ABSTRACT
The Asian financial crisis started in July 1997 with a speculative attack on the currency of Thailand. Although at first it was Russia that suffered from the effects of the Asian financial crisis, after the dramatic events of 17 August 1998 it was Russia that became a major cause of uncertainty in emerging markets. (On 13 January 1999 Brazil devalued its currency.)
The Asian crisis hit Russia in October 1997 (RET, Monthly Update, 5 June 1998, p. 1). Russia has suffered from a financial crisis since late October 1997 (Anders Åslund, The World Today, July 1998, vol. 54, no. 7. pp. 185). ‘The authorities in Russia successfully defended the exchange rate in late October/November 1997, and again in January 1998, by raising interest rates sharply’ (John Odling-Smee, Director of the IMF’s European II Department, Finance and Development, 1998, vol. 35, no. 3, p. 16). A combination of factors drove interest rates to dramatic heights in May 1998. Near the end of May they had risen to 150 per cent. (‘The flight of non-residents from government GKOs and the rouble could not be stopped despite a hike of the central bank interest rate to 150 per cent in June 1998’: Desai 2000: 50. On 14 August 1998 the yield on GKOs reached 144.9 per cent: Kharas et al. 2001: 38.) Factors behind the rise in interest rates included the following:
1 The government’s determination to defend the rouble on foreign exchange markets.
