|Russia and the global economy|
The largest state enterprises were controversially privatized by President Boris Yeltsin to insiders for far less than they were worth.
The Russian economy underwent tremendous stress as it moved from a centrally planned economy to a free market system. Difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998. It hit Russia in 17th August, during the decline in world commodity prices, countries as Russia heavily dependent on export of raw materials were amongst those severely hit. Petroleum, natural gas, metals, timber and oil accounted for more then 80% of Russia export. Russia lost investor confidence due to the Asian financial crisis. The result was a rapid decline in the value of the ruble, many banks were closed down, people lost their savings, prices for food increased for almost 100%, hiperinflation, coal miners went to the strike, there were approximately 12,5 billion in unpaid wages owed to Russian government.
“The weak position of the federal budget became the main reason of the black August in 1998. In the summer of 1998 the Finance Ministry could fund only a half of its spending with the help of taxes. The other half was funded at the expense of borrowings. When markets stopped lending money to the ministry, the federal budget was unable to function properly,” Sergei Aleksashenko, who took the position of the first deputy chairman of the Bank of Russia in 1998, said.…
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