Russia's Struggle with Stabilization: Conceptual Issues and Evidence

The most important question about Russian economic reform is how to avoid a collapse of Russia's nascent democracy in the face of highly unstable political and economic conditions. The precarious situation could unravel in a spiral of self-reinforcing destructive responses: criminality, regional separatism, tax evasion, and flight from the currency. A combination of monetary tightening, an early pegging of the exchange rate, and large-scale international assistance to support stabilization offers Russia the most realistic chance of avoiding political catastrophe. International assistance to Russia during the past three years has been inadequate in amount and without a proper conceptual framework. The article offers a strategy for Russian stabilization and Western assistance based on theoretical and empirical analysis. The concerns raised apply not only to Russia, but more generally to weak states in acute financial crisis, for which the current methods of delivering aid are typically too slow and too oblivious of the risks of state collapse.