The Russian ruble has tanked this year to all-time lows, but crashing currencies are nothing new to the countries of the former Soviet bloc. Currency crises have been periodic and painful over the last 20 years, notes the International Monetary Fund (IMF) in a report looking back on the last 25 years of transition, released in October to coincide with the anniversary of the fall of the Berlin Wall.
The latter part of the 1990s was a period of major crises in emerging markets, from Mexico in 1994–95, through to Asia in 1997, and leading to Argentina in 2001.
Emerging European economies were also highly vulnerable in this environment, with macroeconomic stability not fully secured, nascent market institutions and fragile financial systems. And indeed many of the countries that had progressed less in establishing robust market-based frameworks succumbed, first in a number of individual crises, and then in the wake of the systematic case of Russia in 1998.
"However, these crises (several of which involved calls on the IMF for financial assistance) resulted in most countries learning from the experience, and exiting the period determined to follow policies that would reduce their exposure to such risk—laying the ground for the period of growth that followed," the IMF wrote in the report released in October.
Like in 1998, the global crash of 2008 has affected everyone. The fall of the Russian ruble has been in focus, but the Kazakhs devalued the tenge at the start of this year, Belarus has devalued its ruble twice in the last two years, and the Ukrainian hryvna has lost more than 40% of its value since the start of this year in its worst devaluation on record.
The main difference between the currency falls this time round versus those in the last crisis a decade ago is that central banks have been much more willing to allow their currencies to fall, as few are still using currency boards or pegged exchange rates. Devaluation hurts, but preserving reserves and the beneficial effects of cheap currencies will (hopefully) allow these economies to bounce back that much more quickly than before.
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