Soviet Style History in the New York Times
Today’s article on the G-8 summit in St. Petersburg included a passing reference that described Russia’s 7-year long economic recovery as “oil-fueled.” Well, the rise in oil prices certainly has helped Russia over this period, but it is probably at least as important that Russia abandoned the economic straightjacket that had been imposed on it by the I.M.F. and then U.S. Treasury Secretary Robert Rubin (with help from his deputy Larry Summers).
Until the summer of 1998, Russia had tied its currency to the dollar. In order to sustain this link, it was forced to raise interest rates to ever higher levels. The over-valued ruble, coupled with high interest rates, was strangling Russia’s economy, bringing growth to a halt. The I.M.F. and the U.S. Treasury both insisted that Russia maintain the link to the dollar at all costs.
This eventually proved impossible, and the Russian government allowed its currency to float and deferred payment on its foreign debt. The pundits and the media pronounced this to be a disaster and insisted that Russia’s economy would crumble. (Read Rubin’s book to get the consensus opinion.)
There was a financial collapse, and Russia’s economy did tumble downward for the rest of the year. But by the beginning of 1999, Russia’s economy began to grow again and has been growing rapidly ever since. In this case, the real danger was the medicine coming the I.M.F. and U.S. Treasury. Once Russia began to ignore their recommendations, its economy performed quite well.