The Russian Financial Crisis of 1998

Another repercussion of the Soviet Union’s collapse was the failure of the economies of almost every new post-Soviet country. Most of the economies of the new Republics were left in shambles after the collapse. In Russia, people were not ready for the new economic freedom that resulted from the fall of Communism. Their unpreparedness led to inflation. “Inflation caused prices to go up three hundred percent in the first month, and 2,591 percent by the end of 1992.”( Russian Economy in the Aftermath of the Collapse of the Soviet Union) Just three years after the Soviet Union’s fall, Russia’s inflation rate had skyrocketed to 2591 percent, evidencing that Russians were not prepared for such a rapid evolution, going from a communist economy into a capitalist economy. All post-Soviet countries had the same economic fate as Russia, plunging into worse economic conditions than the United States suffered during its Great Depression. For example, in 1992, the Ukraine had almost a fifteen percent drop in its gross domestic production and Latvia suffered a 33 percent drop. (GDP growth) Many of these countries’ economies are still suffering as a result of the rapid evolution

Former Soviet Premier Mikhail Gorbachev presided over the disintegration of a country based on an uncompromising ideological dogma, the unlikely inheritor of Marxist/Leninist communist philosophy. The Soviet Union’s unwieldy economic superstructure left it vulnerable to Ronald Reagan’s aggressive economic/military policy, an approach based on the belief that a military build-up would force the Soviets to spend to keep pace, an effective strategy because it pushed the Soviet economy over the edge into ruin. The subsequent implosion ended communist domination in Eastern Europe and opened the way for democratic elements that radically altered the political landscape in Moscow. When the Soviet Union officially came to an end in 1993, it briefly recalled the end of tsarist rule in 1917, with the potential for the kind of chaos and violence that turned the Russian Revolution into a bloodbath. President Boris Yeltsin used the military to disband parliament but his call for new elections moved the country toward a more open, democratic form of government. Lacking any real background in representative government, Russia ultimately proved incapable of fulfilling the promise of democratic government and descended into a form of anarchy riddled by increasingly strong criminal elements. In recent years, the rise of Boris Putin, a new strongman in Moscow, helped restore a sense of order and allowed the resurgence of communist elements. The government that now holds power, and which

Russia began its reform with political liberalization, and many believe that Russia’s failure was partly due to focusing on political reform first and they should have begun with economic reforms which China had done. This lead to political turmoil so severe that in 1989-1993 workers were politically neutralized and unable to stop Yeltsin’s liberal market reforms. But, a small group of oligarchs helped to

The many long-term internal causes of the collapse of the Soviet Union centralized around weaknesses in their economy. They had an inflexible central planning system, the inability to modernize, and the inefficiency in their agriculture production. Sometime around the 1970's the computer and automation revolution had emerged. This revolution took over the West, but practically missed the Soviet Union, except in the military sector (Baylis & Smith, 2001.) Gorbachev's goal in economic restructuring was to create a separation between the economic and the political. The major changes began with the legalization of private farming and business co-operatives, and the allowing of foreign company ownership over Soviet enterprises (Baylis &Smith, 2001) All of Gorbachev's ideas on economic restructuring backfired on him since the price levels were inconsistent, and a sense of social confusion about the future of their state was created.

Amid Russian Revolution years there is the chance to watch the Russian economy experiencing a few basic moves, including a portion of the most exceedingly bad things that can happen to a nation. There was war and civil war. The economy endured monetary breaking down, separation, and starvation. There was a breakdown of state limit: government prohibited Vodka.

One change in Russia was the change of political ideologies as the country moved from an absolute

Looking to restructure their communist economy to an economy with capitalist principles, the policy proposed reducing the direct involvement of the Communist Party in the country’s governance as well. However, marginal increases in the production of consumer goods and a failure to significantly improve standards of living fueled dissent. Furthermore, the underwhelming performance of this transitional system facilitated blowback by conservatives who wanted the communist model to return as well as the liberals who wanted to move even further from communism models. In the end, such unpopularity debilitated both Gorbachev and the USSR as a whole, paving the way for the collapse of Gorbachev’s administration and the USSR, a failed coup, and ultimately Boris Yeltsin’s rise to

It changed from a communist dictatorship into a multiparty democracy in which officials are chosen in regular elections. It’s centrally planned economy was reshaped into a capitalist order based on markets and private property. Its army withdrew peacefully from eastern Europe and the former Soviet republics, allowing the latter to become independent countries. Russia is doing very well after Communism, it now has economic success and general equality.

Boris Yeltsin, the first freely elected president of Russia, was, “...At once the country’s democratic father and a reviled figure blamed for most of the ills and hardships after the Soviet collapse (Berger)." Boris Yeltsin began his career working in the Communist Party as a secretary, hired by Mikhail Gorbachev. When he began to disagree with communist ideas, he rebelled, and was kicked out of the party. From this point, he went on to become the first president of Russia, while changing the economy in Russia. Although Boris Yeltsin started out as a member of the Communist Party, he was branded as a rebel for speaking out against the leader, so he later went on to break up the USSR and radically reform Russia's economic policies.

At the end of the Cold War, Russia was faced with many problems, a decaying military, a failing economy and a population who was learning how to change from a communist country to a democratic country. The Cold War Period had greatly affected Russia and one of the first things to be noticed by the people were when prices on goods were no longer fixed. The idea of a free market system was new and not everyone was ready to except this new Russia. The country essentially had to rebuild itself. Former satellite countries were declaring independence as quick as they could. As people throughout the world watched, they were unsure if Russia would ever be able to shake their socialist/communist history. Currently Russia is one of the leading

Soviet Union/Russia – The Mikhail Gorbachev Government, in 1991, banned the currency note of Ruble 50 and 100 in Soviet Union in an attempt to end and render valueless the huge amounts of black money that had amassed among the corrupt in the country. The government towards it final moments expected that the implementation of this said plan will decrease the market of black money substantially and give a proper life to common people. The reform failed to halt inflation, and instead served mainly to accelerate a slide in public confidence in the government. As political infighting combined with economic collapse, Gorbachev faced a coup attempt that August which destroyed his authority and led to the Soviet break-up the following year. In the subsequent years however progress in stabilization did not lead to a widely expected rapid expansion of wholesale markets based on the cash Ruble. The share of economic transactions and budget based operations in money surrogates and barter increased sharply despite all efforts by the government towards its prevention, along with specialized non-cash intermediary organizations, a fragmentation of markets, and an elaborate differentiation of prices for the same commodities according to type of transaction. As opposed to the past, when barter prices were commonly decreased below cash prices as a means of tax avoidance, average non-cash prices have become significantly higher than their cash counterparts. This created a problem in the

The presidency under Boris Yeltsin was Russia’s first experiment with capitalism and democracy following the collapse of the Soviet Union. Putin sought to fix the economic damage, along with restoring the traditional power structure of leaders in Russia. Putin developed what could be called a centralized capitalistic system, in which the government began to develop monopolies on big business, such as oil, but still had elements of free trade involved that the Stalin era did not. Many of Russia’s biggest oil companies give a large part of shares, or are owned by the state, especially Gazprom or Rosneft. Putin, in a move that was reminiscent of Stalin, moved to eliminate his rivals and the wealthy oligarchs of Russia.

* The Russian financial crisis of 1998 resulted in a financial collapse and devaluation of the ruble by 2/3. The domestic producers had to reduce their reliance on imported materials and some foreign competitors exited the Russia market.

Reforms and ethnic problems helped the Soviet Union collapse in 1991. What was the next move to help Russia be a major power in the world? Boris Yeltsin led Russia through most of the decade promoting something known as democracy and better living conditions than the Soviet Union. There were some failures along with success, however once Yeltsin was too old for the job he found a successor. Hence, Yeltsin passed the presidency on to Putin; the promotion of democracy was severely limited by an authoritarian leader wanting more power.

The period 1995 to mid-1997 was boom time for Russia’s financial markets. The value of the Russian bonds and stocks soared, with the participation of foreigners in these asset markets increasing rapidly. International investors’ optimism about the country’s future was lifted by stabilization policy that followed the advice of Western institutions.