Name: Nadeen Saad HWID: H00308149

What were the key features of Russian reform 1991/92? Was it successful?

Russia has created an economic reform program in 1991 to improve the country’s economy. The
reform had five main aims, which were, to try improving the rate of the Ruble to have a stable
macroeconomy and creating a market economy which required tight control over credit; Market
liberalization; privatization; the construction of a social safety net including unemployment
compensation and lastly to make the country more industrial than a military industrial complex. This
essay will discuss each point and whether if it was successful or not. (Lipton et al., 1992) (FIscher,
n.d.)

The first step Russia started on the reforms is liberalization, this was done to stop Russia from falling
into hyperinflation. However, it was a risk because usually countries would start with stabilizing the
macroeconomics then liberalize prices. (FIscher, n.d.) Though, the government took the risk and
liberalized prices with restricted fiscal and monetary policy. This gave the market the freedom to
determine the rate of prices. Which helped to reduce the overhung monetary. After three months in
in 1992, the overhung monetary was removed. Black markets have been reduced, since the
commodities were sold through legal supply networks, which has eliminated the fear of food
shortages at the time. The money supply dropped by 15% of GDP. Lastly inflation has declined by
around 10% a month by July. (Lipton et al., 1992)

However, Inflation was still considerably high at the time, maybe liberalization has stopped Russia’s
economy from being hyperinflated, but it did not completely solve it. Also, with the amount of
freedom the government gave to the consumers with controlling the prices, this could lead to an
instability in macroeconomics. (Lipton et al., 1992)

Secondly, privatization was introduced in late 1991, Russian authorities has used the method of
‘voucher privatization.’ The results of privatization have shown a real success, it is a main reason that
many other reforms have survived. More than half of the population were supporting the idea to
own their assets via the voucher privatization, this would create a ‘competitors environment ‘in the
country that caused a lot of investments in Russia. (Shleifer, Vishny and Boycko, 2018)

However, many large companies were not privatized instead they were state owned, politicians
were making it difficult to let go of their property, creating a ‘competition environment’ in the
country was not effective as many of firm owners were owned by criminals, people would sell their
vouchers just to get more money, which caused corruption. (Shleifer, Vishny and Boycko, 2018)

Lastly, many reforms were made to improve the social welfare of the country, examples would be
the pension fund, and the state employment funds, which mainly benefits the people. The funds
were heavily relying on social insurance contributions, however due to the price liberalisation that
has driven the country into another inflation in 1992, the reforms have not been a success during
that year. (Maltseva, 2012)

In conclusion, the reforms did achieve a certain stabilization at the beginning of 1992, however mid-
way due to the freedom of price liberalization this has led to a hyperinflation, which was not an
expected result that it would increase by 150%, by the end of 1992. The production level was
starting to decrease, eventually causing an increase in unemployment. The aim of achieving a
stabilized macroeconomics was not achieved, it only destabilized it more and causing a steep fall of
the exchange rate on the ruble. (Shleifer, Vishny and Boycko, 2018) (Maltseva, 2012)
References

FIscher, S. (n.d.). Stabiliztion and Economic Reform in Russia. Brookings Papers on Economic
Activity.

Lipton, D., Sachs, J., Mau, V. and Phelps, E. (1992). Prospects for Russia's Economic
Reforms. Brookings Papers on Economic Activity, 1992(2), p.213.

Maltseva, E. (2012). WELFARE REFORMS IN POST-SOVIET STATES: A COMPARISON OF

SOCIAL BENEFITS REFORM IN RUSSIA AND KAZAKHSTAN.

Shleifer, A., Vishny, R. and Boycko, M. (2018). [online] Scholar.harvard.edu. Available at:
http://scholar.harvard.edu/files/shleifer/files/privatizing_russia.pdf [Accessed 22 Oct. 2018].