Most sick making for Stiglitz is that the US-backed oligarchs stripped Russia's industrial assets, with the effect that national output was cut nearly in half. After privatisation, Step Two is capital market liberalisation. In theory this allows investment capital to flow in and out. Unfortunately, as in Indonesia and Brazil, the money often simply flows out. Stiglitz calls this the 'hot money' cycle.
Cash comes in for speculation in real estate and currency, then flees at the first whiff of trouble.
A nation's reserves can drain in days. The result was predictable,' said Stiglitz. Higher interest rates demolish property values, savage industrial production and drain national treasuries. The IMF riot is painfully predictable. They turn up the heat until, finally, the whole cauldron blows up,' - as when the IMF eliminated food and fuel subsidies for the poor in Indonesia in 1998.