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This article may be unbalanced towards certain viewpoints. Declining productivity, a high fixed exchange rate between the ruble and foreign currencies to avoid public turmoil, and a chronic fiscal deficit were the reasons that led to the crisis. A 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. On 29 May 1998, Yeltsin appointed Boris Fyodorov as Head of the State Tax Service.

6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market by swapping out an enormous volume of the quickly maturing GKO short-term bills into long-term Eurobonds. On 12 May 1998, coal miners went on strike over unpaid wages, blocking the Trans-Siberian Railway. 5 billion in debt owed to Russian workers. On 14 August 1998 the exchange rate of the Russian ruble to the US dollar was still 6.

Despite the bailout, July 1998 monthly interest payments on Russia’s debt rose to a figure 40 percent higher than its monthly tax collections. Additionally, on 15 July 1998, the State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan so that the government was forced to rely on presidential decrees. Central Bank would intervene by spending foreign reserves to buy rubles. For instance, during the year prior before the crisis, the Central Bank aimed to maintain a band of 5. The inability of the Russian government to implement a coherent set of economic reforms led to a severe erosion in investor confidence and a chain reaction that can be likened to a run on the Central Bank.

5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds’ arrival in Russia on the eve of the meltdown. On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on repayment of foreign debt. 90-day moratorium would be imposed on the payment of some bank obligations, including certain debts and forward currency contracts. USD rate to move more freely within the wider band.

When the buy and sell prices matched, this “fixed” or “settled” the official MICEX exchange rate, which would then be published by Reuters. From 17 to 25 August 1998, the ruble steadily depreciated on the MICEX, moving from 6. On 26 August 1998, the Central Bank terminated dollar-ruble trading on the MICEX, and the MICEX did not fix a ruble-dollar rate that day. On 2 September 1998 the Central Bank of the Russian Federation decided to abandon the “floating peg” policy and float the ruble freely. By 21 September 1998 the exchange rate had reached 21 rubles for one US dollar, meaning it had lost two thirds of its value of less than a month earlier.

On 28 September 1998 Boris Fyodorov was discharged from the position of the Head of the State Tax Service. The moratorium imposed by the Joint Statement expired on 15 November 1998, and the Russian government and Central Bank did not renew it. Russian inflation in 1998 reached 84 percent and welfare costs grew considerably. Many banks, including Inkombank, Oneximbank and Tokobank, closed as a result of the crisis. The main effect of the crisis on Russian agricultural policy has been a dramatic drop in federal subsidies to the sector, about 80 percent in real terms compared with 1997, though subsidies from regional budgets fell less. The financial collapse resulted in a political crisis as Yeltsin, with his domestic support evaporating, had to contend with an emboldened opposition in the parliament.