The Impact of Trade, Debt and Investment Policies on Russia Under the Presidency of Boris Yeltsin Report

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The present paper considers the period of transition that took place in the Russian Federation in 1990s. It was certainly a turbulent decade for the people, the government and for the whole country concerning all aspects of social, political and economic life of the nation. There was much done in the sphere of broken economy which, with the collapse of the Soviet Union, simply seized to exist. However, the President of the Russian Federation together with the newly elected government made a series of steps marking the creation of a new economic and political system.

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The period of transition is justly called the time of chaos and disorder that continuously took place in the Russian Federation under the presidency of Boris Yeltsin during the 1990s. He was a rough and intolerant leader who tried to guide the country out of the ruins it found itself in, but in fact the period was disastrous for the whole country:

In fact, in the dislocation and chaos that accompanied the transition from the centralized economy he had inherited from the old Soviet Union, most people saw their circumstances deteriorate. Inflation became rampant, the poor became poorer, profiteers grew rich, the military and many state employees went unpaid and flagrant criminality flourished (Berger, 2007).

The transition involved a huge set of reforms and changes that were needed within the country – for example, the adoption of Gaidar Reforms. They included:

  • rehabilitation of ruble (there would be no more barter but there would emerge normal trade with the involved national currency);
  • market liberalization (after many years of centralized economy the Russian Federation finally received the opportunity to trade freely);
  • privatization that will be discussed separately, construction of a social security system and converting the defense sector (which was left not financed at all, with Yeltsin and his government considering this sector unimportant anymore). (Russia, the West and Gaidar, 2001; Russian Economic Reform Loses a Friend in Ousted Gaidar, 1992).

The change in the financing cut influenced the development of technologies that were actively worked out during the Cold War and the existence of the USSR – much attention was paid to armor and innovation (e.g. launching of ‘Mir’ or improving the military facilities) at the expense of the needs of the society. During the liberalization period financing was streamed on social needs more than on defense, “as president, Mr. Yeltsin cut defense spending to under 5 percent of the country’s gross domestic product” (Aron, 2001).

Privatization is a specific topic needing particular attention – in the period of Yeltsin’s presidency it was a large-scale, disorderly and not lawful process during which more than 85% of state property were transferred into private ownership, starting from small firms, enterprises and organizations and finishing with large state objects (Russian Privatization , 2009). The main tools of privatization were vouchers and auctions issued by the government and sold to the employees of the companies as a means to save people from inflation:

Beginning in the fall 1992, the government put vouchers with a nominal value of 10,000 rubles in the hands of all Russian citizens, regardless of age. These vouchers could be exchanged for shares in Russian firms…given the rapid inflation in 1992, the nominal value of vouchers was pegged to 1991 asset values deflated by a factor of 1.7 (Hancock and Logue, 2000: 36).

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As one can see from the following quotation, the first stage of privatization were vouchers, then came auctions that, according to the information published in 1995,

aim to raise capital against the collateral of the state’s (often substantial) residual shares in some of Russia’s largest industrial enterprises. The auctions have already aroused controversy because of regional opposition to outside investment, whether Russian and foreign (Shumeiko Asks Yeltsin to Suspend Privatization Auctions, 1995).

The final, third stage of privatization was case by case sale of SOEs in later years of the process. Saying a couple more words about SOEs, it is important to note one more tendency in the period of the transition – the cut of their financing that caused the dramatic situation within the government structure of social institutions and other governmentally funded organizations, followed by massive layoffs and salaries not paid for years (Clarke, n.d.: 6-7).

Yeltsin built up a new market infrastructure – as he noted not once, he realized the dramatic drawbacks of the soviet centralization and wanted to give his nation more. The change in the market infrastructure, with the free trade space, had deep political implications – Yeltsin ensured his popularity with the Russian population and created a firm basis for further activity (Berger, 2007). The capital inflow within the country and financial effort taken by the president Yeltsin:

A substantial International Monetary Fund commitment of $10 billion in February 1996 stabilized the ruble, capped Russian prices at international levels, offset Russian capital outflows, and left the Russian debt and a continued dependence on international borrowing for currency stability (Hancock and Logue, 2000: 30).

The country experienced the necessity to form a new taxation system. With communism being free from taxes, the establishment of a tax system was challenged by people being not willing to pay and not used to paying taxes (Russia, n.d.: 40). The system of taxation was designed the following way: the VAT tax comprised 40%, business profit tax was 13%, excise taxes – 18%, personal income tax – 2%. Taxes were enormously high and the system of control was not well-established, so tax evasion became a normal phenomenon that spread widely (Russia, n.d.: 41).

The issues of dealing with outer debt that resulted in the Russian financial crisis in 1997-98 and brought about the banking crisis with rising interest rates and shortening of credit loans given by the government by 60% also marked the reign of Yeltsin and designated the change of the country’s profile (Huang et al, 2002: 3).

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It goes without saying that the period of transition was harsh and turbulent, marked with many significant changes in all significant aspects of the life of the country. It contained much innovation, reform in the social and political, but what is more important, economic life of the Russian people. The new taxation system was established, the ruble was stipulated as the national currency, trade and international relations were deeply affected – all these initial steps had a far-reaching effect on the development of the Russian Federation.

Bibliography

Aron, L. (2001). . New York Times. Web.

Berger, M. (2007). Boris Yeltsin, Russia’s First Post-Soviet Leader, Is Dead. The New York Times Company. Web.

Clarke, S. Trade Unions in Russia, China and Vietnam (2009). Web.

Hancock, M.D. and Logue, J. (2000). Transitions to capitalism and democracy in Russia and Central Europe: achievements, problems, prospects. Greenwood Publishing Group.

Huang, H. et al. (2002). . Web.

Russia (n.d.). Web.

Russia, the West and Gaidar (2001). The Russia Journal Archives. Web.

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Russian Economic Reform Loses a Friend in Ousted Gaidar (1992). The New York Times. Web.

Russian Privatization (2009). [online]. Web.

Shumeiko Asks Yeltsin to Suspend Privatization Auctions (1995). Web.

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IvyPanda. (2021) 'The Impact of Trade, Debt and Investment Policies on Russia Under the Presidency of Boris Yeltsin'. 18 November.

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IvyPanda. 2021. "The Impact of Trade, Debt and Investment Policies on Russia Under the Presidency of Boris Yeltsin." November 18, 2021. https://ivypanda.com/essays/the-impact-of-trade-debt-and-investment-policies-on-russia-under-the-presidency-of-boris-yeltsin/.

1. IvyPanda. "The Impact of Trade, Debt and Investment Policies on Russia Under the Presidency of Boris Yeltsin." November 18, 2021. https://ivypanda.com/essays/the-impact-of-trade-debt-and-investment-policies-on-russia-under-the-presidency-of-boris-yeltsin/.


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IvyPanda. "The Impact of Trade, Debt and Investment Policies on Russia Under the Presidency of Boris Yeltsin." November 18, 2021. https://ivypanda.com/essays/the-impact-of-trade-debt-and-investment-policies-on-russia-under-the-presidency-of-boris-yeltsin/.

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