Transcript Shock Therapy in Russia and Bolivia

Shock Therapy in Russia
and Bolivia
Russia
Bolivia
Comparing Russia and Bolivia
Population
Type of Shock
Date of Shock
GDP per Capita
2004
(Constant 2000 US$)
RUSSIA
BOLIVIA
143,420,309
8,989,046
Regime Change Monetary Therapy
(Decrease Hyperinflation)
(Privatization)
1990
1985
$2,302
$1,036
Russia and Privatization Methods

First Plans for Privatization were passed in 1991

In October of 1992, each Russian citizen
received 10,000 rubles worth of vouchers
Table 2: Privatization and Employment
140000
40.00%
35.00%
30.00%
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
120000
100000
80000
60000
40000
20000
0
1990
1991
1992
1993
1994
1995
Total Number of Enterprises Privatized Each Year
Private Sector Share
Number of Enterprises
Source: World Bank, Private Sector Development in Europe and Central Asia
1996
Private Sector Share of Employment (percent)
Privatization Continued


Vouchers were
immediately
exchangeable for
shares in enterprises
selected for
privatization
Everything not so
smooth…
Labor Productivity in Selected Transition Countries, 19891998
"Staged" Privatization
Poland
36%
Hungary
29%
Czech Republic
Mass Privatization
Russia
6%
33%
Source: Economic Commission for Europe, Economic Survey of
Europe, 1999
Problems

Managers
– Feared that they would lose their power
– Stage 2 (1994) “Loan for Shares”
 Auctions were changed right up to the time of
their meeting and only insiders new
 Were given large loans to buy the vouchers off the
less educated lower classes
– Very political, had to keep the Upper class
happy so the politicians in office were able to
stay and continue Privatization
Problems Continued

Public
– Very skeptic
 Had been told for 70 years that Privatization was bad and
now the government is turning around and saying the exact
opposite
– Were tricked into selling the vouchers for dirt cheap
prices which inflation then caused them to be almost
worthless
– Ended up bartering for vodka and other goods instead
– It was very valuable to be educated during this time
Reasons for Quick Transition

Leaders felt political pressure that they must
make changes and make them quickly so that
the citizens could see the advantages of
Privatization

Much different than neighboring Poland
– Privatization laws passed in 1990
– First Auction wasn’t until 1995
– Russia passed late 1991 and first auction in
December 1992
Bolivia
Inflation in Russia vs Bolivia
100000
10000
Annual %
1000
Bolivia
Russia
100
10
1
-5
-4
-3
-2
-1
0
1
2
3
Year, 0 = Start of Shock
4
5
6
7
8
9
10
Bolivia

In 1985 the Inflation rate was an
astounding 13,000%

Implemented a new monetary policy
– Boliviano introduced

Government began to cut spending
Problems

Has caused oilmen and industrial soy
farmers to gain massive profits
– Main Agricultural Products :soybeans, coffee,
coca, cotton, corn, sugarcane, rice, potatoes

The income levels for most have become
stagnant

Half the population now lives on $2 a day
GDP Growth
Real GDP Growth
15
10
Annual %
5
0
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
Bolivia
Russia
-5
-10
-15
-20
Year, 0=Start of Shock
Bolivia

Gonzalo Sánchez de Lozada
– The brains behind the economic reforms
– People didn’t see the quick results and he was ousted
as president
– Feels that if he would’ve had more time things might
have worked out better

Bolivia today now has high unemployment and is
one of the poorest countries in South America
Non-Policy Problems in Bolivia

Wars in the late 19th and early 20th
centuries cost Bolivia it’s seacoast

Since independence, Bolivia has lost over
half of its territory to neighboring
countries due to wars.
Question to Think About

As you can see with Inflation and GDP
Growth Bolivia seems to be fixing some
problems, but they are still the poorest
country in South America. Could it be that
no matter what policies the Bolivians put
in place they will never be able to be a big
time player in the world economy because
of out lying problems such as where they
are located and natural resources?