Shock therapy (economics)
Bolivia successfully tackled hyperinflation in 1985 under President Victor Paz Estenssoro and Minister of Planning Gonzalo Sánchez de Lozada, using the ideas of economist Jeffrey Sachs.
[6] In post-Soviet Russia and other post-Communist states, neoliberal reforms based on the Washington Consensus resulted in a surge in excess mortality[7][8][9] and decreasing life expectancy,[10] along with rising economic inequality, corruption, and poverty.
[11][12] Isabella Weber of the University of Massachusetts said: "As a result of shock therapy, Russia experienced a rise in mortality beyond that of any previous peacetime experiences of an industrialized country.
[2]: 2 According to William Easterly, successful market economies rest on a framework of law, regulation, and established practice,[15] which cannot be instantaneously created in a society that was formerly authoritarian, heavily centralised, and subject to state ownership of assets.
Currency reform took effect on June 20, 1948, through the introduction of the Deutsche Mark to replace the Reichsmark and by transferring to the Bank deutscher Länder the sole right to print money.
Under the German Currency Conversion Law on 27 June, private non-bank credit balances were converted at a rate of 10 RM to 1 DM, with half remaining in a frozen bank account.
Holders of financial assets (including many small-time savers) were dispossessed and the banks' debt in Reichsmarks was eliminated, transferred instead into claims on the Lander and later the Federal Government.
[citation needed] On the day of the currency reform, Ludwig Erhard announced, despite the reservations of the Allies, that rationing would be considerably relaxed and price controls abolished.
Zuazo refused to take extra-constitutional powers (as previous military governments had done in similar crises) and concentrated on preserving the democracy instead, shortening his term by one year in response to his unpopularity and the crisis racking his country.
On 29 August, just three weeks after the election of Víctor Paz Estenssoro as President, and the appointment of Gonzalo Sánchez de Lozada, the architect of shock therapy, as Planning Minister, Decree 21060 was passed.
[30][31] The hypothesized one time jump in prices intended as part of shock therapy actually led to a lengthy period of extremely high inflation with a drop in output and subsequent low growth rates.
[2]: 231–232 The cost to human life was profound, as Russia suffered the worst peace time increase in mortality experienced by any industrialized country.
[32] According to Kristen Ghodsee and Mitchell A. Orenstein, a significant body of scholarship demonstrates that the rapid privatization schemes associated with neoliberal economic reforms did result in poorer health outcomes in former Eastern Bloc countries during the transition to capitalism, with the World Health Organization itself stating "IMF economic reform programs are associated with significantly worsened tuberculosis incidence, prevalence, and mortality rates in post-communist Eastern European and former Soviet countries.
[35] Arguments exist whether these adverse outcomes were due to the general collapse of the Soviet economy (which began before 1989) or the policies subsequently implemented or a combination of both.
The economic situation was that inflation was high, peaking at around 600%, and the majority of state-owned monopolies and holdings were largely ineffective and completely obsolete in terms of technology.
In the short term, the reforms smothered the building hyperinflation before it reached high levels,[40] ended food shortages, restored goods on the shelves of shops and halved the absence of employees in the work place.
Due to rampant hyperinflation, famine, poverty, and the depression of 1990-1991 in the Soviet Union, Russian leaders attempted to implement shock therapy to the economy.[51][when?]
[51] The downfall of shock therapy in Russia was marked by widespread social dislocation, economic instability, and the rise of oligarchs, contributing to public criticism and eroding trust in the government's neoliberal reform agenda.
Beyond that, the goals included repudiating protection and import substitution, returning to full participation in the world trading and financial systems, eliminating domestic price controls and subsidies, raising public revenue and holding government spending strictly to the levels of current revenue, initiating a social emergency program to reduce the shock of adjustment for the poor, and devoting a higher share of the country's resources to rural investment and correction of the causes of rural poverty.
The economic liberalisation in India refers to the series of policy changes aimed at opening up the country's economy to the world, with the objective of making it more market-oriented and consumption-driven.
The liberalisation process was prompted by a balance of payments crisis that had led to a severe recession, dissolution of the Soviet Union leaving the United States as the sole superpower as well as the need to fulfill structural adjustment programs required to receive loans from international financial institutions such as the IMF and World Bank.
"[62] The utilisation of what has been called by Joseph Stiglitz arguably the most radical market shock therapy tried anywhere helped to inflame sectarian divisions and greatly impeded Iraq's process of reconstruction and recovery.
[70] In a December 2006 Newsweek International article, a study by Global Insight in London was reported to show "that Civil war or not, Iraq has an economy, and—mother of all surprises—it's doing remarkably well.
Electricity production in 2006 was 15% lower than pre-invasion levels, and the failure to reconstruct Iraqi energy led to a rise in malnutrition, crude mortality rates, and a diminished access to clean water.
The CPA suspended all tariffs, import taxes, custom duties, and licensing fees resulting in a deluge of one-way trade where more competitive commodities flooded the market which destroyed what remained of Iraq's manufacturing sector.
[74] The resulting rise in impoverished capitalists and business owners and members of the labour force benefitted the Iraqi insurgency as they gained access to new recruits and sources of funding.
Reason magazine says, "It will be replaced by a newly formed agency, the Agencia de Recaudación y Control Aduanero (ARCA), which will assume some of its functions".
Meanwhile the ODSA (Observatorio de la Deuda Social Argentina) poverty watchdog of the UCA Catholic University voiced that although the projected indices had reached similar levels to the previous year for the third quarter of 2024 (41.7%), the consumer capacity of households experienced a reduction due to higher costs of basic services such as electricity, water, gas and transport, among others.
[123] She argues these policies are often unpopular, result in greater inequality and are accompanied by political and social "shocks" such as military coups, state sponsored terror, sudden unemployment and the suppression of labor.
[27] Shock therapy proponents Sachs and Lipton argued in 1990: "The great conundrum is how to privatize a vast array of firms in a manner that is equitable, swift, politically viable, and likely to create an effective structure of corporate control.
