Russian Financial Crisis of 1998AbstractSince May 1998, Russia has been involved in the latest, and probably most serious, of a series of economic crises. The crisis reached its peak on August 17, 1998, when the government of then Prime Minister Sergei Kiriyenko abandoned its defense of a strong exchange rate of the ruble against the dollar, defaulted on the government's internal debt, forcing it to restructure, and placed a moratorium on 90 days. on payments of external commercial debt. These actions led to the dismissal of Kiriyenko by Yeltsin on 23 August, replaced, after a political stalemate with the Duma, by a more left-oriented government led by Prime Minister Yevgeny Primakov. The August crisis also lowered Russians' living standards and slowed Russian efforts toward creating a market economy, perhaps for years to come. The direct cause of the crisis was the Russian government's failure to address fiscal imbalances. Less direct but more fundamental causes were structural problems. The government has an inefficient tax regime that fails to generate sufficient revenue to meet tax obligations. More fundamentally, incomplete economic restructuring has left an economy, largely based on barter, that masks inefficient and even “subtractive” economic activities and that makes achieving fiscal balance even more difficult. But Russia has faced difficult setbacks along the way, and the current crisis is the most serious. It appears that the effects of this crisis and how Russian policymakers handle it will determine the future of Russian economic reform and, consequently, the prospects for long-term Russian economic growth and development. The October 1997 crisis as the seed of the August 1998 crisis. The financial crisis was, the Russians basically knew it from books. This was the case before October 23, 1997, when, after the unprecedented collapse of the world's major stock markets, it became clear that this could happen in Russia too. Because the Russian stock market has become part of the world financial system. The main cause of the stock market collapse was the common crisis of the currency markets of South Asian countries, characterized by rapid economic growth and extreme ease of access to Western credits. The financial market developed accordingly. The influx of liquidity was accompanied by a meteoric rise in securities... middle of paper... kings. Short-term political ambitions and partisan hopes that the failure of “Yeltsin's reforms” will lead to greater political advantage for the opposition in the Duma must give way to the reality that international financiers will not continue to lend to Russia forever. And, most importantly, take immediate and positive steps to encourage long-term foreign direct investment (“FDI”) into Russia. Why focus on foreign direct investment? Unlike portfolio investments in stocks and debt, foreign direct investments directly create jobs and cannot be withdrawn at the press of a computer key. The relatively minuscule amount of foreign direct investment in Russia should be a source of acute embarrassment to the Duma and a stimulus to swift and decisive action. Foreign investors do not expect profit guarantees or protection from market forces. They require some hope of fiscal stability and reasonable support, rather than interference, from the government. To date, Russia has attracted a meager amount of foreign direct investment even without offering such conditions.AppendixExchange rate of the Russian ruble against the US dollar (the denomination in 1998 is not