A SUPPLEMENT TO EUROMONEY/JANUARY 1998: RUSSIA
During the early tremors in Asia's financial markets, bankers and fund managers in Moscow stuck their heads in the sand, hoping against experience that the problems had nothing to do with Russia. When the tremors became an earthquake, the complacency in Moscow proved brittle indeed: equity and bond prices tumbled and another round of spiralling interest-rate rises seemed inevitable. Some investors in Moscow had their gains for the year halved, others barely broke even, some lost everything.
The vulnerability of Russia to a crisis in Asia did at least prove that, for better or worse, the country was integrated into the global economy. Asia's travails raised the world price of capital. In response the authorities in Russia had to raise interest rates, which in turn shattered confidence in the equity market.
By the beginning of December some $5 billion had already haemorrhaged from the government securities' (GKO) market. The outflow of money was partly stemmed by Central Bank of Russia regulations requiring foreigners investing in GKOs to enter into futures contracts. But once the mid-December deadline for converting roubles into dollars was reached the exodus of foreign money began again with renewed urgency.