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==Course of events==
Declining productivity, an artificially high [[fixed exchange rate]] between the ruble and foreign currencies to avoid public turmoil, and a chronic [[fiscal deficit]] were the background to the meltdown. The economic cost of the [[First Chechen War|first war]] in [[Chechnya]] that is estimated at $5.5 billion (not including the rebuilding of the ruined Chechen economy) was also a cause of the crisis. In the first half of 1997, the Russian economy showed some signs of improvement. However, soon after this, the problems began to gradually intensify. Two external shocks, the [[Asian financial crisis]] that had begun in 1997 and the following declines in demand for (and thus price of) [[1998 world oil market chronology|crude oil]] and [[nonferrous metals]], also impacted Russian foreign exchange reserves. 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 March 23.<ref>
A $22.6 billion, the [[International Monetary Fund]] and [[World Bank]] financial package was approved on July 13 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 [[Eurobond]]s. This had started to be implemented with some success{{Citation needed|date=February 2007}} by July 24, yet the Russian government decided to keep the exchange rate of the ruble within a narrow band, although many economists, including [[Andrei Illarionov]] and [[George Soros]], urged the government to abandon its support of the ruble. On May 12, 1998 [[Coal]] [[miner]]s went on strike over unpaid wages, blocking the [[Trans-Siberian Railway]]. By August 1, 1998 there were approximately $12.5 billion in unpaid wages owed to Russian workers. On August 14 the exchange rate of the Russian ruble to the US dollar was still 6.29. Despite the bailout, July monthly interest payments on Russia’s debt rose to a figure 40 percent greater than its monthly tax collections. Additionally, on July 15 the [[State Duma]] dominated by left-wing parties refused to adopt most of government anti-crisis plan so that the government was forced to rely on presidential decrees. On July 29 Yeltsin interrupted his vacation in [[Valdai Lake]] region and flew to Moscow, prompting fears of a Cabinet reshuffle, but he only replaced [[Federal Security Service]] Chief [[Nikolay Kovalev (FSB)|Nikolai Kovalyov]] with [[Vladimir Putin]].
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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. Investors fled the market by selling rubles and Russian assets (such as securities), which also put downward pressure on the ruble. This forced the Central Bank to spend its foreign reserves to defend the ruble, which in turn further eroded investor confidence and undermined the ruble. It is estimated that between October 1, 1997 and August 17, 1998, the Central Bank expended approximately $27 billion of its U.S. dollar reserves to maintain the floating peg.
It was later revealed that about $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.<ref>[http://www.rferl.org/reports/corruptionwatch/2002/06/25-270602.asp Radio Free Europe/ Radio Liberty<!-- Bot generated title -->]</ref><ref>
On August 13, 1998, the Russian stock, bond, and currency markets collapsed as a result of investor fears that the government would devalue the ruble, default on [[domestic debt]], or both. Annual yields on ruble denominated [[Bond (finance)|bonds]] were more than 200 percent. The stock market had to be closed for 35 minutes as prices plummeted. When the market closed, it was down 65 percent with a small number of shares actually traded. From January to August the stock market had lost more than 75 percent of its value, 39 percent in the month of May alone.<ref>''A Case Study of a Currency Crisis: The Russian Default of 1998''</ref>
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# the ruble/dollar trading band would expand from 5.3-7.1 RUR/USD to 6.0-9.5 RUR/USD;
# Russia's ruble-denominated debt would be restructured in a manner to be announced at a later date; and, to prevent mass Russian bank default,
# a temporary 90-day moratorium would be imposed on the payment of some bank obligations, including certain debts and forward currency contracts.<ref>[http://www2.minfin.ru/off_inf/69.htm STATEMENT of the Government of the Russian Federation and the Central Bank of the Russian Federation August 17, 1998]</ref>
At the same time, in addition to widening the currency band, the authorities also announced that they intended to allow the RUR/USD rate to move more freely within the wider band.
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<!-- Image with inadequate rationale removed: [[Image:Boris primakov.jpg|right|framed|200px|Boris Yeltsin and Yevgeny Primakov meeting in the Kremlin.]] -->
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. A week later, on August 23, Yeltsin fired Kiriyenko and declared his intention of returning Chernomyrdin to office as the country slipped deeper into economic turmoil.<ref>
Yeltsin, who began to lose his hold on power as his health deteriorated, wanted Chernomyrdin back; In a televised address to the nation, Yeltsin said that “heavyweights” such as Chernomyrdin, who was ousted as prime minister in March 1998 for failing to vigorously promote economic reforms, were needed to stem the nation's financial collapse. Yeltsin also suggested that Chernomyrdin would be named his successor as president when Yeltsin's term expires in 2000. But the legislature refused to give its approval. After the Duma rejected Chernomyrdin's candidacy twice, Yeltsin, his power clearly on the wane, backed down. Instead, he nominated Foreign Minister [[Yevgeny Primakov]], who on September 11 was overwhelmingly approved by the Duma.
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