The impact of the East Asian crisis rippled across other emerging market nations that had borrowed in the international capital markets. Unlike the Asian crisis, these crises primarily involved the public sector. Lenders reassessed the ability of governments to meet their obligations and maintain their exchange rate commitments. Capital outflows led to more crises as sovereign borrowers defaulted on their debt and currency crises led to large devaluations. The IMF was active in managing the response to the emergencies but was hampered in some cases during the precrisis periods by the political aims of its principal members. This chapter provides an overview of the events leading up to the crises in Russia, Brazil, and Argentina, and how the IMF responded.

The first section summarizes the record of the Russian economy before its crisis in 1998 and its deterioration. The G7 leaders had supported Russia’s movement to a market economy and given the IMF and the World Bank the task of facilitating the transition. The Russian government successfully completed several programs with the IMF during the early 1990s. However, continuing fiscal deficits financed by capital inflows were a source of financial weakness. In 1998 another program was arranged with the IMF that included measures to improve the state’s finances, but the new policies were not approved by the Russian parliament. Capital flight from the country drained the country’s foreign exchange reserves, forcing the government to abandon the exchange rate peg and restructure its debt.