The Russian financial crisis is getting worse. On Wednesday the Central Bank tripled interest rates to 150% and shares fell by 11%, pushing prices to their lowest level since 1996.

This is despite a harsh austerity programme announced by President Yeltsin on Tuesday to cut 40 billion roubles of government spending.

The Russian president met his prime minister and top officials to try and put a brake on a growing crisis.

The government suffered another blow when it had no bidders for its proposed price for the privatisation of the major oil firm Rosneft.

Cash shortage

It desperately needs the cash from the auction and yet investors are wary about buying an oil firm as they see oil prices dropping. So the tender is likely to be relaunched later in the week at a lower price.

The basic problem is a shortage of ready cash. The Central Bank put its interests rate up to this highly appealing level in order to attract money for government bonds, but investors are extremely nervous.

"Nightmare scenario"

It has also spent 500 million dollars defending the rouble, but has few reserves left to go on doing this.

The "nightmare scenario" is that the Central Bank will be forced to devalue the rouble.

If that were to happen it is quite likely the country would succumb to panic. Capital would fly from the country, ordinary Russians would rush to buy dollars and the Central Bank would print more and more roubles.

Inflation would shoot up again as it did in 1992, wiping out people's savings.

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Still room for hope

And yet, some Western economists say that the Russian economy is not actually in such bad shape as it looks. Industrial production has started to grow, inflation is low and the budget deficit is relatively small.

The crisis could be averted, they say, if the IMF or Western governments are persuaded to give Russia new loans.

The hopeful scenario is that investors would regain confidence, the markets would recover, the rouble would stay strong, interest rates would go down and the economic recovery would start again.