Economic history of the Russian Federation
Soviet industries obtained raw materials such as oil, natural gas, and coal at prices below world market levels, encouraging waste.
The central planning system allowed Soviet leaders to marshal resources quickly in times of crisis, such as the Nazi invasion, and to reindustrialize the country during the postwar period.
After 1991, under the leadership of Boris Yeltsin, the country made a significant turn toward developing a market economy by implanting basic tenets such as market-determined prices.
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.
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.
[8] The Russian GDP contracted an estimated 40% between 1991 and 1998, despite the country's wealth of natural resources, its well-educated population, and its diverse – although increasingly dilapidated – industrial base.
The sharp increase in the money supply was influenced by large foreign currency deposits that state-run enterprises and individuals had built up, and by the depreciation of the ruble.
After tightening the flow of money early in 1994, the Government loosened its restrictions in response to demands for credits by agriculture, industries in the Far North, and some favored large enterprises.
However, experts noted that control of inflation was aided substantially by the failure to pay wages to workers in state enterprises, a policy that kept prices low by depressing demand.
[citation needed] The government also failed to constrain its own expenditures in this period, partially under the influence of the post-Soviet Supreme Soviet of Russia, which encouraged the Soviet-style financing of favored industries.
[citation needed] In late 1992, deteriorating economic conditions and a sharp conflict with the parliament led Yeltsin to dismiss neoliberal reform advocate Yegor Gaidar as prime minister.
Based on positive early results from this policy, the IMF extended the first payment of US$1.5 billion to Russia from a special Systemic Transformation Facility (STF) the following July.
Although experts presented a number of theories to explain the drop, including the existence of a conspiracy, the loosening of credit and monetary controls clearly was a significant cause of declining confidence in the Russian economy and its currency.
[citation needed] In late 1994, Yeltsin reasserted his commitment to macroeconomic stabilization by firing Viktor Gerashchenko, head of the Central Bank, and nominating Tatyana Paramonova as his replacement.
Although reformers in the Russian government and the IMF and other Western supporters greeted the appointment with skepticism, Paramonova was able to implement a tight monetary policy that ended cheap credits and restrained interest rates (although the money supply fluctuated in 1995).
E.g. IMF estimates: [1]) Much of the decline in production has occurred in the military–industrial complex and other heavy industries that benefited most from the economic priorities of Soviet planners but have much less robust demand in a free market.
Western experts believe that Russian data overstate the dimensions of Russia's economic collapse by failing to reflect a large portion of the country's private-sector activity.
An important but unconventional service in Russia's economy is "shuttle trading" — the transport and sale of consumer goods by individual entrepreneurs, of whom 5 to 10 million were estimated to be active in 1996.
Traders buy goods in foreign countries such as China, Turkey, and the United Arab Emirates and in Russian cities, then sell them on the domestic market where demand is highest.
Opposed by a weak police force, Moscow's rate of protection rackets, contract murders, kickbacks, and bribes — all intimately connected with the economic infrastructure — has remained among the highest in Russia.
Luzhkov, who has close ties to all legitimate power centers in the city, has overseen the construction of sports stadiums, shopping malls, monuments to Moscow's history, and the ornate Christ the Savior Cathedral.
Under Luzhkov's leadership, the city government also acquired full or major interests in a wide variety of enterprises — from banking, hotels, and construction to bakeries and beauty salons.
However, longer-term stability depends on the ability of policy makers to withstand the inflationary pressures of demands for state subsidies and easier credits for failing enterprises and other special interests.
By 1996 the structure of Russian economic output had shifted far enough that it more closely resembled that of a developed market economy than the distorted Soviet central-planning model.
[citation needed] Some important market-oriented laws had also been passed, including a commercial code governing business relations and the establishment of an arbitration court for resolving economic disputes.
[citation needed] But in 1998 difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998, contributing to a sharp decline in Russia's earnings from oil exports and resulting in an exodus of foreign investors.
][citation needed] Under the presidency of Vladimir Putin, Russia's economy saw the nominal Gross Domestic Product (GDP) double, climbing from 22nd to 11th largest in the world.
During 2000–01, Russia not only met its external debt services but also made large advance repayments of principal on IMF loans but also built up Central Bank reserves with government budget, trade, and current account surpluses.
[32] In September 2009 the Russian government announced plans to sell state energy and transport holdings in order to help plug the budget deficit and to help improve the nation's aging infrastructure.
The state earmarked about 5,500 enterprises for divestment and plans to sell shares in companies that are already publicly traded, including Rosneft, the country's biggest oil producer.
