Shocks throughout the world financial system, centered in the financial meltdown in the US, led by mid-September to a sharp fall on the Russian stock markets. The country is facing its greatest banking crisis since the default of August 1998, demonstrating the enormous vulnerability of the Russian economy to fluctuations on the world markets.

Russia’s financial crisis reached a high point on September 16-17, after the indexes of the two leading stock exchanges, the RTS and the MMVB, fell by 13-14 percent on the first day, and then by 6 and 3 percent, respectively, on the second.

On September 17, the Federal Service for Financial Markets decided to stop the trading of shares on both exchanges. They were only reopened two days later, on September 19, and then just for a few hours. The crisis has entered a phase, he continued, “when no one is making rational decisions anymore.” The current prices cannot be adequately explained, Andrei Kilin, assets manager at “Alfa Capital,” told the newspaper Kommersant September 17. “Many companies are trading lower than their actual capital, and the capitalization of several is even lower than the monetary resources of the companies’ own bank accounts.”In response to the initial panic, the Russian government announced several wide-ranging emergency measures aimed at temporarily stabilizing the situation. It announced unprecedented aid to the banks in the amount of 1.5 trillion rubles ($60 billion). As a whole, the Ministry of Finance and the Bank of Russia are prepared to pour up to 3 trillion rubles into the financial system. The Central Bank made the decision to sharply lower the standards of obligatory reserves for credit organizations, which would allow them to free up as much as 500 billion rubles ($20 billion). At the same time, the Central Bank compiled a “red list” of 15 banks that are experiencing the most serious problems in meeting debt obligations and that need immediate financial assistance. All 15 banks are on the list of the country’s 50 biggest financial organizations.

As the Financial Times of London reported September 18, the election of Dmitry Medvedev as the new president of Russia raised the hopes of foreign investors for the regime’s liberalization. However, by the end of May, problems began for the oil company TNK-VR, half of which is owned by British investors. Following pressure organized by Russian shareholders, the main director of the firm, Robert Dudley of Britain, was forced to leave Russia, and control over decision-making in the company passed into the hands of Russian partners. This event was seen by Western capital as evidence of increased political risk involved in remaining in Russia.