d decline in investor confidence, which in turn has led to a deterioration in general economic conditions. The crisis has occurred against the backdrop of a weak Russian economy struggling to restructure and rebuild after the collapse of the Soviet system and, is in fact, an outgrowth of that struggle. The crisis was manifested in financial and other economic indicators, both domestic and external. Furthermore, the trends in most cases are worsening raising concerns about Russia’s prospects.2.Worsening of all major macroeconomic indicatorsSince May 1998 Russia has experienced declining gross domestic product (GDP), increasing inflation, increasing unemployment, and staggering interest rates. These trends connote a halt to, and possibly a reversal of, the progress, albeit limited, that Russia was finally making in establishing sustainable economic growth and macroeconomic stability. First the falling Russian GDP. Official Russian statistics estimate that the Russian real (adjusted for inflation) GDP contracted 4.6% in 1998. This contraction occurred after the Russian economy finally realized economic growth, although modest, of 0.8% in 1997, after having declined close to 40% since 1991. A contracting economy, especially over a long period, leads to a deterioration in living standards. Secondly the high inflation in the Russian economy. The Russian inflation rate in 1998, using the consumer price index, hit 84.4%. This figure appeared to be a significant setback for the Russian economy which had realized a manageable inflation rate of 11% in 1997. High inflation rates, which rose as much as 2500%in 1992, had been a major challenge to Russian economic policymakers ever since Russia embarked on economic reform in late 1991, but they seemed to have gotten it under control until recently. High inflation robs holders of rubles of potential purchasing power, contributing to a decline in the living standard. Inflation is especially deb...
