ch 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 debilitating financially to pensioners and others on fixed incomes. Unemployment in Russia has steadily increased in recent years. Economic contraction has led to growing unemployment in Russia. By the end of 1998, the Russian unemployment rate had reached close to 12% having increased from 7.0% in 1994. While the current crisis cannot be blamed entirely for the unemployment problem, the decline in economic growth has set back attempts to reduce it. 3.High interest ratesAnother cause was the high interest rates which Russia was experiencing. For a critical period in 1998, Russian interest rates increased sharply as a sign of loss of investor confidence. In May 1998, interest rates on GKOs, that is Russian treasury bills used to finance government budget deficits, roughly doubled from 27.8% the month before, to 54.8%. They continued to climb and peaked at 135.3% in August 1998. Other critical interest rates also climbed to very high levels. The Russian Central Banks’s refinancing rate spiked at 150% during the week of May 27 to June 4, 1998. While rates have decreased they nevertheless remain high. High interest rates cripple Russia’s ability to finance its government budget deficits and have stifled investment in the non-government sector as well. Immediate causes1.Fiscal policiesIn dissecting crisis and trying to explain the reasons it developed two sets of related causes emerge. The most immediate and direct causes are the government’s financial imbalances and Russian fiscal policies that have made Russia very vulnerable to the vagaries of the global financial ma...
