Publication

This paper argues that the banking sector in Russia is less-developed than in Central Europe and that the underdevelopment of the financial sector is a drag on economic growth. It holds that the major cause of the financial crisis of 1998 was not losses on treasury-bill investments, as widely thought, but foreign exchange exposures, imprudent lending with limited risk diversification, and bad management - all of which had a heavy toll on economic growth. The paper concludes that although some steps to make the financial system more robust have been taken, substantial action is still needed.