Russian markets managed to withstand an investor sell-off sparked by the Asia crisis last fall, but by spring a combination of internal political upheaval and the example of Indonesia prompted new capital flight from Russia. And at that point we began to get substantial pressure on the ruble. More fundamentally, the Asian recession has reduced demand for oil and led to a collapse in prices for Russia's principal export. With oil-related tax revenues devastated, the weakness of Russia's fiscal system was exposed, leaving the country open to the kind of sudden loss of confidence that hit last week when fear of a ruble devaluation caused Russia's stock market plunge to accelerate. By now, the Russian government is running out of ammunition to halt an economic collapse.
Analysts say that the actual figure is probably far lower.
Last week even President Yeltsin felt compelled to address mounting financial fears. That reassurance, along with tough talk about new austerity plans from Prime Minister Sergei Kiriyenko and Central Bank Chairman Sergei Dubinin, calmed investors somewhat. The boost in interest rates also helped. But the government's margin for error is slim to none, and the country's fate now seems largely in the hands of currency traders. If the ruble peg gives way, then the entire economic reform process is severely compromised.