The State, Informal Networks, and Financial Market Regulation in Post-Soviet Russia, 1990–2008

Abstract

The article examines how informal networks inside the Russian state influenced the formation and further development of the country’s financial markets during the 1990s and 2000s. The main argument is that the activities of these networks made it difficult to implement any coherent state regulation policy in the field. At the same time, rivalry between competing informal networks and different organizations contributed to institutional development and some improvements. The result was a dualist institutional structure of the Russian speculative financial markets that reproduced itself throughout the period in question. The study is based on in-depth interviews conducted at Moscow-based financial institutions.

The state and company managements in Belarus

“…Private companies which are not subordinated to ministries or kontserns report very little use of informal connections and need for negotiation in these areas. They are usually free to choose and attract investors or reinvest their profits, provided that they prove to the controlling government bodies that the funds are not used in illegal deals or to fund anything outside their primary economic activity (i.e., funding political opposition or sponsoring independent civil society organisations Both state-controlled and private companies have received much more freedom in the area of intra-firm investments in the recent years, compared to the previous research (see Danilovich and Croucher, 2011;2015;Danilovich, Croucher and Makovskaya, 2016). The most significant changes have taken place in the area of investment in personnel.…”

“…At the start of the transition, the process of oligarchic state capture was dominated by criminal organisations and oligarchs who grew out of the old Soviet elite (Aslund, Boone and Johnson, 2001). After 2005 these groups gradually lost their influence and were replaced with merged power networks between new business elites and top government bureaucrats (e.g, Frye, 2002;Viktorov, 2015). While business elites in Ukraine, Moldova and the Caucasian economies continued to dominate in economics and politics (Closson, 2009;Fisun, 2016;Markus and Charnysh, 2017), in Russia the state managed to reclaim a large share of its bargaining power by suppressing its business allies through a series of repressive measures (e.g., Hoffman, 2011).…”

“…Formal state institutions had to either give in to the power of informal networks (e.g., Yakovlev and Zhuravskaya, 2006;Viktorov, 2015) or merge with them, creating authoritarian neopatrimonial regimes (e.g., Ilkhamov, 2007;Özcan, 2010;Laruelle, 2012;Lewis, 2012).…”

The state capture of Russian non-bank financial institutions and markets after the 2008 crisis

“…The authority was set up in close cooperation with US advisors as a part of the USAID-financed programme to develop Russian financial market. From the very beginning the FCSM and the USAID American team worked closely with a selected number of new brokerage firms to establish the RTS as the leading Russian stock exchange of the 1990s (Viktorov, 2015). Those brokerage firms that cooperated with the Harvard team were gradually transformed into the leading Russian investment banks.…”

“…In the 1990s, conflicts between the CBR and the FCSM, the FFMS' predecessor before 2004, left a deep impact on the formation of the Russian financial market which acquired its dual structure. As a result, parallel regulating authorities, two large stock exchanges and de facto two central depositories developed (Mal'tsev, 2009; Viktorov, 2015).…”