Flashcards in Stabilisation and Liberalisation in Russia 1992-93 Deck (23)
What were the 5 main reasons for radical reform?
1 Russia too important to fail, reformers saw that reforms would end remaining soviet power and they could continue to cooperate with the west as under Gorbachev
2 Russia had a lot of natural resources with the right reforms they could be a rich country
3 There was a political and economic crisis after August 1991, for Yeltsin to survive he needed to secure change
4 state capacity largely impaired, temporary powers were granted to Yeltsin and reformers but window was small
5 Market reforms would break the nomenklatura system which was the main cause of state weakness
What were the aims of radical reform?
-destroy particularistic exchange and replace it with market based exchange based on state licensed unit of exchange (a stable currency), this would effect the structure of change in the states favour
-state capacity would increase due to higher taxation revenues, leading to more public goods, less rent seeking, more rule of law. A virtuous circle of reform
-Stabilisation and liberalisation would limit the power of rent seeking elite creating a incentive to reform, enterprises need to rely on investment and credit to survive rather than subsidies from the government, leading to a higher standard of corporate governance
When was the new Russian government formed?
Who was Yegor Gaidar?
Deputy PM for the economy
Leader of Russia's democratic choice political party
Economics editor of the part journal Kommunist 1987-1990
Director of Institute for Economic Policy 1990-1991
Who was Anatolli Chupbais?
Deputy pm for privatisation
Economics and early economic reformer in St Petersburg
Who was Alexandr Shokhin?
Deputy pm for social issues
Head of the economics department in the Ministry of Foreign Affairs in USSR under Gorbachev
Who was Gennadii Burbulis?
First deputy prime minister
Who was the leader of the 1991 govt?
What economic policy was initially agreed in 1991/2?
Programme drawn up by Gaidar and team
Stabilising the economy
Undertaking liberalisation, domestic and external
Become the Memorandum of Economic Policy Feb 1992
Approved by IMF in April
Assistance from foreign economic advisors led by Jeffrey Sachs of Harvard
What was in the budget 1992 q1?
-new VAT 28%, progressive income tax top rate 60%, profits tax 32%, export tariffs
-cuts to defence, investment and subsidies
Budget almost balances in the end of q1 deficit only 1.5% of GDP
What was initial monetary policy like?
High interest rates positive in real terms
Aim to reduce inflation
When was price liberalisation and what did it entail?
2nd Jan 1992
90% consumer prices and 80% producer prices freed
Controlled prices still remain for energy, basic food goods, medicine, rents, freight transport and vodka)
Agricultural procurement prices still controlled
When was domestic trade liberalised?
End of Jan 1992
Laws allowing free street trade
What did the beginnings of external liberalisation entail?
Goal of single fixed exchange rate in April 1992 (happened in July 92
Citizens were then free to exchange currency
However the exchange rate decided by the Moscow Interbank Foreign Currency Exchange (MICEX) was clearly undervalued
Freed foreign trade but with a system of licensing and quotas (esp for energy carriers)
1 July introduction of import tariffs
Economic relations with other CIS countries liberalised
Rouble retained as single currency (initially supported by IMF but caused problems later)
What did price liberalisation cause?
As expected, One one huge jump in inflation, 245% Jan 1992 but falls to 12% in May 92 due to tight monetary and fiscal policy
What were some of the effects of large inflation in 1992?
Industrial output falls at an accelerating rate
Unemployment increase (mostly unregistered)
Sharp fall in exchange rate
What happened to support for quick reform?
Industry leaders lobbied to relaxation of the policy
Opposition mounts in parliament(Congress of people's deputies)
What changes were made to the government in early 1992?
April - Burbulis removed as deputy p.m
May to June - three top industrialist appointed to top government positions, including Chernomyrdim a gas industry expert
June - Gaidar made acting PM
What changes were made to the Central Bank of Russia (CBR) in terms of personnel and policy in 1992
July- parliament secures removal of Matyukhin as leader of CBR a reformer and is replaced by Gerashschenko who was formally chair of Soviet Gosbank
Loosened monetary policy allowing for growth in money supply and real interest rates to become negative
What changes were made to fiscal policy in late 1992?
Budget stringency relaxed
Deficit becomes 20% of GDP by the end of 1992
This was party due to large tax evasion
What changes were made to the government in late 1992?
Lobby pressure increased and Gaidar government became increasingly insecure
Gaidar removed on 12 Dec 1992 by parliament and replaced by Chernomyrdim (gas industry leader)
What were the successes of shock therapy?
Extensive price deregulation
Unification of exchange rate
Cut in soviet military legacy (85% cut in military budget)
Small enterprises emerged (although not to the same degree as a market economy)
Overall preconditions for market economy were created