It is obvious almost to everyone, that 1/6 of the land is now in deep economical and political crisis and the whole world is waiting to see how the country will emerge from it. Russia’s chaos was caused by economic turmoil and political upheaval. Economic slump on the stock market, devaluation of the ruble, a default on foreign debt by banks and government are parts of a climax and the general instability of Russia is worsen by them. These things sometimes happen in the process of transforming a country from a command into a market economy.
There was a sharp increase in the inflation level after it has been brought down to as little as 5.6% a year in July. The prices began to rise fast and a lot of people were thrown far beyond the poverty level.
The anatomy of the financial crisis consists of several causes. The first cause is the so-called “Asian factor”. There was economic turmoil in Thailand first and then it spread all over Asia: South Korea, Hong Kong, Singapore and Malaysia in 1996- 1997. "All these countries and more have seen their economies wrecked over the last couple of years. Now Russia has its currency heading for the basement and is basically defaulting on its national debt". It has scared foreign investors. “This cooled their enthusiasm for investment in riskier economies” (Russia today) and they start taking their money out of its stocks and converting their rubles into dollars. It will take a lot of time for them to gain confidence in Russian “emerging” market again¬¬.
Although the Russian government was insisting it would not devalue the currency, it had to float the ruble three days later. For propping it up the Central Bank drained its reserves- $1 billion a week for ruble’s defense. This also in ...