The Two Financial Crises In Russia: Background, Causes And Economic Impact

Since the time of economic transition, Russian economy experienced two major financial crises. Comparing with China, which is also going through a transition toward market economy, there is one important difference:the two crises did not directly affect Chinese economy, and more than that, improved its influence on the world economy. As for Russia itself, studying the two crises backgrounds, causes, its effect on economy and response measures helps to understand the progress and effectiveness of economic restructuring, and is very important for predicting new crises and reacting to them.The main topic of this thesis is two financial crises in Russia. The author compares their economic backgrounds, main reasons and effects on Russian economy, in order to summarize and evaluate the economic transition, especially 10 years of economic progress from 1998 to 2008, and find the ways develop economy and to prevent future crises.The author analyses the differences in macroeconomic backgrounds, causes, transmission mechanisms, effect on economy and response measures of 1998 and 2008 Russian crises. The main methods of analysis in the thesis are comparison and logical deduction. The structure of the thesis is the following:In chapter one, the author describes the questions to be analyzed in the thesis, significance of the topic and purpose of study, structure of the thesis and method of study, and finally, the point of view of Russian and Chinese economists on the question of Russian financial crises of 1998 and 2008. In chapter two, the author compares macroeconomic backgrounds of the two financial crises. In chapter three, the causes of the two crises are being compared. In chapter four, the author compares economic effect of the two crises on Russian economy. Chapter five is a summary with some policy suggestions on how to recover the Russian economy from the latest crisis.The main conclusions of the thesis are the following:Firstly, natural oil is still the lifeblood of Russian economy. Both crises are accompanied by drop in oil prices. Therefore, some economists introduced a "theory of oil control", they consider that USA is restraining the rise of China using high oil prices, and is suppressing the revival of Russia using low oil prices. They believe, that international community is not looking forward to seeing strong Russia. The question of "the great American pitfall" is becoming real, and more and more people are becoming interested in this topic. The "pitfall" includes US dollar hegemony, oil pricing, financial traps, Orange Revolution, etc, in any case, Russia (including China) is recovering and developing not in the condition of good care and assistance.Secondly, the structure of Russian economy did not change in the last 10 years. Even though Russian people and government leaders have realized that they cannot let the country become "raw materials appendage", and need to develop innovation, but probably because of high oil prices and lack of time, we can see that economic development and financial revenue of Russia are highly correlated with world oil prices, which makes Russian economy very vulnerable.Thirdly, practice once again proved, that developing countries and countries with economies in transition lack experience, therefore they should treat financial openness and liberalization carefully in order not to harm the economy. In the process of financial liberalization, banks are getting easier access to foreign liquidity, which creates conditions for credit expansion. If in this case banking system has to be absolutely healthy and have efficient regulations, in order to resist risks, created by inflow of international capital. But Russia's poor management of credit institutions, relatively weak bank internal controls, lack of rigorous evaluation and risk assessment system proceeds, resulted in misallocation of credit funds, capital flow toward high-risk sectors, thus increasing the bank's bad assets.Finally, the article makes policy recommendations on promotion of employment, reinforcement of social security, active role of government finance, supporting the real economy sector, etc.