Russia saw hyperinflation of 1000%?

I just can't get over Eddie's brilliance. Too bad bright stars burn out early.

On March 23, 1998, five months before the Russian government's default on its international and domestic debts led to the nation's complete economic collapse, Viktor Chernomyrdin was fired as Prime Minister. The allegations of corruption against him had only reinforced the public impression that the policy of a handful of powerful Russian officials was not the construction of a free enterprise system, but rather the subversion of the public good through crony capitalism.

The unexpected firing of Chernomyrdin, Vice President Gore's partner in the highly visible Gore-Chernomyrdin Commission, unnerved Clinton administration officials. They were just as unprepared for the appointment of the little-known Sergei Kirienko to replace Chernomyrdin. Lawrence Summers, then Deputy Secretary of the Treasury, had inauspiciously dubbed the outgoing Prime Minister's deputies, Boris Nemtsov and Anatoly Chubais, "the Dream Team."1 Summers' characterization epitomized the wishful thinking of the administration, and its willful blindness to the worsening reality in Russia.

As late as the summer of 1998, the Clinton administration still failed to grasp the fundamental error of its policy of funneling enormous amounts of money into a corrupt central government. Despite widespread rumors that Kirienko, too, would soon be fired, the administration proposed nothing more than pouring still more loans from the International Monetary Fund (IMF) into Russia's central government. Vice President Gore, Treasury Secretary Robert Rubin, and Summers set to work on an additional $18 billion U.S. commitment to the IMF chiefly intended to support new lending to Russia.

"We have a significant opportunity to use the leverage of IMF financing to help the Russian government," Rubin wrote to then-House Speaker Newt Gingrich on July 28, 1998. "The basics are all in the right direction," Stanley Fischer, the IMF's Deputy Managing Director, said the same day.2 The administration successfully forced the $18 billion through Congress.

The reality of the situation, however, was that the Russian economy had already begun to collapse. The stock market was plunging. The day before Rubin's letter to the Speaker of the House and the IMF's blindly upbeat assessment, the market had suffered a 9% drop. "It's looking ugly," said one Western economist on July 27. Said another Western investment strategist: "We're sitting and watching this in shock and horror."3

Over the next two weeks, the deterioration continued. Finally, on August 17--one month after the latest bailout--the roof caved in.

The Russian government announced that it would no longer be able to pay its official debts. The ruble was devalued at the same time. The default, coupled with the devaluation of the ruble after years of promises that this would not occur, led to Russia's total economic collapse--a cataclysm by all measurements worse than America's Crash of 1929.

The end of Soviet Communism had afforded the United States its greatest foreign policy opportunity since the Allied victory in World War II. Barely six years later Russia's economy lay in ruins--an opportunity lost.