The Financial Systems in Russia and Turkey: Recent Developments and Challenges

Abstract

Following the severe financial crises of the 1990s and early 2000s, substantial efforts have been undertaken in Russia and Turkey to diversify and deepen the financial systems. However, despite unquestionable improvements, financial deepening in Russia and Turkey has taken place at a slower pace than in other major emerging economies. Our paper highlights that this is in part a consequence of a highly volatile economic environment and deep-seated institutional and structural bottlenecks. Though authorities in both countries have committed to sounder economic policies and have implemented important structural reforms to improve the institutional environment and overcome structural weaknesses, over time reform fatigue has gradually taken hold. As a consequence significant gaps and weaknesses in the institutional and business environments still characterize, to a different degree, Russia and Turkey. These factors have not only slowed the development of the financial system as a whole, but have also contributed to the build-up of key vulnerabilities, which have come to the fore more recently in the context of a less supportive external environment.

A Financial Conditions Index for the CEE Economies

“…Overall, in 2015 the market capitalization of listed domestic companies was close to 25% of GDP in Poland and the Czech Republic, about 15% in Hungary. Thus, even if stock market are smaller than in the other main emerging economies (Auer et al, 2016), equity financing is another relevant source of funding for domestic firms in the CEE economies.…”