There are more U.S. dollars under mattresses in Russia today than the total value of all ruble deposits in Russian banks. This fact highlights the failure of the Russian government to foster the establishment of real banks that would fulfill the fundamental role of banks everywherefinancing production by mobilizing household savings and lending them to productive enterprises.
Fixing Russia's Banks documents how Russia's financial system is built on what Michael S. Bernstam and Alvin Rabushka call ersatz banks. These inferior imitation banks have served largely as tools of the government to redistribute public funds to favored firms. The highly vaunted achievements of privatization, removal of price controls, and foreign trade liberalization have failed to produce growth because of a lack of private financing. National income has declined nearly 40 percent since 1992, with no recovery in sight.
Bernstam and Rabushka have painstakingly reconstructed the balance sheets of Russia's commerical banks to show that the banking system has been collectively insolvent since 1991. Russian banks have been kept afloat by injections of inflationary credit, by preferred sales of high-interest bonds, and by sales of shares in state-owned natural resource firms to the banks at bargain basement prices for final resale to foreigners.
Failing to fix Russia's banks risks further economic stagnation or decline and financial catastrophe. Bernstram and Rabushka's bold intriguing, provocative proposalresting on an elaborate strategy of debt-for-equity swapswould fix the banks, reduce government debt, strengthen the independence of the Central Bank, and lay a solid foundation for sustained economic growth.
Full-text PDF versions of each chapter can be accessed below by clicking on the desired chapter title. (PDF files require Adobe Reader. If you do not already have this software installed, click here to download it for free at the Adobe web site.)
Copyright ©1998 by the Board of Trustees of the Leland Stanford Junior University. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission of the publisher.
Alvin Rabushka, the David and Joan Traitel Senior Fellow at the Hoover Institution, works in the public policy areas of taxation in the United States and abroad, economic development in the Pacific Rim countries, and the transition economies of Central and Eastern Europe, notably Russia.
The Flat Tax (Second Edition)
Fixing Russia's Banks
Caseworkers or Police?
The United States in the 1980s
Michael S. Bernstam, a research fellow at the Hoover Institution, Stanford University, is an economic demographer who studies economic systems in their relationship with income, population, financial development, natural resources, the environment, conflict, and other social change.
By Michael S. Bernstam and Alvin Rabushka
ISBN: 0-8179-9572-2$16.95 paperback1998114 pages
TABLE OF CONTENTS
The Hoover Institution on War, Revolution and Peace, founded
at Stanford University in 1919 by President Herbert Hoover,
is an interdisciplinary research center for advanced study on
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Hoover Institution Press Publication 449
Copyright © 1998 by the Board of Trustees of the Leland Stanford Junior University
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission of the publisher.
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