Stabilisation and Liberalisation in Russia 1993-97

Question 1

What impact did stabilisation have on enterprises? (7 things)

Answer 1

1. Responses to reduced, demand price increases, no restructuring or cost reduction
2. Growth of inter enterprise debt, soft budget constraints remained
3. Increase in barter, 6% of sales in 1992, 17% in 1994
4. Negative real interest rates, a high amount of borrowing undertaken.
5. Expectation of policy reverse due to govt ambiguity, stabilisation main aim but fear of social consequences
6. Survival oriented enterprises with short term outlooks
7. Debt write offs, July 1992 freezing of all arrears and cancellation of mutual debt, large scale credit from CBR.

Question 2

What was economic policy like under Chernomyrdim 1993-94?

Answer 2

January 1993: pro-reformer Fedrov as minister of finance
April 1993: Lobov, industrialist not reformer and minister of economy
April 1993: referendum supporting reform won 55% boost pro reform sentiment
September 1993: Gaidar back in government, replaces Lobov as minister of economy renew stabilisation attempts
Overall zig zag of stabilisation and retreat

Question 3

What was the 1993 political crisis?

Answer 3

Early October-storming of the Duma
New constitution and election to Dumas
These election had a strong showing for the communists and were unfavourable to reform
Both Gaidar and Fedorov resign

Question 4

How did the 1993 political crisis effect policy?

Answer 4

Retreat from tight policy leading to higher inflation

Question 5

What was the Inter-enterprise arrears problem?

Answer 5

Over due debt that enterprises owed this was valued at between 80%-90% of GDP in 1994

Question 6

What major political event happened in 1996?

Answer 6

The Russian presidential election, reforms were put on hold

Question 7

Who ran Yeltsins presidential campaign?

Answer 7

Chubais who was replaced by Kadannikov

Question 8

What was the result of the 1996 presidential election?

Answer 8

Yeltsin wins with 53.8% of vote
However communist yet 40.3%
Also Yeltsin is seriously Ill during the election

Question 9

Why were many oligarchs and industrialist added to the new government?

Answer 9

As a reward for bankrolling Yeltsins campaign, for example Chernomyrdim became pm

Question 10

When did cubias return to government and what was his agenda?

Answer 10

Spring 1997- new round of liberal economic reforms

Question 11

What were the achievements of stabilisation? (6 things)

Answer 11

1. First positive growth in many years in 1997 0.9% GDP growth
2. industrial output recovers, decline in investment slows
3. Government able to control inflation, sharp slowdown in increases
4. Budget deficit reduced to 5-8% of GDP
5. Favourable trade balance (a lot to do with increase in oil prices)
6. Growth in FDI (but more capital leaving than entering)

Question 12

How was stabilisation achieved 6 things?

Answer 12

1. Introduction of GKOs
2. Launch of Eurobonds
3. Rating agency increasing Russia’s rating and commitment from IMF
4. Introduction of Veksely
5. Stable nominal exchange rate and appreciating real exchange rate
6. Positive interest rates

Question 13

What were GKOs?

Answer 13

A form of bonds. An non inflationary way of dealing with the deficit, 3 to 6 months, high yield however, disastrous when opened to international markets in 1996

Question 14

When were Eurobonds launched?

Answer 14

Late 1996 and Spring 1998

Question 15

How did rating improvements help Russia?

Answer 15

Meant they could borrow more cheaply with lower repayments on debts

Question 16

What were Veksely?

Answer 16

Promissory notes designed to fixed the problem of arrears in industry

Question 17

How did an appreciation in the exchange rate (in real terms) help?

Answer 17

Meant cheaper imports so people could find cheaper goods, although did harm domestic industry