The global economy, reform and crisis in Russia

Russian economic reformers of the early 1990s believed that integration with the global economy would facilitate the construction of a market economy and the reconstruction of the Russian state by helping to break down economic interests inherited from the USSR. However, the global economy did not act as an agent of transformation in Russia. Russia’s reintegration with the global economy became narrowly focused on the sale of treasury bills to finance the budget deficit as attempts to stabilize state finances in 1996-7 made Russian financial markets attractive to foreign investors. There was, however, no underlying change in the government’s economic fortunes and attempts at stabilizing state finances engendered political conflict. As a result, Russia was exposed to changes in world markets and the rouble collapsed in August 1998. The devastation of the Russian economy as a consequence of these developments means that the Russian state is the only force that can lead reform. However, it is in such a weak position that its ability to act as an agent of change is doubtful.