Since May of 1998, Russia has been caught in the latest, and likely the most serious, in a series of economic crises. The crisis came to a head on August 17, 1998, when the government of then-Premier Sergei Kiriyenko abandoned its defense of a strong ruble exchange rate against the dollar, defaulted on government domestic debt forcing its restructuring, and placed a 90-day moratorium on commercial external debt payments. Those actions led to Yeltsin’s dismissal of Kiriyenko on August 23, replaced, after a political standoff with the Duma, by a more leftward-leaning government led by Premier Yevgennij Primakov. The August crisis also lowered Russians’ standard of living and set back Russia’s efforts toward establishing a market economy, perhaps for years to come. The direct cause of crisis has been the Russian government’s failure to address fiscal imbalances. Less direct but more fundamental causes have been structural problems. The government has an inefficient tax regime that fails to generate sufficient revenues to meet fiscal obligations. More fundamentally, incomplete economic restructuring has left an economy, much of which is run on barter, that masks inefficient and even “value-subtracting” economic activities, and that makes attaining fiscal balances even more arduous. But Russia has faced difficult setbacks along the way, this current crisis being the most serious. The effects of this crisis and how Russian policymakers manage seems likely to determine the future of Russian economic reform, and, consequently, prospects for long-term Russian economic growth and development. Crisis in October 1997 as a seed of crisis in August 1998What the world financial crisis was, Russians knew basically from the books. It was so before October 23, 1997, when after unprecedented collapse of the world’s major stock exchanges it became clear that this could happen in Russia as well. Because Russian st...
