The Russian Financial Crisis and its Consequences for Central Asia

IMF Working Papers, October 1, 2001

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The Russian Financial Crisis and its Consequences for Central Asia

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Bibliographic details

• Authors: Gonzalo C Pastor Campos, Tatiana Damjanovic
• Published: October 1, 2001
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451858341.001

Summary and main conclusion

• Reviews economic conditions in central Asia at the time of the Russian financial crisis of August 1998; the channels by which the crisis was transmitted to the central Asian region; and the policy responses.
• Concludes that:
  • Real exchange rates of central Asian national currencies vis-à-vis the Russian ruble have returned to their pre-crisis levels following the nominal devaluations that ensued.
  • Other indicators of external competitiveness, such as unit labor cost indices, suggest the need for further surveillance.
  • It is not yet clear if full exchange rate flexibility has been established in central Asia despite the protracted and costly exits from the nominal exchange rates in place at the time of the crisis.
  • Debt-to-GDP ratios in central Asia grew rapidly between 1998 and 1999 in the context of large exchange rate adjustments and remain a challenge for the Tajik and Kyrgyz authorities, in particular.

Channels of transmission to Central Asia

• The paper examines the mechanisms by which the August 1998 Russian financial crisis affected central Asian economies (description in the full paper).

Exchange rate behavior and competitiveness

• Key findings:
  • Nominal devaluations occurred in central Asian currencies following the Russian crisis.
  • Real exchange rates vis-à-vis the Russian ruble returned to pre-crisis levels.
  • Unit labor cost indices and other indicators point to potential remaining competitiveness problems vis-à-vis Russia.
  • Uncertainty remains about whether full exchange rate flexibility has been achieved in central Asia after exiting prior nominal exchange rate arrangements.

External debt and fiscal implications

• Key findings:
  • Debt-to-GDP ratios in central Asia increased rapidly between 1998 and 1999 amid large exchange rate adjustments.
  • The elevated debt burden is identified as a particular challenge for Tajikistan and the Kyrgyz Republic.

Policy responses and surveillance implications

• Policy implications emphasized:
  • Continued surveillance of external competitiveness indicators (including unit labor cost indices) is warranted.
  • Monitoring of exchange rate regimes and progress toward genuine exchange rate flexibility is necessary.
  • Addressing rising debt-to-GDP ratios, especially for Tajikistan and the Kyrgyz Republic, is a priority for authorities.

Content in this bundle

• The Russian Financial Crisis and its Consequences for Central Asia - WP/01/169
  • The Russian Financial Crisis and its Consequences for Central Asia - WP/01/169 (Markdown version)
  • The Russian Financial Crisis and its Consequences for Central Asia - WP/01/169 (PDF)