The immediate cause of the crash was a vote in the Duma, the lower house of parliament, to override President Boris Yeltsin’s veto of a bill restricting foreign investment. The Duma’s vote limits foreign participation in Unified Energy Systems, the holding company that controls most of Russia’s regional electric utilities, to 25%. That would have been bad enough, but foreign investors already own at least 30% of UES shares (the federal government owns 53%). The confusion the Duma created quickly spread to the market, where UES share prices fell 25% in one day.
A robust market could have shrugged off the Duma’s irresponsible and probably unsustainable action. But Russia’s market has too much to worry about: low prices for oil and gas, the country’s leading export earners; an ailing, erratic president; a new government with untested leadership; no visible progress on tax reform; and events in Indonesia. And then there are the strikes.