Transcript Russian economic transformation

Russian economic transformation
Svetlana Ledyaeva
Aalto University
School of Business
Conclusions from previous lecture
“Great reforms” of Peters the Great played important role in Russia`s economic
development in 18th century.
“Great reforms” of Alexander II in the second part of 19th century has led to significant
industrialization of the Russian economy.
Bolshevik revolution was in fact inevitable - very low living standards of majority of
population.
Lenin`s state capitalism policy in 1921-1928 – very successful
Stalin terror and achievements – leader of Soviet Union from mid 1920th to 1953.
Almost 30 years! Autocrats always stay long in Russia?
Learning outcomes of this lecture
Political and socio-economic causes of Soviet Union
collapse
Russian economic transformation from central
planning economy to a market one: Economic
reforms and their consequences
Economic development of Russia in recent years:
Overview and comparison with other countries
The end of Brezhnev Era – beginning
of the collapse of Soviet system
Crisis in agriculture continued in the 1980s: Necessity to buy grain in the
international market:
While the price of petroleum was high - financing the purchase of grain from
internal sources was possible.
When the price of petroleum fell in the last 1980's =>
the Soviet Union needed to borrow the funds from Western banks to
purchase the needed grain. =>
This severely restricted the international activities of the Soviet Union.
HYPOTHESIS: The reason for the decline in petroleum prices in the late
1980's: the Soviet Union invasion of Afghanistan. =>
Saudi Arabia increased its production of petroleum drastically (to punish SU)
and consequently the price of petroleum fell.
Collapse of Soviet Union and the world
price of oil
Political causes of the Collapse of
Soviet Union
Eastern European countries (Poland, Hungary, Czechoslovakia)
demanded reforms of communism or even did not want
communism at all.
Nationalism among Soviet satellite states, democratic
opposition movements, and economic crisis.
Mikhail Gorbachev`s role. Although his attempt to reform
communism was rejected, his reformist positions as Soviet
premier helped open the way for full-fledged political
dissidence.
”Last days” of the Soviet Union
1982: Brezhnev dies and is replaced by
KGB chief Yuri Andropov.
1984: Andropov dies and is replaced by
Konstantin Chernenko.
1985: Chernenko dies and is replaced by
Mikhail Gorbachev.
MIKHAIL GORBACHEV (1985-1991)
His reforms hastened the end of communism.
-anti-alcohol campaign.
-the policies of OPENESS (RU: glasnost) and
RESTRUCTURING (RU: perestroika).
-1987: Signs superpower treaty with US to begin
scrapping nuclear warheads.
Collapse of the Soviet Union
In just two years from 1989 to 1991:
 The Berlin Wall fell.
 The Soviet Union disintegrated.
 Marxism-Leninism was dumped unceremoniously on
the ash heap of history.
 Boris Eltsin becomes the first elected president of
Russia in 1991.
Russia in economic transition: from
1991 onwards
Economic Transition of Russia
Yegor Gaidar, the controversial architect of Russia's painful transition
to a post-Soviet market economy.
First actual reform program was made in March 1992
(for IMF loan) => Washington consensus:
Liberalization
Stabilization
Privatization
Structural reforms
Yeltsin Russia (1991-1999)
Putin Russia (2000 – present)
versus
Economic transition: stages
(From Joseph Stiglitz (NOBEL PL), Globalization and its Discontents,
2002 Chapter 5)
1. Shock Therapy (Strongly voiced by US and IMF):
• First round: Instantaneous price liberalization -- prices freed overnight in
1992. Resulting inflation wiped out savings. First mistake. Capital was
used up.
• Prices for natural resources were kept low. People got rich through rent
seeking. – Buying oil in Russia and selling it in the West.
• Second Round: Stabilization to reduce inflation. Tightened monetary
policy by raising interest rates.
• Third Round: Privatization – supposed to bring about positive
restructuring of the economy. But this never occurred.
Hyperinflation in Russia, %/year
1000
900
943.76
874.62
822.1
800
700
600
Inflation in producer prices
500
Inflation in consumer prices
Inflation in the wage level
400
337
307.38
300
255.9
200
236.46
197.41
64.8
142.2
47.57
100
51.21
0
1993
1994
1995
1996
Stages of privatization
Pre-privatization (commercialization) stage late 1980s-1992
Mass Privatization (I) 1991-1994
– Voucher privatization
Cash privatization or Loans for Shares (II) 1994-1997
– Sales of larger, high-value enterprises to
financial/industrial groups.
– Loans for shares.
Voucher privatization
Anatoli Chubais – responsible for
Privatization in Russia.
Each voucher nominal value was
10,000 Russian rubles (175 USD):
issued in 1992. Duration: 3 years.
Every Russian citizen –
one voucher for free.
Vouchers could be used to buy shares of enterprises, voucher
investment funds or could be sold.
Cash privatization
Loans for shares:
Government transfers to banks – for temporal control (5 years) – stock
of shares of large companies.
In exchange for low-interest loans to the government due to 2000 (can
be used for budget expenditures).
During 5 years – the government must sell secured shares and return
loans to banks or  Ownership of many important enterprises was
turned over to the banks.
Economic reason – budget crisis.
Privatization
(From Joseph Stiglitz, Globalization and its Discontents, 2002 Chapter 5)
Privatization led to asset stripping, not wealth
creation:
• Pressured by US, World Bank and IMF to privatize quickly, state
turned over its assets for a pittance and did so before effective
tax system was in place.
• Thereby created a powerful class of oligarchs and businessman
who siphoned off funds and deposited them in Swiss bank
accounts.
• Russian government borrowed billions from IMF, yet, unable to
pay pensions or welfare payments.
Structural reforms
(From Joseph Stiglitz, Globalization and its Discontents, 2002 Chapter 5)
Radical restructuring failure:
• After 1989, GDP in Russia fell year after year.
Recession has lasted over a decade.
• 1990-1999: Russian industrial production fell
by almost 60% and GDP fell 54%.
The failed transition
(From Joseph Stiglitz, Globalization and its Discontents, 2002 Chapter 5)
Russia transformed from industrial country to natural resource
exporter.
Consensus that most people experienced a marked decline in their
basic standards of living.
Though:
Main market institutions have been established.
Public versus private sector (enterprises` statistics):
100
80
60
Private
40
Municipal
State
20
0
1996
2001
2002
2003
2004
2005
2006
August 1998
crisis
Russian government and Russian central bank:
devaluating the rouble;
defaulting on its debt.
Reasons:
 Declining productivity;
 Artificially high fixed exchange rate between
the rouble and foreign currencies to avoid public turmoil;
 Chronic fiscal deficit.
Consequences: Inflation (84% in 1998);
drop in expenditures of regional budgets;
drop in subsidies to agriculture.
August 1998 crisis
Video:
https://www.youtube.com/watch?v=GJUArcO18
GM
Part 2: Russia`s recent economics development
Main social and macroeconomic
indicators
Indicator
1992
Population, million
people
Unemployment rate,
%
2000
2005
2009
2010
2011
2012
2013
2014
148,6
146,3
143,2
142,8
142,9
143
143,3
143,7
146,3
(including
Crimea)
5,2
10,6
7,1
8,3
7,3
6,5
5,5
5,5
5,2
132,7
178,2
213,3
479,8
466,3
488,5
538,9
636,4
728,9
37
69
28
37
31
27
27
32
57
81
281
564
615
660
756
789
493
Foreign debt, billion
USD
(1 January of the
year)
% of GDP
Average per capita
income of
population, USD
10
1996
2015
2016
599
515,3
(prelimin
ary)
Main social and macroeconomic
indicators: cont.
Indicator
1970
1980
1990
Oil mining (incl. gas
condensate), million
tons
285
547
Gas mining, billion
cube meters
83,3
254
2000
2005
2009
2010
2011
2012
2013
2014
2015
516
324
470
495
505
512
519
522
527
(VEDOMOSTI.
RU)
534,08
(RBK.RU)
641
584
641
584
651
671
655
668
640
(INTERFAX.RU)
635
(RBK.RU)
38,3
52,2
149,2
190,2
260,7
346,5
368,9
372
346,1
% of GDP
11
20
20
15
17
19
18
18
27
% of total
43
51
62
63
66
67
70
71
70
Export: Mineral
fuels, lubricants and
related materials,
billion USD
export
1996
Resent economic trends in Russia
• The Russian economy has grown impressively
since 1999 and, by some measures, has been one
of the fastest growing economies in the world in
recent decade before 2014.
• The growth has brought an improvement in the
standards of living of the average Russian citizen
and has brought economic stability that Russia
had not experienced in at least a decade.
What is behind the Russian economy rapid growth
in recent years? Energy prices
What is behind the Russian economy rapid growth
in recent years before 2014? Macroeconomic policy
Conservatism in the area of expenditures
Formation of stabilization/reserve fund
Protection of the Central Bank from lobbyists of
inflationary financing
(Konstantin Sonin livejournal)
Annual inflation in Russia: 1993-2015
CPI, annual, dec vs. dec
1000
25
800
20
600
15
400
10
200
5
0
0
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
14
13.28
12
12.91
11.88
11.36
10.92
10
6
12.91
12
11.36
10
9.02
8
14
8.81
8.77
8
6.11
6.54
6.48
8.77
6.54
6
4
4
6.48
6.11
2
2
0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2010
2011
2012
2013
2014
2015
GDP in Russia in 1989-2014
% to previous year (based on
GDP at market prices, current
billion USD)
GDP at market prices (current
billion US$)
50
40
2500
2000
1500
1000
500
0
37
33
30
25
20
18
10
2930 31 28
2525
13
6 3
2 0
0 -1 3
-5 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
1994
-9
-10 1990 1992-11
-11
-20
-26
-28
-30
-33
-40
0
1989199119931995199719992001200320052007200920112013
GDP growth (annual %, constant 2005 USD)
15
10
10
6
5
0
-5
-10
-15
-20
1
5
5
7
7
6
8
9
5
5
4
3
1
1
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-5
-5
-3
-4
-8
-4
-9
-15
-13
Russia in the world: developing,
transition or developed?
According to IMF report 2011: Russia belongs to a group of emerging
and developing economies.
BRIC: Brazil, Russia, India, China:
are all deemed to be at a similar
stage of newly advanced
economic development.
Developed: highly educated population; Russia is one of the world's
five officially recognized nuclear powers.
Developing: polarization of wealth and poverty; high dependence on
natural resources.
Russia and other emerging economies
Emerging economies
Developing countries
BRICS: Brazil, Russia,
India, China, South Africa
Transition countries
Post-socialist,
Post-Soviet
republics (Russia)
Open questions
Which type of country is Russia in your opinion?
Developing, transition or something else?
In which aspects you would characterize Russia
as a developing country? As a transition
country?
Russia`s place in the world economy
(G-20 economies)
South Africa
0.69
Argentina
GDP as Share of World GDP at PPP By Country, %,
2013
0.89
Saudi Arabia
1.08
Australia
1.15
Turkey
1.35
Indonesia
1.49
Spain
1.6
Canada
1.75
South Korea
1.92
Italy
2.08
Mexico
2.12
France
2.62
UK
2.75
Brazil
2.79
Russia
2.94
Germany
3.72
Japan
5.4
India
5.83
China
15.4
USA
19.31
0
5
10
15
20
25
GINI coefficient : Russia and the World
(0 – complete equality; 1 – complete inequality
GINI coefficient
70
65
60
54.7
Ukraine (2013)
Slovak republic (2011)
Armenia (2013)
50
43.6
41.1 41.9 42.1
40
30
20
25
28.3 28.9
26.6 26.9 27.3 27.6
33.9 34.3
31.4 32.6 32.7 32.8
36
Romania (2012)
Kazakhstan (2013)
Belarus (2013)
Hungary (2011)
Moldova (2013)
Lithuania (2011)
Estonia (2011)
10
Poland (2011)
India (2010)
0
Bulgaria (2011)
Latvia (2011)
USA (2010)
Russia (2013)