The Petroleum Export Bonanza
The 1998 financial crisis hit Russia hard. There were obvious signs that the Russian fiscal system was in desperate shape, but at the time, few saw that a collapse was eminent.1 Indeed, the almost universal conventional wisdom was that Russia had successfully managed its transition from Communist central planning to market capitalism and that the future was bright. Many had come to believe that Russia had become the next Klondike. They urged investors to put in their money before share prices rose even higher! Only fools and anti-Sovietchiks could think otherwise. Typical were studies such as Anders Aslund’s How Russia Became a Market Economy, published in 1995, and Richard Layard and John Parker’s The Coming Russian Boom, published in 1996. Both appeared just in time for investors to buy in before the financial crash that followed shortly thereafter in August 1998.2 While the economy and its stock market have recovered significantly since then, there were many as we shall see who took their advice at the time and lost considerable sums as a result—in several cases, hundreds of millions of dollars.
It was easy to be misled. Bullish signs were everywhere. By October 6, 1997, the RTS index, the Dow Jones Index of the Russian Exchange,