The most dire predictions about the Russian economy after the August 1998 financial crisis have not come true. Devaluation, for example, has led to import substitution and created growth in some sectors of the economy. Hyperinflation has been avoided, and a strong recovery in oil prices has boosted tax receipts. A Paris Club rescheduling of Soviet-era debt has given Russia some debt relief, while renewed funding from the IMF and World Bank have brought an infusion of funds to pay debt and help advance development projects. However, Russia's economy remains in recession, with GDP contracting by 5% in 1998. A new war in Dagestan, terrorist bombings in Moscow and elsewhere, financial scandals, electoral uncertainties, and hamstrung structural reforms are only some of the factors that make political stability and economic growth highly unlikely in the near term. This memo is a snapshot of Russia's economic and political environment in the second half of 1999, and articulates two broad policy guidelines. […]
