The activities under the democracy and governance programs foster genuine democratic transition in Russia. Finally, activities in the social sector program help improve the effectiveness of health and other social safety netservices, reducing the spread of disease within Russia and across international borders. The Government of Russia s failure to implement effective reform and the resulting distortion of partial reforms undertaken represent the development challenge. As a result of its preoccupation with the December 1999 parliamentary elections, and anticipation of the 2000 presidential elections, the Government of Russia made little reform progress in FY 1999. The failure to create a sound legal and regulatory framework stunted GDP growth and delayed restructuring and modernization of Russian industry.
Tax revenues are inadequate to cover government spending and domestic and foreign debt obligations.
Complicating this situation, the Central Bank frequently employed scarce foreign currency reserves to intervene in the currency market to support the ruble. Despite these measures, the ruble has fallen from 6 to over 26 to the dollar since August 1998. This lack of sound monetary and fiscal policies depleted Russia s scarce foreign exchange reserves, stunted GDP growth, and discouraged private sector development. Nevertheless, other economic indicators have shown some signs of stabilization and growth over the past year. Annual inflation was not as high as expected at the start of the year.