Russia is, without doubt, in an awful bind. The turmoil in its financial markets is a sign that investors know very well that there is no easy way out.

The stock market has fallen by half this year. And the government has avoided devaluing the rouble only by increasing interest rates - to 150% for one of the central bank's key policy rates.

The government can't collect the taxes it needs to pay its bills. So it has to choose: print money to pay the public sector workers, or fail to meet its financial obligations.

The former is the road to hyperinflation. Russia was peering into that abyss in 1994, and has painfully stepped back. So it has chosen instead to keep the public finances in some sort of order, and the International Monetary Fund has kept up the pressure on Moscow to do this as it hands out instalments of a $10bn loan.

The price is the social and political problems that go with unpaid workers and pensioners. It is an effective but brutal way of keeping spending down.

It also sets an awful precedent. The market economy that Russia is trying to build will only work if people and businesses honour the obligations they have under contracts; doing things like paying bills on time.

There is a great temptation for the Russian government to ease up and pay the wages and pensions. Investors know that and there's always a degree of unease. The Asian crisis has added to it, and then there has been the decline in oil prices, which affects the revenue that the government can expect to get from the oil industry.

There are things the government could do. Reforming its tax system would help. Business, foreign and domestic, struggles with the complexity of the system and the high effective tax rates when a multiplicity of different taxes are added together. It is perfectly possible that cutting some rates might produce more revenue, by making it feasible for business to pay.

But there are still plenty of firms who won't pay, despite the tough new arrangements for tax collection the government has started to implement.