The Administration should encourage the IMF and the G-7 governments to demand that Moscow institute these reforms instead of providing Russia with any additional loans. The Russian economy almost collapsed on May 27, when foreign and domestic investors panicked and went on a selling spree, unloading government bonds, corporate stocks, and rubles. In a desperate attempt to offset a mass exodus from the market, Russia's Central Bank hiked the interest rates on government bonds to an astronomical 150 percent a year. These measures halted the collapse, but they cannot continue indefinitely. The near collapse of the Russian economy has several causes.
Deep pessimism continues.
Further, the tax system is corrupt and mismanaged, and the tax base is extremely narrow. Russia has yet to experience meaningful economic growth in the post-communist era. IMF and financial experts agree that a competitive business culture must be established before economic efficiency and capital accumulation can be increased. Drastic reform of the legal and institutional framework and a restructuring of heavy industry and collectivist agriculture sectors also are necessary. Faster, more transparent privatization that is open to all foreign and domestic investors.