Russian RubleThe Russian Ruble Crisis and Its Aftermath
The causes of the surge in inflation in Russia in the 1990’s were the Russian government. They implemented economic reform to transform the crumbling economy. But the central element of the plan was to put an end of the price controls, but once the price controls were removed the prices increased.
The decline in value of the ruble against the dollar shows that prices began to surge and inflation was high. As a result the supplies were down and Russia was suffering from a limited supply of goods. Many businesses began to fail, so Russia’s government began to pour money into businesses to minimize job loss. The Russian government’s deficit began to grow at a rate that was not manageable. The Russian government was not willing to increase taxes so they printed more money, but as a result it increase inflation. The rate of inflation was out of control and the Ruble was very unstable.
When the inflation reached an annual low, the Russian government decided to take action. To reduce the uncertainty, the Russian government requested IMF loans. Also, the Ruble was regulated to stay within a range of 4,300 to 4,900 against the dollar. In return for the loan, Russia agreed to limit the growth in its money supply, by reducing public sector debt, and increasing government tax revenues.
Russia’s government continued to spend more while collecting tax revenues that were lower than projected. The Ruble crisis made global business with Russia a high risk, and many legal, cultural and ethical challenges existed. Because the ruble was so unstable during the 1990’s, writing long term trade contracts was nearly impossible.
As a result of the many changes, the Russian economy grew and the foreign debt declined. In 2004 their foreign reserves grew, taking in $13.1 billion more than they spent, and running a budget surplus. Even with all these positive developments, the Russian economy is still struggling. The...