inancial problems center on its fiscal situation. The Russian government has run persistently high budget deficits. While general government expenditures (that is, expenditures of the federal and regional governments, plus extra-budget expenditures) have declined, some areas of public spending have not been adequately controlled. The government has not been able to cover its expenditures with revenues. From 1995 and until recently, the government had financed much of its budget deficit by borrowing in capital markets and issuing treasury bills, known by the Russian acronym GKOs, and bonds. On the upside, borrowing allowed the government to dramatically reduce inflation from a peak annual rate of 2,500% in 1992, to around 11% by the end of 1997. However, the low inflation rate may be superficial given that many state employees are not being paid and parts of the economy have increased bartering and have relied on other nonmonetary means of payment such as interenterprise debt. 2.Tax collectionThe growth in government financial imbalances and borrowing practices largely explain the suddenness of the current financial crisis in Russia. But how Russia got to this point of vulnerability analysts explain by citing more fundamental problems with Russian economic policy and economic structure. One such problem has been the inability of the Russian government to collect revenues adequate to match expenditures. Many analysts and Russia’s Western creditors have pointed to Russia’s tax regime as being inefficient and a factor in the lack of sufficient tax revenues. The Russian system has consisted of some 200 different types of taxes at various levels of government (federal, regional and local) making administration of the regime unduly burdensome. The governments have frequently changed regulations on implementing the tax regime, making compliance even more burdensome. In addition, the governments have granted tax exemptions to favored...
