Economy of Russia - Economic History

Economic History

The two fundamental and independent goals – macroeconomic stabilization and economic restructuring – are indicators for a transition from central planning to a market-based economy. The former entailed implementing fiscal and monetary policies that promote economic growth in an environment of stable prices and exchange rates. The latter required establishing commercial, and institutional entities – banks, private property, and commercial legal codes— that permit the economy to operate efficiently. Opening domestic markets to foreign trade and investment, thus linking the economy with the rest of the world, was an important aid in reaching these goals. The Gorbachev regime failed to address these fundamental goals. At the time of the Soviet Union's demise, the Yeltsin government of the Russian Republic had begun to attack the problems of macroeconomic stabilization and economic restructuring. By mid-1996, results were mixed.

Since the collapse of the Soviet Union in 1991, Russia has tried to develop a market economy and achieve consistent economic growth. In October 1991, Yeltsin announced that Russia would proceed with radical, market-oriented reform along the lines of "shock therapy", as recommended by the United States and IMF. However, this policy resulted in economic collapse, with millions being plunged into poverty and corruption and crime spreading rapidly. Hyperinflation resulted from the removal of Soviet price controls and again following the 1998 Russian financial crisis. Assuming the role as the sequel to the legal personality of the Soviet Union, Russia took up the responsibility for settling the USSR's external debts, even though its population made up just half of the population of the USSR at the time of its dissolution. When once all enterprises belonged to the state and were supposed to be equally owned amongst all citizens, they fell into the hands of a few, who became immensely rich. Stocks of state-owned enterprises were issued, and these new publicly traded companies were quickly handed to the members of Nomenklatura or known criminal bosses. For example, the director of a factory during the Soviet regime would often become the owner of the same enterprise. During the same period, violent criminal groups often took over state enterprises, clearing the way by assassinations or extortion. Corruption of government officials became an everyday rule of life. Under the government's cover, outrageous financial manipulations were performed that enriched the narrow group of individuals at key positions of the business and government mafia. Many took billions in cash and assets outside of the country in an enormous capital flight. That being said, there were corporate raiders such as Andrei Volgin engaged in hostile takeovers of corrupt corporations by the mid-1990s.

The largest state enterprises were controversially privatized by President Boris Yeltsin and subsequently owned by insiders for far less than they were worth. Many Russians consider these infamous "oligarchs" to be thieves. Through their immense wealth, the oligarchs wielded significant political influence.

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