Outlook: CSFB has only itself to blame

SEEN THROUGH the distorted prism of the financial markets, the only issue that really matters in Russia's economic crisis is how foreign banks are going to come out of the $40bn debt restructuring package.

The fate of Russia's economy, and the longer-term question of whether this sad old country can ever get its act together, appear largely forgotten - never mind ordinary Russians as in time-honoured fashion they again reach for the vodka.

Big Western banks badly stung by the latest Russian events - particularly Credit Suisse First Boston - have elevated the wrangling over the debt restructuring package to a level of high principle: if Russia cannot obey the rules of international capital markets then it will forever be denied further access to them. This is the altruistic point. The more immediate one is that if Russia persists in discriminating against foreign banks in the debt restructuring proposals, they and their clients will lose even more money than they have already.

In the end, however, it is hard to have much sympathy for the investment bankers. They are like bounty hunters on the wild eastern frontiers of capitalism. They knew the risks and they cannot claim they were not warned. Russia has a long history of defaults and its transition from communism to capitalism has been rough and ready, to put it mildly. The hope was that Russia would tread the trail blazed by Poland, Hungary, Czech Republic, and other former members of the Eastern Bloc that managed to reinvent themselves as dynamic free market economies. In truth, this was always going to be a much more difficult process in Russia.

Furthermore, those complaining loudest are also the ones who profited most when the party was in full swing. It's hard to remember it now, but this time last year Russia was the best-performing equity market in the world. As for the Russian debt market, who in their right mind would believe that yields of 150 per cent for three-month paper come risk free? These were highly paid investment bankers playing these markets, yet they seem to have done so with all the innocence of a defrauded Barlow Clowes investor.