Pre-Crises:

In the midst of the year 1995, Russia initiated a stabilization strategy with the goal of
achieving single-digit inflation by 1997 and reducing the federal government's fiscal shortfall
to less than 3 percent of GDP by 1998. Progress in the years 1996 and 1997 displayed
indications of optimism and reforms. Negotiations were commenced by Russian officials in
April 1996 to reschedule the repayment of foreign debt inherited from the former Soviet
Union.

• The initiation of negotiations to settle the national debt was a substantial advancement
towards restoring confidence among investors. The year 1997 initially seemed to present a
potential transition towards economic stability.

• In September 1997, Russia was accepted as a member of the Paris Club of creditor nations
following the successful rescheduling of over $60 billion in previous Soviet debt to other
governments. Additionally, an agreement was reached with the London Club a month later
for a 23-year plan to repay a debt totaling $33 billion. Analysts anticipated an enhancement in
Russia's credit ratings, enabling the country to secure loans at more favorable rates.

• Despite the optimistic prospects, persistent challenges remained. Average real wages were
below half of the 1991 levels, with only about 40 percent of the workforce receiving their full
wages in a timely manner.

• However, warning signs also surfaced. The trade surplus was gradually approaching
equilibrium, as evidenced by the initial quarter of 1998.
The Crises period:

Russia's elevated government debt and diminishing revenue significantly heightened its
susceptibility to a speculative assault. Subdued federal tax revenues in Russia were
influenced by both reduced productivity and unresolved debts. Plummeting oil prices further
impeded productivity, consequently reducing Russia's capacity to generate tax income. As a
result, Russia's revenue failed to meet expectations.

The fiscal predicament in Russia was characterized by revenue deficiencies and a growing
leniency towards tax delinquencies, fostering a culture of non-payment and a convoluted web
of unresolved debts. The tax collection procedure was consistently strained by the intricacies
of tax collection, operating within a legislative framework known for its irregularity, further
reducing tax revenues. The non-payment of taxes by the energy sector underscored the
distinctive nature of the fiscal challenge in Russia.

Amid the uncertainties in the Russian economy, investors redirected their focus towards the
risk of a Russian default. In an endeavor to cultivate a stable investment climate, the Russian
government introduced a fresh tax legislation in February 1998, with the aim of simplifying
and refining the tax structure. This updated tax legislation was subsequently ratified later that
year.

To address Russia's financial requirements, a bundle of international loans from the IMF, the
World Bank, and Japan was organized in July. This financial package allocated $17 billion to
Russia for the remainder of 1998 and 1999, in addition to the funding already extended by the
IMF and the World Bank, totaling over $5 billion for that period.
 Post 1998:
The budget of 1999 succeeded in reducing the level of real government
expenditures (we can see that through the graph attached below), but at the cost of
holding social payments and wages well below inflation. This was not sustainable,
and some rebound in real expenditures after the crisis was therefore inevitable. By
2000, with Mr. Putin appointed as acting president, the effects of higher oil prices
were beginning to be felt, and the fiscal policy challenge changed to one of not
succumbing to the strong pressures to spend all the revenue windfall or to allow
energy companies to evade their tax obligations. The main success of fiscal policy
during 2000 and 2001 was to resist such pressures. This result was helped at a
technical level by greater central control of regional and local government finances
while a larger share of tax revenues was channelled through the federal budget

Sources:

 https://www.imf.org/external/pubs/nft/2003/russia/index.htm
 https://www.imf.org/external/pubs/ft/scr/1999/cr99100.pdf
 Reference: A Case Study of a Currency Crisis: The Russian Default of 1998 Abbigail J. Chiodo
and Michael T. Owyang
.