On, Yeltsin appointed Boris Fyodorov as Head of the State Tax Service. Yeltsin named Energy Minister Sergei Kiriyenko, then 35 years old, as acting prime minister. Ī political crisis came to a head in March when Russian president Boris Yeltsin suddenly dismissed Prime Minister Viktor Chernomyrdin and his entire cabinet on 23 March 1998. Two external shocks, the Asian financial crisis that had begun in 1997 and the following declines in demand for (and thus price of) crude oil and nonferrous metals, severely impacted Russian foreign exchange reserves. However, soon after this, the problems began to gradually intensify. In the first half of 1997, the Russian economy showed some signs of improvement. Following the cessation of hostilities in 1996, it was estimated that the war in Chechnya cost Russia $5.5 billion, causing budget deficits close to 10% of their GDP. In early 1995, it was estimated that the war was costing Russia close to $30 million per day. The economic cost of the first war in Chechnya took a significant toll on the Russian economy. ĭeclining productivity, a high fixed exchange rate between the ruble and foreign currencies to avoid public turmoil, fatal financial imprudence, and a chronic fiscal deficit led to the crisis. In 1999 the organization structure was about to change with presidential election coming up. Russia was closer to Keynesian economics than free trade since it was the government that handled the majority of trade. In Keynesian economics, the government intervenes fiscally to boost aggregate demand. There are two major schools of thought that have explanatory value for the crisis: Keynesian and free market economics. Organization of thought for the crisis and organizational structure of Russia In 1995, the IMF tried to help Russia stabilize unsuccessfully. It continued to import without any check on whether it had enough revenues to pay back. Since Russia had to provide assistance to other countries it had parted with after the dissolution of the USSR, it did so by importing heavily from these countries. If one ruble could value in more units of foreign currency of the countries to which it owes, then paying back would be easier. The crisis happened because Russia was not able to pay back its debt. Russia's vast amount of mineral and natural resources allowed it to export those, pay back its debt, and then increase foreign reserves to revalue its currency. The GDP per capita was one of the lowest after 1996 for Tajikistan. The employment in Tajikistan has not improved much since the 1990s, so exactly how the crisis affected employment in 1998 remains a question. The employment policy in Kazakhstan was checked on Novemto give freely chosen employment. Russia’s unemployment rate was not sharply impacted since it was only 13 percent. In essence, their national income could not cover their national expenses (for Kazakhstan and Kyrgyzstan). The countries that exported to it used their resources for production but did not get paid for all their production. Both Russia and the countries that exported to it experienced fiscal deficits. Then the crisis hit and supervisors had to implement a new policy. The economic supervisors were happy about inflation coming to a standstill. In mid-1997 Russia had finally found a way out of inflation. When it was unable to pay back those foreign borrowings, the ruble devalued. In Russia, foreign loans financed domestic investments. Russia was supposed to provide assistance to the former Soviet states and, as a result, imported heavily from them. The Russian economy had set up a path for improvement after the Soviet Union had split into different countries. See also: Sergey Kiriyenko's Cabinet EUR/ Ruble exchange rate (Rubles per Euro) Russian inflation rate 1993-2022
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