-10)This study systematically reviews the literature that quantifies the economic benefits of weather observations and forecasts in four weather-dependent economic sectors: agriculture, energy, transport, and disaster-risk management. The review covers 175 peer-reviewed journal articles and 15 policy reports. Findings show that the literature is concentrated in high-income countries and most studies use theoretical models, followed by observational and then experimental research designs. Forecast horizons studied, meteorological variables and services, and monetization techniques vary markedly by sector. Estimated benefits even within specific subsectors span several orders of magnitude and broad uncertainty ranges. An econometric meta-analysis suggests that theoretical studies and studies in richer countries tend to report significantly larger values. Barriers that hinder value realization are identified on both the provider and user sides, with inadequate relevance, weak dissemination, and limited ability to act recurring across sectors. Policy reports rely heavily on back-of-the-envelope or recursive benefit-transfer estimates, rather than on the methods and results of the peer-reviewed literature, revealing a science-to-policy gap. These findings suggest substantial socioeconomic potential of hydrometeorological services around the world, but also knowledge gaps that require more valuation studies focusing on low- and middle-income countries, addressing provider- and user-side barriers and employing rigorous empirical valuation methods to complement and validate theoretical models.Publication Direct and Indirect Impacts of Transport Mobility on Access to Jobs: Evidence from South Africa(Washington, DC: World Bank, 2025-11-12)Access to jobs is essential for economic growth. In Africa, unemployment rates are notably high. This paper reexamines the relationship between transport mobility and labor market outcomes, with a particular focus on the direct and indirect effects of transport connectivity. As predicted by theory, wages are influenced by the level of commuting deterrence. Generally, higher earnings are associated with longer commute times and/or higher commuting costs. Local accessibility is also important, especially for individuals with time constraints. Both direct and indirect impacts are found to be significant in South Africa, where job accessibility has been challenging since the end of apartheid. For the direct impact, the wage elasticity associated with commuting costs is significant. Returns on commute are particularly high for women. Local accessibility to socioeconomic facilities, such as shops and health services, is also found to have a significant impact, consistent with the concept of mobility of care. To enhance employment, therefore, it is crucial to connect people not only to job locations but also to various socioeconomic points of interest, such as markets and hospitals, in an integrated manner. This integration will enable individuals to spend more time working and commuting longer distances.Publication The Macroeconomic Implications of Climate Change Impacts and Adaptation Options(Washington, DC: World Bank, 2025-05-29)Estimating the macroeconomic implications of climate change impacts and adaptation options is a topic of intense research. This paper presents a framework in the World Bank's macrostructural model to assess climate-related damages. This approach has been used in many Country Climate and Development Reports, a World Bank diagnostic that identifies priorities to ensure continued development in spite of climate change and climate policy objectives. The methodology captures a set of impact channels through which climate change affects the economy by (1) connecting a set of biophysical models to the macroeconomic model and (2) exploring a set of development and climate scenarios. The paper summarizes the results for five countries, highlighting the sources and magnitudes of their vulnerability --- with estimated gross domestic product losses in 2050 exceeding 10 percent of gross domestic product in some countries and scenarios, although only a small set of impact channels is included. The paper also presents estimates of the macroeconomic gains from sector-level adaptation interventions, considering their upfront costs and avoided climate impacts and finding significant net gross domestic product gains from adaptation opportunities identified in the Country Climate and Development Reports. Finally, the paper discusses the limits of current modeling approaches, and their complementarity with empirical approaches based on historical data series. The integrated modeling approach proposed in this paper can inform policymakers as they make proactive decisions on climate change adaptation and resilience.Publication From Policy to Practice: Lessons from the Implementation of the Refugee Work Rights Policy in Ethiopia(Washington, DC: World Bank, 2025-11-10)This paper examines the early implementation of Ethiopia’s refugee work rights policy, with a focus on the issuance of permits that enable refugees to engage in economic activities. Building on significant legal and institutional advances under the 2019 Refugee Proclamation and subsequent directives, the analysis explores how these reforms are being operationalized in practice. Using a mixed-methods approach, combining document review, administrative data analysis, and semi-structured interviews, the paper identifies both progress and remaining challenges. Permit issuance has increased since the adoption of detailed operational guidance in 2024, reflecting the Government of Ethiopia’s commitment to operationalizing its progressive legal framework and ensuring that refugees can exercise their right to work. However, take-up remains modest, with about 5.2 percent of the working-age population holding a permit. Preliminary evidence suggests that coordination gaps, limited subnational capacity, low awareness among refugees and employers, and disincentives to formalize in a largely informal labor market are contributing to the low take-up. The paper offers policy suggestions, grounded in the Ethiopian context and emerging evidence, to help translate legal commitments into improved labor market outcomes for refugees.Publication Monitoring Global Aid Flows: A Novel Approach Using Large Language Models(Washington, DC: World Bank, 2025-11-04)Effective monitoring of development aid is the foundation for assessing the alignment of flows with their intended development objectives. Existing reporting systems, such as the Organisation for Economic Co-operation and Development’s Creditor Reporting System, provide standardized classification of aid activities but have limitations when it comes to capturing new areas like climate change, digitalization, and other cross-cutting themes. This paper proposes a bottom-up, unsupervised machine learning framework that leverages textual descriptions of aid projects to generate highly granular activity clusters. Using the 2021 Creditor Reporting System data set of nearly 400,000 records, the model produces 841 clusters, which are then grouped into 80 subsectors. These clusters reveal 36 emerging aid areas not tracked in the current Creditor Reporting System taxonomy, allow unpacking of “multi-sectoral” and “sector not specified” classifications, and enable estimation of flows to new themes, including World Bank Global Challenge Programs, International Development Association–20 Special Themes, and Cross-Cutting Issues. Validation against both Creditor Reporting System benchmarks and International Development Association commitment data demonstrates robustness. This approach illustrates how machine learning and the new advances in large language models can enhance the monitoring of global aid flows and inform future improvements in aid classification and reporting. It offers a useful tool that can support more responsive and evidence-based decision-making, helping to better align resources with evolving development priorities.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Unconventional Monetary Policy Normalization in High-Income Countries : Implications for Emerging Market Capital Flows and Crisis Risks(World Bank, Washington, DC, 2014-04)As the recovery in high-income countries firms amid a gradual withdrawal of extraordinary monetary stimulus, developing countries can expect stronger demand for their exports as global trade regains momentum, but also rising interest rates and potentially weaker capital inflows. This paper assesses the implications of a normalization of policy and activity in high-income countries for financial flows and crisis risks in developing countries. In the most likely scenario, a relatively orderly process of normalization would imply a slowdown in capital inflows amounting to 0.6 percent of developing-country GDP between 2013 and 2016, driven in particular by weaker portfolio investments. However, the risk of more abrupt adjustments remains significant, especially if increased market volatility accompanies the unwinding of unprecedented central bank interventions. According to simulations, abrupt changes in market expectations, resulting in global bond yields increasing by 100 to 200 basis points within a couple of quarters, could lead to a sharp reduction in capital inflows to developing countries by between 50 and 80 percent for several months. Evidence from past banking crises suggests that countries having seen a substantial expansion of domestic credit over the past five years, deteriorating current account balances, high levels of foreign and short-term debt, and over-valued exchange rates could be more at risk in current circumstances. Countries with adequate policy buffers and investor confidence may be able to rely on market mechanisms and countercyclical macroeconomic and prudential policies to deal with a retrenchment of foreign capital. In other cases, where the scope for maneuver is more limited, countries may be forced to tighten fiscal and monetary policy to reduce financing needs and attract additional inflows.Publication World Bank East Asia and Pacific Economic Update 2011, Volume 2 : Navigating Turbulence, Sustaining Growth(Washington, DC, 2011-11)Growth in developing East Asia in the first half of 2011 remained strong, but continued to moderate, mainly due to weakening external demand. Global growth was also affected by supply shocks from geopolitical disturbances in the Middle East, supply chain disruptions following the earthquake and tsunami in Japan, and a slower-than-expected recovery of private demand in crisis-affected countries. More recently, uncertainties over fiscal sustainability in the U.S. and sovereign debt in the Euro zone fed financial volatility and affected investor and consumer sentiment. Domestic demand in East Asian economies has also been softening, driven by the normalization of fiscal and monetary policy, although it remained robust and the largest contributor to growth. We project that real Gross Domestic Product(GDP) in developing East Asia will increase by 8.2 percent in 2011 (4.7 percent excluding China), while growth will slow to 7.8 percent in 2012. Risks are on the downside, however. Based on the still robust current growth projections, the proportion of people living on less than US$2 a day in developing East Asia is expected to decrease to about 24 percent in 2011, down two percentage points from 2010, and an estimated 38 million people are projected to move out of poverty. However, poverty reduction efforts would be hampered in the event of another sudden increase in food prices against a backdrop of slowing income growth. In the short- to medium-term, East Asia's growth prospects are constrained by global uncertainty and by the impact of natural disasters. The slow progress towards resolution of debt problems in the Euro zone intensified investors' concerns over global growth and stability. As capital flowed out of emerging markets into relatively safer havens, portfolio investments reversed and stock markets lost value in East Asia. Markets remain jittery, even after the Euro zone countries agreed on a solution for the sovereign debt and banking problems. Fiscal and financial consolidation in the Euro zone is likely to reduce growth in Europe, and could lead to renewed financial outflows from East Asia as banks shore up their capital coverage. Credit outstanding from European banks to developing East Asia amounts to US$427 billion, or six percent of GDP. But high reserves and current account surpluses protect most East Asian countries against the impact of possible renewed financial stress.Publication Global Economic Prospects : Financial Markets Outlook, June 2014(World Bank Group, Washington, DC, 2014-06)External financing conditions for developing countries have been remarkably favorable in recent months, reflecting expectations of a more drawn-out period of monetary policy accommodation in high-income countries and some narrowing of external vulnerabilities. Additional easing by the European Central Bank, combined with prospects of modest growth and stable inflation in the United States ( Goldilocks recovery ), helped pull down bond yields and volatility worldwide. These benign conditions currently provide support to capital inflows and activity across developing countries, but could at the same time increase the risk of greater and potentially more abrupt market adjustments ahead. Despite some reduction of current account deficits in several developing countries, many remain vulnerable to sudden shifts in investors sentiment and capital outflows. Following a brief period of market turmoil at the start of the year, global financing conditions have eased consider-ably from March to June. Bond spreads for developing countries (i.e. yield difference with 10-year U.S. Treasury bonds) have narrowed, bringing down average borrowing costs to their lowest level since the spring of 2013. Stock markets have also recovered rapidly from a significant sell-off in January/February, despite rising geopolitical tensions and evidence of disappointing activity in the first quarter of the year. As presented in the June 2014 edition of Global Economic Prospects, a more favorable global environment is reflected in upward revisions to capital inflow forecasts for developing countries, now projected to remain broad-ly stable as a percentage of GDP in 2014 and 2015, at around 5.6 percent, before declining again in 2016, to 5.1 percent. While baseline forecasts assume an orderly in-crease in long-term interest rates in high-income countries, the risk of more abrupt adjustments from current low levels has recently increased. Escalating geopolitical tensions or financial stress in some developing countries could also potentially trigger a sudden re-pricing of risk. Despite the recent narrowing of current account deficits in some developing countries, many remain vulnerable to a sharp increase in borrowing costs and/or significant currency depreciations, which could put additional strain on corporate and bank balance sheets.Publication Global Development Finance 2006 : The Development Potential of Surging Capital Flows, Volume 1. Review, Analysis, and Outlook(2006)Global Development Finance is the World Bank's annual review of global financial conditions facing developing countries. The current volume provides analysis of key trends and prospects, including coverage of capital originating from developing countries themselves. Robust global growth and a favorable financing environment provided the context for a record expansion of private capital flows to developing countries in 2005. Many low-income countries still have little or no access to international private capital, and instead depend largely on official finance from bilateral and multilateral creditors to support their development objectives. Capital flows are changing due to financial integration among developing countries, financial innovations, domestic debt markets, and the global role of the Euro. Net official flows continue to decline as official lending falls and there is more aid and debt relief for the poorest countries. To ensure economic stability, developing countries must manage capital flows with effective macroeconomic policies, prudent accumulation of reserves, careful management of oil-export revenues, and improvements in standards for the corporate sector.Publication Global Development Finance 2008 : The Role of International Banking, Volume 1. Review, Analysis, and Outlook(2008)This report is comprised of two volumes. Global Development Finance (GDF) 2008 volume one provides analysis of key trends and prospects, including coverage of the role of international banking in developing countries. Volume two provides summary and country tables contain statistical tables on the external debt of the 134 countries that report public and publicly guaranteed debt under the Debtor Reporting System (DRS). It also includes tables of selected debt and resource flow statistics for individual reporting countries as well as summary tables for regional and income groups. It is the culmination of a year-long process that requires extensive cooperation from people and organizations around the globe-national central banks, ministries of finance, major multilateral organizations, and many departments of the World Bank.
Users also downloaded
Showing related downloaded files
Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication Digital Progress and Trends Report 2023(Washington, DC: World Bank, 2024-03-05)Digitalization is the transformational opportunity of our time. The digital sector has become a powerhouse of innovation, economic growth, and job creation. Value added in the IT services sector grew at 8 percent annually during 2000–22, nearly twice as fast as the global economy. Employment growth in IT services reached 7 percent annually, six times higher than total employment growth. The diffusion and adoption of digital technologies are just as critical as their invention. Digital uptake has accelerated since the COVID-19 pandemic, with 1.5 billion new internet users added from 2018 to 2022. The share of firms investing in digital solutions around the world has more than doubled from 2020 to 2022. Low-income countries, vulnerable populations, and small firms, however, have been falling behind, while transformative digital innovations such as artificial intelligence (AI) have been accelerating in higher-income countries. Although more than 90 percent of the population in high-income countries was online in 2022, only one in four people in low-income countries used the internet, and the speed of their connection was typically only a small fraction of that in wealthier countries. As businesses in technologically advanced countries integrate generative AI into their products and services, less than half of the businesses in many low- and middle-income countries have an internet connection. The growing digital divide is exacerbating the poverty and productivity gaps between richer and poorer economies. The Digital Progress and Trends Report series will track global digitalization progress and highlight policy trends, debates, and implications for low- and middle-income countries. The series adds to the global efforts to study the progress and trends of digitalization in two main ways: · By compiling, curating, and analyzing data from diverse sources to present a comprehensive picture of digitalization in low- and middle-income countries, including in-depth analyses on understudied topics. · By developing insights on policy opportunities, challenges, and debates and reflecting the perspectives of various stakeholders and the World Bank’s operational experiences. This report, the first in the series, aims to inform evidence-based policy making and motivate action among internal and external audiences and stakeholders. The report will bring global attention to high-performing countries that have valuable experience to share as well as to areas where efforts will need to be redoubled.Publication The Container Port Performance Index 2023(Washington, DC: World Bank, 2024-07-18)The Container Port Performance Index (CPPI) measures the time container ships spend in port, making it an important point of reference for stakeholders in the global economy. These stakeholders include port authorities and operators, national governments, supranational organizations, development agencies, and other public and private players in trade and logistics. The index highlights where vessel time in container ports could be improved. Streamlining these processes would benefit all parties involved, including shipping lines, national governments, and consumers. This fourth edition of the CPPI relies on data from 405 container ports with at least 24 container ship port calls in the calendar year 2023. As in earlier editions of the CPPI, the ranking employs two different methodological approaches: an administrative (technical) approach and a statistical approach (using matrix factorization). Combining these two approaches ensures that the overall ranking of container ports reflects actual port performance as closely as possible while also being statistically robust. The CPPI methodology assesses the sequential steps of a container ship port call. ‘Total port hours’ refers to the total time elapsed from the moment a ship arrives at the port until the vessel leaves the berth after completing its cargo operations. The CPPI uses time as an indicator because time is very important to shipping lines, ports, and the entire logistics chain. However, time, as captured by the CPPI, is not the only way to measure port efficiency, so it does not tell the entire story of a port’s performance. Factors that can influence the time vessels spend in ports can be location-specific and under the port’s control (endogenous) or external and beyond the control of the port (exogenous). The CPPI measures time spent in container ports, strictly based on quantitative data only, which do not reveal the underlying factors or root causes of extended port times. A detailed port-specific diagnostic would be required to assess the contribution of underlying factors to the time a vessel spends in port. A very low ranking or a significant change in ranking may warrant special attention, for which the World Bank generally recommends a detailed diagnostic.