ent survived financially, until recently, by accruing ever growing debt and government nonpayment of fiscal obligations to workers, soldiers, and others. These practices masked the weaknesses in the government’s ability to rein in subsidies and raise revenues. It managed to continue as long as investors were willing to renew short-term debt. But the Asian financial problems and other factors created uncertainty in emerging capital markets on the part of investors, and slumping oil prices made hard currency revenues scarcer, bringing the crisis to a head. Russian “infection”, spreading the neighboring countriesAs for Russia’s impact on the rest of eastern Europe, the fallout has been quickest to hit banks, notably in the Baltic states, and stock markets, with Hungary’s liquid bourse taking the worst pounding. But financial market contagion was not the real evil to the region; the genuine menace lied in the economic impact of ruble and Russian recession. Take the little Caucasian republic of Armenia, for example. Although Armenia has made good progress in recent years in strengthening trade links with Iran, Russia remains Armenia’s dominant economic partner. That’s true of actual trade, and the supply of credits, and joint projects. In addition, there are hundreds of thousands of Armenians now living in Russia working unofficially. They send back millions of rubles in wages to their families at home. It’s obvious then that Armenia had direct impact of catastrophe in Russia.Looking further east, to Central Asia, we find similar ties between Kazakhstan and Russia. The Kazakh government has made efforts to re-align trade southwards and westwards, to Pakistan and Turkey. But Russia still supplies the bulk of the consumer and industrial market in Kazakhstan, and likewise takes Kazakh exports. The results and suggestionsThere are many underlying aspects to Russia’s crisis. The “Asian c...
