#9 - JRL 7221
From: "Vlad Ivanenko" <vivanenk@uwo.ca>
Subject: On impending financial crash and the World Bank
Date: Thu, 12 Jun 2003

I have finished reading the article, which a Communications Analyst from the World Bank has referred to in JRL 7217-13. It has reminded me of an old joke about two balloonists who lost direction and asked a man on the ground:

- Do you know where we are?

- Sure. On a balloon.

The balloonists wondered if they talked with an economist because his advice was perfectly correct and worthless.

If history serves us right, we can get some intuition about the current debate on the danger of financial crash from the past. Lets recall what were practical actions of some discussants several months prior to the default of August 1998. The IMF praised the reforms and extended several billions in loans to correct for supposedly temporary lack of liquidity. The World Bank disbursed one billion of Japanese money for purported restructuring, if I remember correctly. Gaidar’s institute was busy explaining why the exchange rate should be defended at any cost. Andrei Illarionov cried loud that the default was imminent and was subjected to an anonymous smearing campaign that branded him as a profiteer speculating in currency exchanges. (Is it accidental that he has become a Presidential Advisor?)

If I invested in the Russian market and looked for an expert advice on the probability of financial crash in that country, I would pay attention to what people with clean reputation have to say. As to the World Bank economists, they should be more specific detailing the logic of their claims. The argument of the form "a Senior Economist at the World Bank has said" is not enough. That was the main point I made while talking about the World Bank’s contribution to the debate about the impending financial crash in Russia.

Vlad Ivanenko, PhD Economics
University of Western Ontario