Michael Camdessus, the head of the International Monetary Fund, explained it all last April.

In a speech to the US-Russia Business Council, Mr Camdessus was quick to praise Russia's integration in global markets and the demise of central planning. But he warned that an outdated tax system would fail to collect revenue, and a lack of proper financial institutions could leave the economy in chaos.

"The continued large fiscal deficit leaves Russia highly vulnerable to swings in market sentiment," he warned.

"Indeed, market perceptions that the government is not dealing forcefully with the fiscal problem could lead to destructive pressures on the exchange rates and interest rates."

How right he was.

Asian Flu

Russia's apparent inability to politically grasp the mettle and complete reforms is not, however, the only cause of the crisis.

Across the globe, financial markets have been thrown by the Asian economic crisis, which started with a run on currencies in July 1997 and exposed levels of unsustainable debt.

Left not so much roaring as whimpering, the Tiger Economies suffered withdrawals of foreign currencies as capital began the flight to safer havens.

That overwhelming flight to stable markets eventually hit emerging markets, principally Latin America and eastern Europe. Russia was at the top of the hit list.

As the Asian crisis deepened, Russia's huge natural resources began to look more like a liability than an insurance policy against the future.

Take oil. Russia is one of the world's largest oil producers, cranking out billions of barrels of crude every year.

But oil prices have been dropping steadily. And the Asian crisis further encouraged a global economic slowdown and decreased demand.

Source: Business Central Europe

In 1997, revenues dropped by $1.2bn compared with the previous year. In the first half of 1998, Russia exported 25% less oil than in the same period the year before - further hitting balance of payments and leaving a massive hole in government accounts.

The government's shortage of cash has created a seemingly unbreakable vicious cycle. Without tax revenue, the government cannot afford to pay state workers. Without their wages, the workers cannot pump money back into the economy. The lack of cash in the system forces other companies to pay their staff in kind, including with pickled gherkins or bicycles.

Ironically, a barter economy leaves the state in an even worse position. With no tax revenue, the government cannot pay the international bills or maintain essential services.

Public debt - future crisis

Boris Yeltsin's promises to deal with the issue were crucial to Russia securing a $22bn loan from the International Monetary Fund.

But it has done little to help deal with the mounting problem of debt.

While Russia's public debt is not large, much of it is financed by short term 90 day borrowing.

Interest rates on government bonds have been offered as high as 150% to tempt foreign investors.

The country currently has $20bn of short-term debt that has to be cleared by the end of the year.

With the rouble devalued, foreign investment gone and little tax coming in, repayments will be increasingly difficult to meet.

In the worst case, Russia will continue to see a flight of capital out of the rouble and into the US dollar. More people will shift their savings into the dollar, leading to hyperinflation and complete economic breakdown.

Foreign banks with investments in Russia, the largest of group of which are German, will find their clients unable to pay their debts, causing a run on their domestic markets. And so continues the domino effect.

The events of the last days of August may then seem mild in comparison.

Any answers?

The West has warned Russia's leaders not to abandon the free market.

Even though a further devaluation of the rouble appears attractive domestically, it would mean a loss of millions of dollars in investment and further worry international markets.

One measure that would prove popular would be to re-nationalise the energy companies accused of defaulting on tax, though vested interests may make this impossible.

Economically, Russia is a small fish compared to the levels of investment which pours in and out of western European counties a fraction of its size.

For many people, pictures of Russians queuing at banks and living an unthinkable hand-to-mouth existence seem a long way away.

But politically and strategically, the stability of a nuclear power is far more important than that.