THE RUSSIAN RUBLE CRISIS AND ITS AFTERMATH
After the collapse of Communism and the dissolution of Soviet Union in early 1990’s, the Russian government planned to restructure the economy by abolishing the system of price controls, in a hope to save the falling economy. But as to the surprise of Russian government, the intended effect was nowhere to be seen and more over caused the prices of commodities to inflate. The previous communist government held prices to a bare minimum and with no authority to control prices, the prices hit a record high combined with a shortage of basic goods. With no sufficient supply and high demand, the prices soured resulting in piling of money. The inflation rate was at an all-time high of 3000% for the year 1992.
With such an economic catastrophe at their disposal, the government started taking steps to revive the economic situation and revival of its currency. It started subsidizing state owned enterprises in order to prevent unemployment which in turn caused more budget deficit. With the option of raising taxes running out, the government had no choice but to print currency, which further depreciated the currency against US Dollar and other major currencies. As part of an economic plan, the government announced a tight budget and was able to halt the economic condition from worsening, but the fall in oil prices worldwide and heavy political opposition made it difficult for the government to take effective measures to revive the value of
One can easily admit that the Party had failed to properly economically plan the needs of each state. The Soviet Union economy was complex and massive, it became an impossible task for the state planners to manage, as they did not want to grant and create more managerial levels that would proceed to the local level resulting in failed timely attempts to the constant changes the economy was going through. Since the Soviet economy was based on state planning, it failed in encouraging innovation and motivating productivity. Managers would also alter numbers in order to produce the quotas that they were required to meet. The growth of the Soviet economy had been in a constant decline since the 1950’s and this progressed to the 1980’s. This was a clear sign that the Soviet economy was in need of a complete economic overhaul. Gorbachev succeeded power in March, 1985 and became General Secretary of the Central Committee of the Communist party of the Soviet Union. His main goal was to revive the Soviet economy, and he strongly believed that success was tied to loosening the governments control and creating a system that included less government intervention and more freedom to allow private initiatives. This new market economy would allow for private enterprise, which what Gorbachev believed would create more innovation. For the first time since 1920’s, individuals were able to own and create businesses.
This is because, the exports and imports had risen drastically which benefitted the economy. The government could use this to their advantage and implement what had caused the stunted GDP growth, in scenarios where the economy may be lacking or unstable.
The democratization, economic liberalization, and eventual collapse of the Soviet Union is commonly attributed to Mikhail Gorbachev's Perestroika and Glasnost reforms during the period of 1985-1991. This purpose of these reforms is still a trenchant question as the countries of the old Soviet Union, particular Russia, are being pressured to further liberalize their economies.
The Soviet Union, which was once a world superpower in the 19th century saw itself in chaos going into the 20th century. These chaoses were marked by the new ideas brought in by the new leaders who had emerged eventually into power. Almost every aspect of the Soviet Union was crumbling at this period both politically and socially, as well as the economy. There were underlying reasons for the collapse of communism in the Soviet Union and eventually Eastern Europe. The economy is the most significant aspect of every government. The soviet economy was highly centralized with a “command economy” (p.1. fsmitha.com), which had been broken down due to its complexity and centrally controlled with corruption involved in it. A strong government
Russia’s economy is very complex and also very terrible at the same time. Many other economy’s are also like this but Russia’s is a very interesting thing to learn about. Russia’s economy has many things wrong with it that in the long run could probably affected it in a negative way. But it also has many positive things about it.The negatives and the positives are, in my opinion, are equal in Russia economy.
This led to the credit freezing up because less money was in circulation resulting in deflation which was the downfall of the economy. Furthermore, due to deflation unemployment escalated because when prices dropped businesses had to cut cost by
Tsar Nicholas II is thought to be personally responsible for the collapse of the Russian Monarchy. His nature wasn’t well suited for the role he held therefore he was an incompetent leader. Russia was undergoing many changes and was in early stages of industrialization. This was followed by an embarrassing string of defeats of which the Tsar was badly prepared. His unsuccessful involvement in the First World War added to the disappointment in the government’s incompetence and corruption. There were many opportunities for Russia to modernize but this would require political change, which the Tsar was unwilling to do. Nicholas had many opportunities throughout his reign to reform, but destroyed his last chance of survival.
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
3. Part of the reason the World Bank’s standard Structural Adjustment Policies has been counterproductive partially because of unfortunate timing. Reduce government spending caused a recessionary effect, decreasing demand and increasing unemployment hurt nations. Strict monetary policy raised interest rates and helped to further suffocate investment demand and access to capital for poor farmers and low-income entrepreneurs. Currency devaluation did make exports cheaper but at a time when export markets for primary goods were oversupplied and prices were falling. Import cost also rose making it more expensive for domestic producers to obtain new technology and replacement parts. In addition, privatization of government enterprises also increased efficiency, which was accompanied by downsizing, which resulted in unemployment for thousands of the middle class. At this time the reductions in
How significant was war in bringing about political change in Russia in the year 1856-1964?
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 economy could not keep pace with the United States. The standard of living for Soviet citizens were steadily declining since the 1970s (Miller 2016, 17). The military was embroiled in the Afghanistan conflict which was producing massive causalities for the Soviet public and consuming scarce resources for its military that was needed for domestic consumption (Gaddis 2007). Secondly, the Soviet Union was plagued by appointing leaders who had fought in World War II, but with Gorbachev, they appointed a younger generation to take the mantle of leadership of the Soviet Union (Gaddis 2007). Gorbachev announce his economic restructure, Perestroika, and openness of the government, glasnost. Perestroika started the process of introducing market based principles into the operation of the state (Miller 2016, xii). State industries were allowed to determine output based on the will of the consumers as along as the orders from state bureau were fulfilled. Individuals would have the ability to own small-scale businesses and the property rights of those businesses would be respected (Miller 2016, 89). It also introduced competition in terms of foreign trade by allowing each ministry to pursue policies in their direct control when dealing with foreign companies and nations (Miller 2016, 71). The last major element of this would be allowing foreign investment by coupling Soviet resources such as
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.
The Russian state has been characterized by its strong heritage of powerful, autocratic leadership. This domination by small ruling elite has been seen throughout Russia's history and has transferred into its economic history. Throughout the Russian czarist period, to the legacy of seventy years of communism; Russia has been a country marked by strong central state planning, a strict command economy and an overall weak market infrastructure (Goldman, 2003). Self-interest, manipulation and corruption have all been present in the Russian economy, and have greatly helped the few as opposed to the many. To this day, Russia still struggles with creating a competitive and fair market.
Devaluation was postponed through heavy international support. The ultimate crisis in August 1998 resulted in a partial government default and steep devaluation