Russia History   Russian Federation   Democratic Russia - reforms of 90s
 :: Articles
State political development.
Social and economic reforms of 1992-1993. 'Shock therapy'
Foreign policy in 1992-1993.
 :: Search
Search in articles
Search in current section
 :: Constructor
 :: Game server
 :: Test

Social and economic reforms of 1992-1993. 'Shock therapy'

Accepted by the Russian government as a base model, the radical economic reform by methods of the western program of "shock therapy" became alternative to failed attempts of the Soviet Union leadership of 'perestroika' period to carry out gradual modernization of the supercentralized socialistic economy. According to the accepted by E. T. Gaydar's group concept, the post-soviet economy could not be updated, it was to be immediately dismantled with simultaneous break-down of command- bureaucratic system of management and distribution. This model of the radical and liberal modernization with wide use of monetarism methods was adopted in the Russian Federation in 1992-1993.

The first radical reform in the beginning of January 1992 became liberalization of prices. According to anticipations of government, this measure could result in rather insignificant (3 times) rise in prices. The index of budget salary, pensions, grants was accordingly raised (70 %). But the prices grew at once 10-12 times. The result was a sharp fall of living standards of the majority of population. Besides, the reform delivered a blow to savings deposit of citizens, lessened the value of their savings, mechanisms of their indexation were not developed. Those unexpected and dramatic results of realization of a new economic course resulted in deep distrust to the government of reformers in wide layers of population.

Another problem, which the government was facing, was the crisis of reciprocal defaults of payment. By June 1, 1992 the sum of debts in economy had reached nearly 2 trillion roubles. In the result, not getting money for produced and delivered production, enterprises of the country were on the verge of bankruptcy. Wage payment was chronically delayed. A way out of that situation became granting to state enterprises of lax credit by the Central Bank, which in its turn, created conditions for hyperinflation. Growth of money supply resulted in a sharp fall of rouble exchange rate and made impossible any financial and monetary stabilization. It inevitably lead to failure of Gaidar's monetary model of 'shock thearpy" and correction reforms course.

Simultaneously with liberalization of prices a number of measures on liberalization of trade followed. During 1992 it resulted in large-scale "primary accumulation of capital" thanks to speculative trading. The most dangerous consequence of this process became accumulation of huge money supply, which evaded taxation. As a result grew the deficiency of federal budget. That deficiency government tried to cover by means of foreign loans.
The main conditions of credits granting for Russia were liberalization of internal prices up to the world's level and liquidation of budget deficit.

At last, the third major task of economic modernization was privatization of property in the country by selling it or by other means. Voucher privatization on the basis of free-of-charge distribution of privatization checks of 10 thousand roubles principal value to all population was approved in summer 1992. Voucher privatization, according to the concept of reforms was to neutralize the negative effects of radical reforms and create the "middle class" - the class of proprietors-shareholders. Distribution of vouchers to the total sum of 1 trillion 400 billion roubles (so was all property of privatized enterprises of the country valued) to the population began on October 7, 1992.

Later, since July 1, 1994 the government made decision on transition onto the second stage of privatization - monetary stage. It was acknowledged, that voucher privatization did not give expected effect and did not result in revival of industrial production and appearance of proprietors' class.

Results of realization of economic reforms in 1992-1993 showed their internal contradiction. So, on one hand, liberated pricing was introduced and there began the process of mass privatization, which resulted in formation of free market relations in the society, on another - "shock therapy" caused growth of social tension in the society, breakdown of whole industries, delivered a crushing blow on budget spheres. The society underwent sharp polarization - division into rich, superrich, on one hand, and impoverished, poor - on the other. 4 % of the Russians in 1993 had incomes approximately 300 times exceeding incomes of the poorest citizens of the country.

The tragical price of reforms was the sharp increase of death rate of Russians (20 % in 1993 in comparison with 1992) and decrease of birth rate (14 % in comparison with the same period).
Increasing confrontation between federal executive and legislative bodies aggravated negative effects of market reforms in 1993. The existing situation threatened to destroy the basic mechanisms of society governing. After October events and adoption of the Constitution of the Russian Federation some steps on strengthening of federal executive authority were undertaken. At the same time correction of social and economic reforms course in questions of stage-by-stage development of free market economy and civil society was carried out.

Copyright © RIN 2001-. Russia Russia site map Feedback