The prolong financial squeeze in Russia 1998

 The prolonged financial squeeze on enterprises provoked an acute credit crunch and the
emergence of various monetary surrogates (acting as payment substitutes) and widespread barter
(closely related to the diffusion of loss-making activity) which eroded further the tax base. Wage
arrears kept mounting not only in the public domain but also in the corporate sector: in 1996-1997
the latter was responsible, on average, for about 85 per cent of outstanding wage arrears.
After a short-lived and meagre recovery in 1997 the economic situation started to
deteriorate in early 1998.

 Russia depends heavily on exports of energy resources and other
primary commodities which make up 80 per cent of merchandise exports, and the weakening of
global demand and the unprecedented fall in their prices in the aftermath of the Asian crisis had
a significant negative impact on its economy. There was a sharp fall in export earnings (by some
11 per cent year-on-year in the first half of 1998) and this had a major impact on Russia's external
and fiscal balances. The tightening of fiscal policy squeezed the economy further and as early as
the second quarter of 1998 economic decline resumed.

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