Russia 1994

The Collapse of the Soviet Union: Gorbachevs Reforms & Implications: S.no 1. 2. 3. Reforms Glasnost (greater openness) Democratization Perestroika (radical restructuring) Implications Reduced state control over cultural, intellectual and religious activities; lead to political disintegration 15 constituent soviet republics wished to be independent Two new laws: i. Law on State Enterprises ii. Law on Cooperatives

Effects of perestroika: Wholesale price was left for the investors to decide but government fixed retail prices. This resulted in losses for retail sector. From Table 1: Avg monthly wage increased year on year from 2.4% to 9.4% in 1990.To compensate this change, govt had to acquire foreign debt which increased from 31 billion US$ to 54 billion US$. The firms money supply % change went upto 37.1% in 1987 and 23.9 % in 1988, when the countrys loan had been accumulating. This lead to Macroeconomic chaos. Crisis & Indecision: OECD & IMF advocated a big bang restructuring program. Communist hardliners hated this idea Gorbachevs indecisive behavior became the reason for the coup attempt As a result, Boris Yeltsin established his power. Russia: rebirth Amidst Crisis Partial implementation of perestroika had left the country bankrupt. Exhibit 3 shows that the gross deficit in GDP nearly doubled in 1992 Exchange rate was deteriorating Due to inflation, prices increased by a large margin, and the value of Ruble depreciated rapidly The inflation was caused by the huge loans acquired Exhibit 7 shows that despite being a monopolist in most of the industries, Russia suffered losses because it had no market for its products

Yeltsins Strategy: Price Liberalization & Macroeconomic Stabilization o Unfreezing of prices o Eliminated subsidies o Reduced wage increases and military expenditures o New tax system o Partial Liberalization of International trade

Vijay Krishnan A DM14257

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Russia 1994
Enterprise reform o Fewer ownerships to improve efficiency o 3 groups : Strategic, Privatization, Join o Strategic: Excluded from privatization o Privatization: 51% of firms shares to workers and management through vouchers

Macroeconomic Deterioration: i. Deficit of GDP grew to 17% ii. Inflation skyrocketed iii. To curb this, Government printed money iv. This resulted in devaluation of Ruble v. Rise in crime Russian mafia Weak Western Support: i. Not enough grants given to Russia ii. Level of aid woefully insufficient Privatization: i. Successful policy of Yeltsin ii. 42% of industrial workers were employed by private firms iii. Loan support from State banks was unbiased Re Evaluation: Yeltsin won a referendum in 1993, supporting his government policies Led to a constitutional change Created a federal government with strong centralized authority rested with president A lower house called duma was formed Representatives were elected through proportional distribution Prime minister was responsible for the formation of ministerial team. Election results were not favourable for Yeltsins team Yeltsins decision: i. Chose not to go ahead with Market reform ii. Appointed Chernomyrdin as PM iii. Chernomyrdin announced increased support to farmers, slow downsizing of soviet army and increased industrial subsidies iv. Inflation to be controlled through non-monetary means such as price controls

Vijay Krishnan A DM14257

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