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Abstract: 

The municipal bond market in the United States is about 175 years old. The municipal bond market in Russia is only six years old. As with virtually any new venture of this magnitude, there are likely to be growing pains. This article focuses on the development of the municipal market in Russia, and chronicles two case studies of local borrowing in Russia. The situation of the Russian municipal bond market is similar in ways to the U.S. market of 150 years ago. Similarities include economic fluctuation leading to widespread defaults and a lack of regulation or guiding principles. The U.S. market is regulated mostly by state and local statute, although the federal government has become increasingly involved over the past two decades. Aside from the law, the U.S. market operates based on expected norms of performance. Defaults are now extremely rare—all the players, for the most part, know what is expected of them. This is not the situation in the nascent Russian capital market. The “rules of the game” that exist in the United States, which protect both issuers and investors, are still being developed in Russia.

Keywords: Municipal bond defaults; government structures; agrarian and energy bonds; interest rates

Affiliations:  1: Perm State University; 2: University of Oregon.