Letter to The Moscow Times – What Paradise?

Letter to the Editor by Ian Pryde in response to “Democracy Is Not a Priority for Putin,” an article by Ian Bremmer, the Founder of the Eurasia Group.

Bremmer’s article first appeared in The Financial Times and was republished in The Moscow Times on October 30, 2003.


Bremmer’s claim that in 1998 Russia seemed like an investor’s paradise sounds extraordinary to anyone involved in finance. I was head of research at an investment bank in the CIS at this time, and to say international investors were skittish on Russia is a gross understatement.

More serious, however, is Bremmer’s narrow focus on Russia. He fails to mention how Russia was infected by the Asian contagion, probably the most serious global financial crisis since the 1930s.

Bremmer seems unaware that from 1997 to 1998, the buzz words in financial circles were “flight to safety” and “safe havens” and that huge amounts of money were withdrawn from all emerging markets for reinvestment in the United States and Europe as confidence spiraled downwards. Neither Russia nor any other country looked like an “investor’s paradise” at this time.

It is worth noting that the Asian contagion led to the collapse of South Korea’s economy, which for the previous 30-odd years had posted some of the most impressive growth figures in the world! In fact, just after receiving a huge IMF package, the South Korean economy collapsed in December 1997. As a result, volatility rocketed in the financial markets and the value of open positions fell through the floor. In what economists call an “exogenous” event, investors were withdrawing money from Russia long before the default in order to meet margin calls posted by futures exchanges in South Korea and Brazil.

South Korea also belies the common view put forward by Bremmer and many others that if the then president Boris Yeltsin had put in place the right formal institutions, Russia would be much better off. Having lived in Moscow in the late 1980s and having followed the perestroika debate in the Russian media, it was perfectly clear that few Russians actually understood the West, democracy and the markets for the simple reason that most of their knowledge was derived second hand from books.

Whatever one’s views on the current situation around Yukos and Mikhail Khodorkovsky, expecting Russia to become a democracy and market economy virtually overnight was always naive.

Ian Pryde

Printed in The Moscow Times, No. 2801, 6 November 2003

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