World Bank's view on Russia’s 1998 financial crisis

The economic crisis in 1998 struck in August, bringing Russia’s banking and financial system down. Business Today met with Michael Carter, the head of the World Bank in Russia at the time, for his thoughts on the events.

“I came back to Moscow on the 16th of August and on the 17th it all happened.  I have to say I can’t say I was surprised. I was surprised that it was so quick. The crisis of 1998 in some respects was one of the best things that happened to Russia, well because it dealt with the two fundamental problems that were really strangling the Russian economy before the crisis.  One was the lack of fiscal adjustment which was increasing Russia’s indebtedness at a terrifying rate, and related to that was the exchange rate which was seriously overvalued because the financing for the deficit was coming from abroad.” 

Business Today correspondent, Zinaida Medvedeva, asked about a tranche of $22 billion, and what happened to the money?

“A whole package of $22.6 billion dollars was put together, of which the World Bank was to provide $6 billion, but only $1.5 billion was committed at that time, and we made a loan in very early August 1998.  And of that $1.5 billion we only dispersed $300 million. The IMF, of course, dispersed much more.  They dispersed $4.6 billion, I think it was, and there was a big question of what happened to the $4.6 billion.  Well the $4.6 billion went into the foreign exchange markets in an attempt to defend the rouble, which was unsuccessful.”

Zinaida Medvedeva then asked Carter about what he thought were the major mistakes and achievements of the World Bank  in the situation.

“As far as the Bank was concerned we could have been earlier in our analysis of the structural problems.  And I think that the fund was in a very difficult position.  But in a way crisis, looking back on it, was not unavoidable, but was highly likely, because the complexity of the reforms needed was simply enormous.”