PRINCETON – Russia’s current crisis, particularly the collapse of the ruble, reveals the fragility not only of the Russian economy, but also of the existing international order and the foundations of contemporary thinking about economic and political sustainability. Indeed, Russia’s crisis was never supposed to happen – and its growing isolation gives it little stake in existing mechanisms of global governance.
After the Latin American debt crisis of the 1980s and the Asian financial crisis of 1997-98 (which also affected Russia), emerging economies were determined to figure out how to avoid repeating that experience. They identified three keys to managing the perils of modern financial globalization: a large cushion of reserves to stave off speculative attacks; avoidance of large current-account deficits (with surpluses used to accumulate reserves); and low external public and private debt.
Moreover, the emerging economies took governance lessons, recognizing the imperative of improving transparency and reducing corruption. And policymakers and financial institutions devoted considerable attention to determining what might constitute warning indicators.
Before 2014, Russia was performing well by all of these criteria. There were no warning signs. In 2013, the public sector’s external debt amounted to a mere 3.8% of GDP, and private-sector external debt totaled a reasonable 30.2% of GDP. Last spring, the country’s foreign reserves amounted to a healthy $472 billion, helped by a substantial current-account surplus; and, according to the Central Bank of Russia, the country’s total foreign assets stood at $1.4 trillion, exceeding its liabilities of $1.2 trillion.