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After the collapse of the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...
in 1991 and collapse of
Soviet Russia The Russian Soviet Federative Socialist Republic, Russian SFSR or RSFSR ( rus, Российская Советская Федеративная Социалистическая Республика, Rossíyskaya Sovétskaya Federatívnaya Soci ...
's controlled economy, a new
Russian Federation Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-eig ...
was created under
Boris Yeltsin Boris Nikolayevich Yeltsin ( rus, Борис Николаевич Ельцин, p=bɐˈrʲis nʲɪkɐˈla(j)ɪvʲɪtɕ ˈjelʲtsɨn, a=Ru-Boris Nikolayevich Yeltsin.ogg; 1 February 1931 – 23 April 2007) was a Soviet and Russian politician wh ...
in 1991. The Russian Federation had multiple economic reforms, including privatization and market and trade liberalization due to the collapse of
communism Communism (from Latin la, communis, lit=common, universal, label=none) is a far-left sociopolitical, philosophical, and economic ideology and current within the socialist movement whose goal is the establishment of a communist society, ...
. The economy is much more stable than in the early 1990s, but inflation still remains an issue for
Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...
. Historically and currently, the Russian economy has differed sharply from major developed economies in terms of a weak legal system, underdevelopment of modern economic activities, technological backwardness, and lower living standards.


Historical background

For about 69 years, the Russian economy and that of the rest of the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...
operated on the basis of a centrally planned economy, with a state control over virtually all means of production and over investment, production, and consumption decisions throughout the economy.
Economic policy The economy of governments covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership, and many other areas of government interventions into the ec ...
was made according to directives from the
Communist Party A communist party is a political party that seeks to realize the socio-economic goals of communism. The term ''communist party'' was popularized by the title of '' The Manifesto of the Communist Party'' (1848) by Karl Marx and Friedrich Engel ...
, which controlled all aspects of economic activity. Since the collapse of Communism in the early 1990s, Russia has experienced difficulties in making the transition from a centrally planned economy to a market based economy. Much of the structure of the Soviet economy that operated until 1987 originated under the leadership of
Joseph Stalin Joseph Vissarionovich Stalin (born Ioseb Besarionis dze Jughashvili; – 5 March 1953) was a Georgian revolutionary and Soviet Union, Soviet political leader who led the Soviet Union from 1924 until his death in 1953. He held power as Ge ...
, with only incidental modifications made between 1953 and 1987. Five-year plan and annual plans were the chief mechanisms the Soviet government used to translate economic policies into programs. According to those policies, the State Planning Committee (''Gosudarstvennyy planovyy komitet''—
Gosplan The State Planning Committee, commonly known as Gosplan ( rus, Госплан, , ɡosˈpɫan), was the agency responsible for central economic planning in the Soviet Union. Established in 1921 and remaining in existence until the dissolution of ...
) formulated countrywide output targets for stipulated planning periods.
Regional planning Regional planning deals with the efficient placement of land-use activities, infrastructure, and settlement growth across a larger area of land than an individual city or town. Regional planning is related to urban planning as it relates land ...
bodies then refined these targets for economic units such as state industrial enterprises and state farms (''sovkhozy''; sing., ''
sovkhoz A sovkhoz ( rus, совхо́з, p=sɐfˈxos, a=ru-sovkhoz.ogg, abbreviated from ''советское хозяйство'', "sovetskoye khozyaystvo (sovkhoz)"; ) was a form of state-owned farm in the Soviet Union. It is usually contrasted wit ...
'') and collective farms (''kolkhozy''; sing., ''
kolkhoz A kolkhoz ( rus, колхо́з, a=ru-kolkhoz.ogg, p=kɐlˈxos) was a form of collective farm in the Soviet Union. Kolkhozes existed along with state farms or sovkhoz., a contraction of советское хозяйство, soviet ownership or ...
''), each of which had its own specific output plan.
Central planning A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, pa ...
operated on the assumption that if each unit met or exceeded its plan, then demand and supply would balance. The government's role was to ensure that the plans were fulfilled. Responsibility for production flowed from the top down. At the national level, some seventy government ministries and state committees, each responsible for a production sector or subsector, supervised the economic production activities of units within their areas of responsibility. Regional ministerial bodies reported to the national-level ministries and controlled economic units in their respective geographical areas. The plans incorporated output targets for raw materials and intermediate goods as well as final goods and services. In theory, but not in practice, the central planning system ensured a balance among the sectors throughout the economy. Under central planning, the state performed the allocation functions that prices perform in a market system. In the Soviet economy, prices were an accounting mechanism only. The government established prices for all goods and services based on the role of the product in the plan and on other noneconomic criteria. This pricing system produced anomalies. For example, the price of bread, a traditional staple of the Russian diet, was below the cost of the wheat used to produce it. In some cases, farmers fed their livestock bread rather than grain because bread cost less. In another example, rental fees for apartments were set very low to achieve social equity, yet housing was in extremely short supply. Soviet industries obtained raw materials such as oil, natural gas, and coal at prices below world market levels, encouraging waste. The central planning system allowed Soviet leaders to marshal resources quickly in times of crisis, such as the Nazi invasion, and to reindustrialize the country during the postwar period. The rapid development of its defence and industrial base after the war permitted the Soviet Union to become a superpower. The attempts and failures of reformers during the era of
perestroika ''Perestroika'' (; russian: links=no, перестройка, p=pʲɪrʲɪˈstrojkə, a=ru-perestroika.ogg) was a political movement for reform within the Communist Party of the Soviet Union (CPSU) during the late 1980s widely associated wit ...
(restructuring) in the regime of
Mikhail Gorbachev Mikhail Sergeyevich Gorbachev (2 March 1931 – 30 August 2022) was a Soviet politician who served as the 8th and final leader of the Soviet Union from 1985 to the country's dissolution in 1991. He served as General Secretary of the Com ...
(1985–91) attested to the complexity of the challenge.


Transition to market economy

After 1991, under the leadership of
Boris Yeltsin Boris Nikolayevich Yeltsin ( rus, Борис Николаевич Ельцин, p=bɐˈrʲis nʲɪkɐˈla(j)ɪvʲɪtɕ ˈjelʲtsɨn, a=Ru-Boris Nikolayevich Yeltsin.ogg; 1 February 1931 – 23 April 2007) was a Soviet and Russian politician wh ...
, the country made a significant turn toward developing a market economy by implanting basic tenets such as market-determined prices. Two fundamental and interdependent goals — macroeconomic stabilization and economic restructuring — the transition from central planning to a market-based economy. The former entailed implementing fiscal and monetary policies that promote economic growth in an environment of stable prices and exchange rates. The latter required establishing the commercial, and institutional entities — banks, private property, and commercial legal codes— that permit the economy to operate efficiently. Opening domestic markets to
foreign trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy) In most countries, such trade represents a significant ...
and investment, thus linking the economy with the rest of the world, was an important aid in reaching these goals. The Gorbachev regime failed to address these fundamental goals. At the time of the Soviet Union's demise, the Yeltsin government of the Russian Republic had begun to attack the problems of macroeconomic stabilization and economic restructuring. By mid-1996, the results were mixed. Since
collapse of the Soviet Union The dissolution of the Soviet Union, also negatively connoted as rus, Разва́л Сове́тского Сою́за, r=Razvál Sovétskogo Soyúza, ''Ruining of the Soviet Union''. was the process of internal disintegration within the Sov ...
in 1991, Russia has tried to develop a
market economy A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers ...
and achieve consistent economic growth. In October 1991, Yeltsin announced that Russia would proceed with radical, market-oriented reform along the lines of "
shock therapy Electroconvulsive therapy (ECT) is a psychiatric treatment where a generalized seizure (without muscular convulsions) is electrically induced to manage refractory mental disorders.Rudorfer, MV, Henry, ME, Sackeim, HA (2003)"Electroconvulsive the ...
", as recommended by the United States and IMF.
Hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real value of the local currency, as the prices of all goods increase. This causes people to minimize their holdings in that currency as t ...
resulted from the removal of Soviet price controls and again following the
1998 Russian financial crisis The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the ruble and defaulting on its debt. The crisis had ...
. Assuming the role as the continuing legal personality of the Soviet Union, Russia took up the responsibility for settling the USSR's
external debt A country's gross external debt (or foreign debt) is the liabilities that are owed to nonresidents by residents. The debtors can be governments, corporations or citizens. External debt may be denominated in domestic or foreign currency. It inclu ...
s, even though its population made up just half of the population of the USSR at the time of its dissolution. The Russian GDP contracted an estimated 40% between 1991 and 1998, despite the country's wealth of natural resources, its well-educated population, and its diverse – although increasingly dilapidated – industrial base. Such a figure may be misleading, however, since much of the Soviet Union's GDP was military spending and the production of goods for which there was little demand. The discontinuation of much of that wasteful spending created the false impression of larger than actual economic contraction. Critical elements such as privatization of
state enterprises State may refer to: Arts, entertainment, and media Literature * '' State Magazine'', a monthly magazine published by the U.S. Department of State * ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, United States * ''Our ...
and extensive foreign investment were rushed into place in the first few years of the post-Soviet period. But other fundamental parts of the economic infrastructure, such as
commercial bank A commercial bank is a financial institution which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit. It can also refer to a bank, or a division of a large bank, which deals with ...
ing and authoritative, comprehensive commercial laws, were absent or only partly in place by 1996. Although by the mid-1990s a return to Soviet-era central planning seemed unlikely, the configuration of the post-transition economy remained unpredictable.


Monetary and fiscal policies

In January 1992, the government clamped down on money and credit creation at the same time that it lifted price controls. However, beginning in February, the Central Bank, headed by Viktor Gerashchenko, loosened the reins on the money supply. In the second and third quarters of 1992, the money supply had increased at especially sharp rates of 34% and 30%, respectively. By the end of 1992, the Russian money supply had increased by eighteen times. This led directly to high inflation and to a deterioration in the exchange rate of the ruble. The sharp increase in the money supply was influenced by large foreign currency deposits that state-run enterprises and individuals had built up, and by the depreciation of the ruble. Enterprises drew on these deposits to pay wages and other expenses after the Government had tightened restrictions on monetary emissions. Commercial banks monetized enterprise debts by drawing down accounts in foreign banks and drawing on privileged access to accounts in the Central Bank.


Inflation

In 1992, the first year of economic reform, retail prices in Russia increased by 2,520%. A major cause of the increase was the deregulation of most of the prices in January 1992, a step that prompted an average price increase of 245% in that month alone. By 1993 the annual rate had declined to 240%, still a very high figure. In 1994 the inflation rate had improved to 224%. Trends in annual inflation rates mask variations in monthly rates, however. In 1994, for example, the government managed to reduce monthly rates from 21% in January to 4% in August, but rates climbed once again, to 16.4% by December and 18% by January 1995. Instability in Russian monetary policy caused the variations. After tightening the flow of money early in 1994, the Government loosened its restrictions in response to demands for credits by agriculture, industries in the Far North, and some favored large enterprises. In 1995 the pattern was avoided more successfully by maintaining the tight monetary policy adopted early in the year and by passing a relatively stringent budget. Thus, the monthly inflation rate held virtually steady below 5% in the last quarter of the year. For the first half of 1996, the inflation rate was 16.5%. However, experts noted that control of inflation was aided substantially by the failure to pay wages to workers in state enterprises, a policy that kept prices low by depressing demand. An important symptom of Russian macroeconomic instability has been severe fluctuations in the exchange rate of the ruble. From July 1992, when the ruble first could be legally exchanged for United States dollars, to October 1995, the rate of exchange between the ruble and the dollar declined from 144 rubles per US$1 to around 5,000 per US$1. Prior to July 1992, the ruble's rate was set artificially at a highly overvalued level. But rapid changes in the nominal rate (the rate that does not account for inflation) reflected the overall macroeconomic instability. The most drastic example of such fluctuation was the Black Tuesday (1994) 27% reduction in the ruble's value. In July 1995, the Central Bank announced its intention to maintain the ruble within a band of 4,300 to 4,900 per US$1 through October 1995, but it later extended the period to June 1996. The announcement reflected strengthened fiscal and monetary policies and the buildup of reserves with which the government could defend the ruble. By the end of October 1995, the ruble had stabilized and actually appreciated in inflation-adjusted terms. It remained stable during the first half of 1996. In May 1996, a "crawling band" exchange rate was introduced to allow the ruble to depreciate gradually through the end of 1996, beginning between 5,000 and 5,600 per US$1 and ending between 5,500 and 6,100. Another sign of currency stabilization was the announcement that effective June 1996, the ruble would become fully convertible on a current-account basis. This meant that Russian citizens and foreigners would be able to convert rubles to other currencies for trade transactions.


Privatization

In the Soviet era, all enterprises belonged to the state and were supposed to be equally owned among all citizens. Privatization transferred much of this wealth into the hands of a few, making them immensely rich. Stocks of the state-owned enterprises were issued, and these new publicly traded companies were quickly handed to the members of
Nomenklatura The ''nomenklatura'' ( rus, номенклату́ра, p=nəmʲɪnklɐˈturə, a=ru-номенклатура.ogg; from la, nomenclatura) were a category of people within the Soviet Union and other Eastern Bloc countries who held various key admin ...
or known criminal bosses. For example, the director of a factory during the Soviet regime would often become the owner of the same enterprise. During the same period, violent criminal groups often took over state enterprises, clearing the way by assassinations or extortion.
Corruption Corruption is a form of dishonesty or a criminal offense which is undertaken by a person or an organization which is entrusted in a position of authority, in order to acquire illicit benefits or abuse power for one's personal gain. Corruption m ...
of government officials became an everyday rule of life. Under the government's cover, outrageous financial manipulations were performed that enriched the narrow group of individuals at key positions of the business and government
mafia "Mafia" is an informal term that is used to describe criminal organizations that bear a strong similarity to the original “Mafia”, the Sicilian Mafia and Italian Mafia. The central activity of such an organization would be the arbitration of d ...
. Many took billions in cash and assets outside of the country in an enormous
capital flight Capital flight, in economics, occurs when assets or money rapidly flow out of a country, due to an event of economic consequence or as the result of a political event such as regime change or economic globalization. Such events could be an increa ...
. The largest state enterprises were controversially privatized by President Boris Yeltsin to insiders for far less than they were worth. Many Russians consider these infamous " oligarchs" to be thieves. Through their immense wealth, the oligarchs wielded significant political influence.


1991–1992

Government efforts to take over the credit expansion also proved ephemeral in the early years of the transition. Domestic credit increased about nine times between the end of 1991 and 1992. The credit expansion was caused in part by the buildup of interenterprise arrears and the RCB's subsequent financing of those arrears. The Government restricted financing to state enterprises after it lifted controls on prices in January 1992, but enterprises faced cash shortages because the decontrol of prices cut demand for their products. Instead of curtailing production, most firms chose to build up inventories. To support continued production under these circumstances, enterprises relied on loans from other enterprises. By mid-1992, when the amount of unpaid interenterprise loans had reached 3.2 trillion rubles (about US$20 billion), the government froze interenterprise debts. Shortly thereafter, the government provided 181 billion rubles (about US$1.1 billion) in credits to enterprises that were still holding debt. The government also failed to constrain its own expenditures in this period, partially under the influence of the post-Soviet
Supreme Soviet of Russia The Supreme Soviet of the Russian SFSR (russian: Верховный Совет РСФСР, ''Verkhovny Sovet RSFSR''), later Supreme Soviet of the Russian Federation (russian: Верховный Совет Российской Федерации, ...
, which encouraged the Soviet-style financing of favored industries. By the end of 1992, the Russian
budget A budget is a calculation play, usually but not always financial, for a defined period, often one year or a month. A budget may include anticipated sales volumes and revenues, resource quantities including time, costs and expenses, environme ...
deficit was 20% of GDP, much higher than the 5% projected under the economic program and stipulated under the
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glo ...
(IMF) conditions for international funding. This budget deficit was financed largely by expanding the money supply. These monetary and fiscal policies were a factor along with price liberalization in an inflation rate of over 2,000% in 1992. In late 1992, deteriorating economic conditions and a sharp conflict with the parliament led Yeltsin to dismiss
neoliberal Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent f ...
reform advocate
Yegor Gaidar Yegor Timurovich Gaidar (russian: link=no, Его́р Тиму́рович Гайда́р; ; 19 March 1956 – 16 December 2009) was a Soviet and Russian economist, politician, and author, and was the Acting Prime Minister of Russia from 15 Ju ...
as prime minister. Gaidar's successor was
Viktor Chernomyrdin Viktor Stepanovich Chernomyrdin (russian: Ви́ктор Степа́нович Черномы́рдин, ; 9 April 19383 November 2010) was a Soviet and Russian politician and businessman. He was the Minister of Gas Industry of the Soviet Unio ...
, a former head of the State Natural Gas Company (
Gazprom PJSC Gazprom ( rus, Газпром, , ɡɐzˈprom) is a Russian majority state-owned multinational energy corporation headquartered in the Lakhta Center in Saint Petersburg. As of 2019, with sales over $120 billion, it was ranked as the large ...
), who was considered less favorable to neoliberal reform.


Unforeseen results of reform


1993

Chernomyrdin formed a new government with
Boris Fedorov Boris Grigoryevich Fyodorov (russian: Борис Григорьевич Фёдоров) (13 February 1958 in Moscow – 20 November 2008 in London) was a Russian economist, politician, and reformer. Early life He was awarded a doctor of econ ...
, an economic reformer, as deputy prime minister and finance minister. Fedorov considered macroeconomic stabilization a primary goal of Russian economic policy. In January 1993, Fedorov announced a so-called anticrisis program to control inflation through tight monetary and fiscal policies. Under the program, the government would control money and credit emissions by requiring the RCB to increase interest rates on credits by issuing government bonds, by partially financing budget deficits, and by starting to close inefficient state enterprises. Budget deficits were to be brought under control by limiting wage increases for state enterprises, by establishing quarterly budget deficit targets, and by providing a more efficient
social safety net The social safety net (SSN) consists of non-contributory assistance existing to improve lives of vulnerable families and individuals experiencing poverty and destitution. Examples of SSNs are previously-contributory social pensions, in-kind and fo ...
for the unemployed and pensioners. The printing of
money Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context. The primary functions which distinguish money ar ...
and domestic credit expansion moderated somewhat in 1993. In a public confrontation with the parliament, Yeltsin won a referendum on his economic reform policies that may have given the reformers some political clout to curb state expenditures. In May 1993, the Ministry of Finance and the Central Bank agreed to macroeconomic measures, such as reducing subsidies and increasing revenues, to stabilize the economy. The Central Bank was to raise the discount lending rate to reflect inflation. Based on positive early results from this policy, the IMF extended the first payment of US$1.5 billion to Russia from a special Systemic Transformation Facility (STF) the following July. Fedorov's anticrisis program and the Government's accord with the Central Bank had some effect. In the first three quarters of 1993, the Central Bank held money expansion to a monthly rate of 19%. It also substantially moderated the expansion of credits during that period. The 1993 annual inflation rate was around 1,000%, a sharp improvement over 1992, but still very high. The improvement figures were exaggerated, however, because state expenditures had been delayed from the last quarter of 1993 to the first quarter of 1994. State enterprise arrears, for example, had built up in 1993 to about 15 trillion rubles (about US$13 billion, according to the mid-1993 exchange rate).


1994

In June 1994, Chernomyrdin presented a set of moderate reforms calculated to accommodate the more conservative elements of the Government and parliament while placating reformers and Western creditors. The prime minister pledged to move ahead with restructuring the economy and pursuing fiscal and monetary policies conducive to macroeconomic stabilization. But stabilization was undermined by the Central Bank, which issued credits to enterprises at subsidized rates, and by strong pressure from industrial and agricultural lobbies seeking additional credits. By October 1994, inflation, which had been reduced by tighter fiscal and monetary policies early in 1994, began to soar once again to dangerous levels. On 11 October, a day that became known as Black Tuesday, the value of the ruble on interbank exchange markets plunged by 27%. Although experts presented a number of theories to explain the drop, including the existence of a
conspiracy A conspiracy, also known as a plot, is a secret plan or agreement between persons (called conspirers or conspirators) for an unlawful or harmful purpose, such as murder or treason, especially with political motivation, while keeping their agr ...
, the loosening of credit and monetary controls clearly was a significant cause of declining confidence in the Russian economy and its currency. In late 1994, Yeltsin reasserted his commitment to macroeconomic stabilization by firing
Viktor Gerashchenko Viktor Vladimirovich Gerashchenko (russian: Ви́ктор Влади́мирович Гера́щенко; born 21 December 1937 Leningrad, Soviet Union), nicknamed ''Gerakl'' (the Russian version of Heracles, or sometimes of debacle), was the ch ...
, head of the Central Bank, and nominating Tatyana Paramonova as his replacement. Although reformers in the Russian government and the IMF and other Western supporters greeted the appointment with skepticism, Paramonova was able to implement a tight monetary policy that ended cheap credits and restrained interest rates (although the money supply fluctuated in 1995). Furthermore, the parliament passed restrictions on the use of monetary policy to finance the state debt, and the Ministry of Finance began to issue government bonds at market rates to finance the deficits. According to official Russian data, in 1994 the national gross domestic product (GDP) was 604 trillion rubles (about US$207 billion according to the 1994 exchange rate), or about 4% of the United States GDP for that year. But this figure underestimates the size of the Russian economy. Adjusted by a purchasing-power parity formula to account for the lower cost of living in Russia, the 1994 Russian GDP was about US$678 billion, making the Russian economy approximately 10% of the United States economy. In 1994 the adjusted Russian GDP was US$4,573 per capita, approximately 19% of that of the United States.


1995

During most of 1995, the government maintained its commitment to tight fiscal constraints, and budget deficits remained within prescribed parameters. However, in 1995 pressures mounted to increase government spending to alleviate wage arrearages, which were becoming a chronic problem within state enterprises, and to improve the increasingly tattered social safety net. In fact, in 1995 and 1996 the state's failure to pay many such obligations (as well as the wages of most state workers) was a major factor in keeping Russia's budget deficit at a moderate level. Conditions changed by the second half of 1995. The members of the
State Duma The State Duma (russian: Госуда́рственная ду́ма, r=Gosudárstvennaja dúma), commonly abbreviated in Russian as Gosduma ( rus, Госду́ма), is the lower house of the Federal Assembly of Russia, while the upper hous ...
(beginning in 1994, the lower house of the Federal Assembly, Russia's parliament) faced elections in December, and Yeltsin faced dim prospects in his 1996 presidential reelection bid. Therefore, political conditions caused both Duma deputies and the president to make promises to increase spending. In addition, late in 1995 Yeltsin dismissed
Anatoly Chubais Anatoly Borisovich Chubais (russian: Анатолий Борисович Чубайс; born 16 June 1955) is a Russian politician and economist who was responsible for privatization in Russia as an influential member of Boris Yeltsin's administ ...
, one of the last economic reform advocates remaining in a top Government position, as deputy prime minister in charge of economic policy. In place of Chubais, Yeltsin named Vladimir Kadannikov, a former automobile plant manager whose views were antireform. This move raised concerns in Russia and the West about Yeltsin's commitment to economic reform. Another casualty of the political atmosphere was RCB chairman Paramonova, whose nomination had remained a source of controversy between the State Duma and the Government. In November 1995, Yeltsin was forced to replace her with Sergey Dubinin, a Chernomyrdin protégé who continued the tight-money policy that Paramonova had established.


1996

As of mid-1996, four and one-half years after the launching of Russia's post-Soviet economic reform, experts found the results promising but mixed. The Russian economy has passed through a long and wrenching depression. Official Russian economic statistics indicate that from 1990 to the end of 1995, Russian GDP declined by roughly 50%, far greater than the decline that the United States experienced during the
Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
. (However, alternative estimates by Western neoliberal pro-disregulation analysts described a much less severe decline, taking into account the upward bias of Soviet-era economic data and the downward bias of post-Soviet data. E.g. IMF estimates

Much of the decline in production has occurred in the
military–industrial complex The expression military–industrial complex (MIC) describes the relationship between a country's military and the defense industry that supplies it, seen together as a vested interest which influences public policy. A driving factor behind the ...
and other heavy industries that benefited most from the economic priorities of Soviet planners but have much less robust demand in a free market. But other major sectors such as agriculture, energy, and light industry also suffered from the transition. To enable these sectors to function in a market system, inefficient enterprises had to be closed and workers laid off, with resulting declines in output and consumption. Analysts had expected that Russia's GDP would begin to rise in 1996, but data for the first six months of the year showed a continuing decline, and some Russian experts predicted a new phase of economic crisis in the second half of the year. The pain of the restructuring has been assuaged somewhat by the emergence of a new private sector. Western experts believe that Russian data overstate the dimensions of Russia's economic collapse by failing to reflect a large portion of the country's private-sector activity. The Russian services sector, especially retail sales, is playing an increasingly vital role in the economy, accounting for nearly half of GDP in 1995. The services sector's activities have not been adequately measured. Data on sector performance are skewed by the underreporting or nonreporting of output that Russia's tax laws encourage. According to Western analysts, by the end of 1995 more than half of GDP and more than 60% of the labor force were based in the private sector. An important but unconventional service in Russia's economy is "shuttle trading" — the transport and sale of consumer goods by individual entrepreneurs, of whom 5 to 10 million were estimated to be active in 1996. Traders buy goods in foreign countries such as China, Turkey, and the United Arab Emirates and in Russian cities, then sell them on the domestic market where demand is highest. Yevgeniy Yasin, minister of economics, estimated that in 1995 some US$11 billion worth of goods entered Russia in this way. Shuttle traders have been vital in maintaining the standard of living of Russians who cannot afford consumer goods on the conventional market. However, domestic industries such as textiles suffer from this infusion of competing merchandise, whose movement is unmonitored, untaxed, and often mafia-controlled. The geographical distribution of Russia's wealth has been skewed at least as severely as it was in Soviet times. By the mid-1990s, economic power was being concentrated in Moscow at an even faster rate than the federal government was losing political power in the rest of the country. In Moscow an economic oligarchy, composed of politicians, banks, businesspeople, security forces, and city agencies, controlled a huge percentage of Russia's financial assets under the rule of Moscow's energetic and popular mayor,
Yuriy Luzhkov Yury Mikhailovich Luzhkov ( rus, Ю́рий Миха́йлович Лужко́в, p=ˈjʉrʲɪj mʲɪˈxajləvʲɪtɕ lʊˈʂkof; 21 September 1936 – 10 December 2019) was a Russian politician who served as mayor of Moscow from 1992 to 2010 ...
. Unfortunately, organized crime also has played a strong role in the growth of the city. Opposed by a weak police force, Moscow's rate of protection rackets, contract murders, kickbacks, and bribes — all intimately connected with the economic infrastructure — has remained among the highest in Russia. Most businesses have not been able to function without paying for some form of mafia protection, informally called a krysha (the Russian word for roof). Luzhkov, who has close ties to all legitimate power centers in the city, has overseen the construction of sports stadiums, shopping malls, monuments to Moscow's history, and the ornate Christ the Savior Cathedral. In 1994 Yeltsin gave Luzhkov full control over all state property in Moscow. In the first half of 1996, the city privatized state enterprises at the rate of US$1 billion per year, a faster rate than the entire national privatization process in the same period. Under Luzhkov's leadership, the city government also acquired full or major interests in a wide variety of enterprises — from banking, hotels, and construction to bakeries and beauty salons. Such ownership has allowed Luzhkov's planners to manipulate resources efficiently and with little or no competition. Meanwhile, Moscow also became the center of foreign investment in Russia, often to the exclusion of other regions. For example, the McDonald's fast-food chain, which began operations in Moscow in 1990, enjoyed immediate success but expanded only in Moscow. The concentration of Russia's banking industry in Moscow gave the city a huge advantage in competing for foreign commercial activity. In mid-1996 the national government appeared to have achieved some degree of macroeconomic stability. However, longer-term stability depends on the ability of policy makers to withstand the inflationary pressures of demands for state subsidies and easier credits for failing enterprises and other special interests. (Chubais estimated that spending promises made during Yeltsin's campaign amounted to US$250 per voter, which if actually spent would approximately double the national budget deficit; most of Yeltsin's pledges seemingly were forgotten shortly after his reelection.) By 1996 the structure of Russian economic output had shifted far enough that it more closely resembled that of a developed market economy than the distorted Soviet central-planning model. With the decline in demand for defense industry goods, overall production has shifted from heavy industry to consumer production. However, in the mid-1990s the low quality of most domestically produced consumer goods continued to limit enterprises' profits and therefore their ability to modernize production operations. On the other side of the "vicious circle," reliance on an outmoded production system guaranteed that product quality would remain low and uncompetitive. Most prices were left to the market, although local and regional governments control the prices of some staples. Energy prices remain controlled, but the Government has been shifting these prices upward to close the gap with world market prices. A 1996 government report quantified so-called "shadow economy" which yields no taxes or government statistics as accounting for about 51% of the economy and 40% of its cash turnover.


1997–1998

By the end of 1997, Russia had achieved some progress. Inflation had been brought under control, the ruble was stabilized, and an ambitious privatization program had transferred thousands of enterprises to private ownership. Some important market-oriented laws had also been passed, including a commercial code governing business relations and the establishment of an arbitration court for resolving economic disputes. But in 1998 difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998, contributing to a sharp decline in Russia's earnings from oil exports and resulting in an exodus of foreign investors. The government allowed the ruble to fall precipitously and then stopped payment on $40 billion in ruble GKOs, the short-term treasury bonds widely held by foreign investors.


1999

In 1999, output increased for only the second time since 1991, by an officially estimated 6.4%, regaining 4.6% drop of 1998. This increase was achieved despite a year of potential turmoil that included the tenure of three premiers and culminated in the New Year's Eve resignation of President Boris Yeltsin. Of great help was the tripling of international oil prices in the second half of 1999, raising the export surplus to $29 billion. On the negative side, inflation rose to an average 85% in 1998, compared with an 11% average in 1997 and a hoped-for 36% average in 1999. Ordinary persons found their wages falling by roughly 30% and their pensions by 45%. The
Vladimir Putin Vladimir Vladimirovich Putin; (born 7 October 1952) is a Russian politician and former intelligence officer who holds the office of president of Russia. Putin has served continuously as president or prime minister since 1999: as prime min ...
government gave high priority to supplementing low incomes by paying down wage and pension arrears.


2000–2007

Russia posted gross domestic product growth of 6.4% in 1999, 10% in 2000, 5.1% in 2001, 4.7% in 2002, 7.3% in 2003, 7.2% in 2004, 6.4% in 2005, 8.2% in 2006 and 8.5% in 2007 with industrial sector posting high growth figures as well. Under the presidency of
Vladimir Putin Vladimir Vladimirovich Putin; (born 7 October 1952) is a Russian politician and former intelligence officer who holds the office of president of Russia. Putin has served continuously as president or prime minister since 1999: as prime min ...
Russia's economy saw the nominal
Gross Domestic Product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is of ...
(GDP) double, climbing from 22nd to 11th largest in the world. The economy made real gains of an average 7% per year (2000: 10%, 2001: 5.1%, 2002: 4.7%, 2003: 7.3%, 2004: 7.2%, 2005: 6.4%, 2006: 8.2%, 2007: 8.5%, 2008: 5.6%), making it the 6th largest economy in the world in
GDP (PPP) GDP (PPP) means gross domestic product based on purchasing power parity. This article includes a list of countries by their forecast estimated GDP (PPP). Countries are sorted by GDP (PPP) forecast estimates from financial and statistical ...
. In 2007, Russia's GDP exceeded that of 1990, meaning it has overcome the devastating consequences of the Soviet era, 1998 financial crisis, and preceding recession in the 1990s. On a per capita basis, Russian GDP was US$11,339 per individual in 2008, making Russians 57th richest on both a purchasing power and nominal basis. During Putin's eight years in office, industry grew by 75%, investments increased by 125%, and agricultural production and construction increased as well. Real incomes more than doubled and the average salary increased eightfold from $80 to $640.Russians weigh an enigma with Putin’s protégé
NBC News NBC News is the news division of the American broadcast television network NBC. The division operates under NBCUniversal Television and Streaming, a division of NBCUniversal, which is, in turn, a subsidiary of Comcast. The news division's v ...
Retrieved on May 3, 2008
Putin’s Economy – Eight Years On
Russia Profile, Retrieved on April 23, 2008
The volume of consumer credit between 2000 and 2006 increased 45 times, РОЗНИЧНЫЙ ПОДХОД. Российские банки борются за частников
Ежегодно объем потребительского кредитования в России удваивается
and during that same time period, the middle class grew from 8 million to 55 million, an increase of 7 times. The number of people living below the poverty line also decreased from 30% in 2000 to 14% in 2008.
RIA Novosti RIA Novosti (russian: РИА Новости), sometimes referred to as RIAN () or RIA (russian: РИА, label=none) is a Russian state-owned domestic news agency. On 9 December 2013 by a decree of Vladimir Putin it was liquidated and its asset ...
Retrieved on May 1, 2008
ОСНОВНЫЕ СОЦИАЛЬНО-ЭКОНОМИЧЕСКИЕ ИНДИКАТОРЫ УРОВНЯ ЖИЗНИ НАСЕЛЕНИЯ
Inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
remained a problem however, as the government failed to contain the growth of prices. Between 1999 and 2007 inflation was kept at the forecast ceiling only twice, and in 2007 the inflation exceeded that of 2006, continuing an upward trend at the beginning of 2008. In the June 2002
G8 Summit The Group of Eight (G8) was an inter-governmental political forum from 1997 until 2014. It had formed from incorporating Russia into the Group of Seven, or G7, and returned to its previous name after Russia left in 2014. The forum originated ...
, leaders of the eight nations signed a statement agreeing to explore cancellation of some of Russia's old Soviet debt to use the savings for safeguarding materials in Russia that could be used by terrorists. Under the proposed deal, $10 billion would come from the United States and $10 billion from other G-8 countries over 10 years. In 2003, the debt has risen to $19 billion due to higher Ministry of Finance and Eurobond payments. However, $1 billion of this has been prepaid, and some of the private sector debt may already have been repurchased. Russia continued to explore debt swap/exchange opportunities. On January 1, 2004, the
Stabilization fund of the Russian Federation The Stabilization fund of the Russian Federation (russian: Стабилизационный фонд Российской Федерации, Stabilizatsionny fond Rossiyskoy Federatsi) was a sovereign wealth fund established based on a resolut ...
was established by the
Government of Russia The Government of Russia exercises executive power in the Russian Federation. The members of the government are the prime minister, the deputy prime ministers, and the federal ministers. It has its legal basis in the Constitution of the Russ ...
as a part of the federal budget to balance it if oil price falls. Now the Stabilization fund of the
Russian Federation Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-eig ...
is being modernized. The Stabilization Fund was divided into two parts on February 1, 2008. The first part is a reserve fund equal to 10 percent of
GDP Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is ofte ...
(10% of GDP equals to about $200 billion now), and is invested in a similar way as the Stabilization Fund. The second part is turned into the National Prosperity Fund of Russian Federation. The National Prosperity Fund is to be invested into more risky instruments, including the shares of foreign companies. The Russian economy remained commodity-driven despite its growth. Payments from the fuel and energy sector in the form of customs duties and taxes accounted for nearly half of the federal budget's revenues. The large majority of Russia's exports was made up by raw materials and fertilizers, although exports as a whole accounted for only 8.7% of the GDP in 2007, compared to 20% in 2000. There was also a growing gap between rich and poor in Russia. Between 2000 and 2007 the incomes of the rich grew from approximately 14 times to 17 times larger than the incomes of the poor. The income differentiation ratio shows that the 10% of Russia's rich live increasingly better than the 10% of the poor, amongst whom are mostly pensioners and unskilled workers in depressive regions. (''See: Gini Coefficient'') Russia has been experiencing a boom in
capital investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
since the beginning of 2007.
Capital investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
showed record growth in June, rising 27.2 percent over June of last year in real terms (adjusted for price changes), to 579.8 billion
rubles The ruble (American English) or rouble (Commonwealth English) (; rus, рубль, p=rublʲ) is the currency unit of Belarus and Russia. Historically, it was the currency of the Russian Empire and of the Soviet Union. , currencies named ''rub ...
, with construction industry leading the way. That is a rise of 58 percent in nominal terms and a better showing than in
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
. Modern
Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...
has never before seen such a growth rate. The rate of investment in Russia rose 22.3 percent in the first half of 2007 compared to the same period the year before. The increase during that period in 2005 was only 11 percent. The statistics significantly exceed both the conservative prognoses of the Ministry of Economic Development and Trade and less conservative independent analyses. According to
Interfax Interfax (russian: Интерфакс) is a Russian news agency. The agency is owned by Interfax News Agency joint-stock company and is headquartered in Moscow. History As the first non-governmental channel of political and economic informat ...
, the consensus among analysts at the end of last month 15.3-percent growth compared to last year. As of 2007 real GDP increased by the highest percentage since the fall of the Soviet Union at 8.1%, the ruble remains stable, inflation has been moderate, and investment began to increase again. In 2007 the
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
declared that the Russian economy had achieved "unprecedented macroeconomic stability". Russia is making progress in meeting its foreign debts obligations. During 2000–01, Russia not only met its external debt services but also made large advance repayments of principal on
IMF The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster glob ...
loans but also built up Central Bank reserves with
government budget A government budget is a document prepared by the government and/or other political entity presenting its anticipated government revenues, tax revenues (Inheritance tax, income tax, corporation tax, import taxes) and proposed government expenditu ...
, trade, and current account surpluses. The FY 2002 Russian Government budget assumes payment of roughly $14 billion in official debt service payments falling due. Large current account surpluses have brought a rapid appreciation of the ruble over the past several years. This has meant that Russia has given back much of the terms-of-trade advantage that it gained when the ruble fell by 60% during the debt crisis. Oil and gas dominate Russian exports, so Russia remains highly dependent upon the price of energy. Loan and deposit rates at or below the inflation rate inhibit the growth of the banking system and make the allocation of capital and risk much less efficient than it would be otherwise. By the end of first decade of the 21st century, the ECB reported that the country has caught a new strain of
Dutch disease In economics, the Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector (for example natural resources) and a decline in other sectors (like the manufacturing sector or agricult ...
.


2008–2009 Great Recession

Arms sales increased to the point where Russia was second (with 0.6 the amount of US arms sale) in the world in sale of weapons, the IT industry recorded a record year of growth concentrating on high end niches like
algorithm design In mathematics and computer science, an algorithm () is a finite sequence of rigorous instructions, typically used to solve a class of specific problems or to perform a computation. Algorithms are used as specifications for performing c ...
and
microelectronics Microelectronics is a subfield of electronics. As the name suggests, microelectronics relates to the study and manufacture (or microfabrication) of very small electronic designs and components. Usually, but not always, this means micrometre- ...
, while leaving the lesser end work to
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
and
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
. Russia was the world's third biggest destination for outsourcing software behind India and China. The space launch industry was now the world's second largest behind the European
Ariane 5 Ariane 5 is a European heavy-lift space launch vehicle developed and operated by Arianespace for the European Space Agency (ESA). It is launched from the Centre Spatial Guyanais (CSG) in French Guiana. It has been used to deliver payloads in ...
and nuclear power plant companies were going from strength to strength, selling plants to China and India, and signed a joint venture with Toshiba to develop cutting edge power plants. The civilian aerospace industry developed the Sukhoi Superjet, as well as the upcoming MS 21 project to compete with Boeing and Airbus. The
Great Recession The Great Recession was a period of marked general decline, i.e. a recession, observed in national economies globally that occurred from late 2007 into 2009. The scale and timing of the recession varied from country to country (see map). At ...
in Russia was a crisis during 2008–2009 in the
Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...
n financial markets as well as an economic recession that was compounded by political fears after the war with Georgia and by the plummeting price of Urals heavy
crude oil Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crude ...
, which lost more than 70% of its value since its record peak of US$147 on 4 July 2008 before rebounding moderately in 2009. According to the
World Bank The World Bank is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for the purpose of pursuing capital projects. The World Bank is the collective name for the Inte ...
, Russia's strong short-term
macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, an ...
fundamentals made it better prepared than many emerging economies to deal with the crisis, but its underlying structural weaknesses and high dependence on the price of a single commodity made its impact more pronounced than would otherwise be the case. In late 2008 during the onset of the crisis, Russian markets plummeted and more than $1 trillion had been wiped off the value of Russia's shares, although Russian stocks rebounded in 2009 becoming the world's best performers, with the MICEX Index having more than doubled in value and regaining half its 2008 losses. In September 2009 the Russian government announced plans to sell state energy and transport holdings in order to help plug the
budget deficit Within the budgetary process, deficit spending is the amount by which spending exceeds revenue over a particular period of time, also called simply deficit, or budget deficit; the opposite of budget surplus. The term may be applied to the budget ...
and to help improve the nation's aging infrastructure. The state earmarked about 5,500 enterprises for
divestment In finance and economics, divestment or divestiture is the reduction of some kind of asset for financial, ethical, or political objectives or sale of an existing business by a firm. A divestment is the opposite of an investment. Divestiture is ...
and plans to sell shares in companies that are already publicly traded, including
Rosneft PJSC Rosneft Oil Company ( stylized as ROSNEFT) is a Russian integrated energy company headquartered in Moscow. Rosneft specializes in the exploration, extraction, production, refining, transport, and sale of petroleum, natural gas, and petro ...
, the country's biggest oil producer. From July 2008 – January 2009, Russia's
foreign exchange reserves Foreign exchange reserves (also called forex reserves or FX reserves) are cash and other reserve assets such as gold held by a central bank or other monetary authority that are primarily available to balance payments of the country, influence ...
(FXR) fell by $210 billion from their peak to $386 billion as the central bank adopted a policy of gradual devaluation to combat the sharp devaluation of the
ruble The ruble (American English) or rouble (Commonwealth English) (; rus, рубль, p=rublʲ) is the currency unit of Belarus and Russia. Historically, it was the currency of the Russian Empire and of the Soviet Union. , currencies named ''rub ...
. The ruble weakened 35% against the dollar from the onset of the crisis in August to January 2009. As the ruble stabilized in January the reserves began to steadily grow again throughout 2009, reaching a year-long high of $452 billion by year's-end. Russia's economy emerged from recession in the third quarter of 2009 after two quarters of record negative growth. GDP contracted by 7.9% for the whole of 2009, slightly less than the economic ministry's prediction of 8.5%.


2010–2014

In March 2010, the World Bank report noted that Russia's economic losses were lower than expected at the beginning of the crisis. According to the World Bank, some of this is due to large-scale anti-crisis measures that the government has taken. In the first quarter of 2010, GDP growth rate (2.9%) and the growth of industrial production (5.8%), Russia took the 2nd place among the "Big Eight", second only to Japan. As of 2010, nominal GDP grew by 4.0%, in 2011 by 4,3% and in 2012 by 3.4%. In 2012 more than the 12.5% of the population was below Russian line of poverty. The average net income per capita was according to Rosstat 22691 rubles per month.


Russian financial crisis (2014–2017)

The 2014–2017
financial crisis A financial crisis is any of a broad variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and man ...
in
Russia Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-ei ...
is the result of the
collapse Collapse or its variants may refer to: Concepts * Collapse (structural) * Collapse (topology), a mathematical concept * Collapsing manifold * Collapse, the action of collapsing or telescoping objects * Collapsing user interface elements ** ...
of the
Russian ruble ''hum''; cv, тенкĕ ''tenke''; kv, шайт ''shayt''; Lak: къуруш ''k'urush''; Mari: теҥге ''tenge''; os, сом ''som''; tt-Cyrl, сум ''sum''; udm, манет ''manet''; sah, солкуобай ''solkuobay'' , name_ab ...
beginning in the second half of 2014. A decline in confidence in the
Russian economy The economy of Russia has gradually transformed from a planned economy into a mixed market-oriented economy. —Rosefielde, Steven, and Natalia Vennikova. “Fiscal Federalism in Russia: A Critique of the OECD Proposals.” Cambridge Journa ...
caused investors to sell off their Russian assets, which led to a decline in the value of the Russian ruble and sparked fears of a Russian financial crisis. The lack of confidence in the Russian economy stemmed from at least two major sources. The first is the fall in the
price of oil The price of oil, or the oil price, generally refers to the spot price of a barrel () of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent Crude, Dubai Crude, OPEC ...
in 2014.
Crude oil Petroleum, also known as crude oil, or simply oil, is a naturally occurring yellowish-black liquid mixture of mainly hydrocarbons, and is found in geological formations. The name ''petroleum'' covers both naturally occurring unprocessed crude ...
, a major
export An export in international trade is a good produced in one country that is sold into another country or a service provided in one country for a national or resident of another country. The seller of such goods or the service provider is a ...
of Russia, declined in price by nearly 50% between its yearly high in June 2014 and 16 December 2014. The second is the result of international economic sanctions imposed on Russia following Russia's annexation of Crimea and the
Russian military intervention in Ukraine The Russo-Ukrainian War; uk, російсько-українська війна, rosiisko-ukrainska viina. has been ongoing between Russia (alongside Russian separatists in Ukraine) and Ukraine since February 2014. Following Ukraine's Rev ...
. The crisis has affected the Russian economy, both consumers and companies, and regional financial markets, as well as Putin's ambitions regarding the Eurasian Economic Union. The Russian
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...
in particular experienced large declines with a 30% drop in the RTS Index from the beginning of December through 16 December 2014.


Ukraine Invasion (2022)

Economic sanctions affected Russia from the first day of the invasion, with the
stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, ...
falling by up to 39% ( RTS Index). The
Russian ruble ''hum''; cv, тенкĕ ''tenke''; kv, шайт ''shayt''; Lak: къуруш ''k'urush''; Mari: теҥге ''tenge''; os, сом ''som''; tt-Cyrl, сум ''sum''; udm, манет ''manet''; sah, солкуобай ''solkuobay'' , name_ab ...
fell to record lows, as Russians rushed to exchange currency. Stock exchanges in Moscow and St. Petersburg were suspended until at least 18 March, making it the longest closure in Russia's history. On 26 February,
S&P Global Ratings S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is cons ...
downgraded the Russian government
credit rating A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. ...
to "junk", causing funds that require investment-grade bonds to dump Russian debt, making further borrowing very difficult for Russia. The
Central Bank of Russia The Central Bank of the Russian Federation (CBR; ), doing business as the Bank of Russia (russian: Банк России}), is the central bank of the Russian Federation. The bank was established on July 13, 1990. The predecessor of the bank can ...
announced interventions, its first since the 2014 annexation of Crimea, to stabilise the market. On 28 February, it raised interest rates to 20% and banned foreigners from selling local securities. According to a former deputy chairman of the Russian central bank, the sanctions put the Russian National Wealth Fund at risk of disappearing. With the value of the Russian ruble and the share prices for Russian equities falling on major exchanges, the
Moscow Exchange The Moscow Exchange (MOEX; rus, Московская биржа, r=Moskovskaya birzha, p=mɐˈskofskəjə ˈbʲirʐə, a=) is the largest exchange in Russia, operating trading markets in equities, bonds, derivatives, the foreign exchange market, ...
was closed for a day, which was afterwards extended to over a week. As of 28 February, the price of Russia's
credit default swap A credit default swap (CDS) is a financial swap agreement that the seller of the CDS will compensate the buyer in the event of a debt default (by the debtor) or other credit event. That is, the seller of the CDS insures the buyer against som ...
s signalled about a 56% chance of default.
Fitch Ratings Fitch Ratings Inc. is an American credit rating agency and is one of the " Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRS ...
feared that Russia would imminently default on its debts. On 27 February, BP, one of the world's seven largest oil and gas companies and the single largest foreign investor in Russia, announced it was divesting from
Rosneft PJSC Rosneft Oil Company ( stylized as ROSNEFT) is a Russian integrated energy company headquartered in Moscow. Rosneft specializes in the exploration, extraction, production, refining, transport, and sale of petroleum, natural gas, and petro ...
. The Rosneft interest comprised about half of BP's oil and gas reserves and a third of its production. The divestment was projected to cost the company up to $25 billion, and analysts noted that it was unlikely that BP would be able to recover anywhere near the value of Rosneft. The same day, the
Government Pension Fund of Norway The Government Pension Fund of Norway ( no, Statens pensjonsfond) comprises two entirely separate sovereign wealth funds owned by the government of Norway. The Government Pension Fund Global, also known as the Oil Fund, was established in 1990 t ...
, the world's largest
sovereign wealth fund A sovereign wealth fund (SWF), sovereign investment fund, or social wealth fund is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as ...
, announced that it would divest itself from its Russian assets. The fund owned about 25 billion
Norwegian krone The krone (, abbreviation: kr (also NKr for distinction); code: NOK), plural ''kroner'', is currency of the Kingdom of Norway (including Svalbard). Traditionally known as the Norwegian crown in English. It is nominally subdivided into 100 ...
($2.83 billion) in Russian company shares and government bonds. On 28 February,
Shell Shell may refer to: Architecture and design * Shell (structure), a thin structure ** Concrete shell, a thin shell of concrete, usually with no interior columns or exterior buttresses ** Thin-shell structure Science Biology * Seashell, a hard o ...
also announced that it would be pulling its investments in Russia. On 1 March, the Italian energy company
Eni Eni S.p.A. () is an Italian multinational energy company headquartered in Rome. Considered one of the seven "supermajor" oil companies in the world, it has operations in 69 countries with a market capitalization of US$54.08 billion, as of 11 Ap ...
announced that it would cancel its investments into the
Blue Stream Blue Stream is a major trans- Black Sea gas pipeline that carries natural gas to Turkey from Russia. The pipeline has been constructed by the Blue Stream Pipeline B.V., the Netherlands based joint venture of Russian Gazprom and Italian Eni. Th ...
pipeline. The same day, the world's largest shipping companies, Maersk and
Mediterranean Shipping Company Mediterranean Shipping Company S.A. (MSC) is an international shipping line founded by Gianluigi Aponte in Italy in 1970, with headquarters in Switzerland since 1978. The privately held company is owned by the Aponte family. It has been the lar ...
, suspended all container shipments to Russia, excluding foodstuffs, medical, and humanitarian supplies.


See also

* Timeline of largest projects in the Russian economy *
Economy of the Soviet Union The economy of the Soviet Union was based on state ownership of the means of production, collective farming, and industrial manufacturing. An administrative-command system managed a distinctive form of central planning. The Soviet economy was ...


References


Further reading

* Autio-Sarasmo, Sari. "Technological Modernisation in the Soviet Union and Post-Soviet Russia: Practices and Continuities." ''Europe-Asia Studies'' 68.1 (2016): 79–96. * Connolly, Richard. ''The Russian Economy: A Very Short Introduction'' (Oxford University Press, 2020)
Online review
* Davies, R. W. ''Soviet economic development from Lenin to Khrushchev'' (1998
excerpt
* Davies, R.W., Mark Harrison and S.G. Wheatcroft. ''The Economic transformation of the Soviet Union, 1913–1945'' (1994) * Dyker, David A. ''Economic Policy Making and Business Culture: Why Is Russia So Different?'' (World Scientific, 2011). * Gregory, Paul, and Robert Stuart. ''Russian and Soviet Economic Performance and Structure'' (7th ed. 2001). * Harrison, Mark and Andrei Markevich. "Great War, Civil War, and Recovery: Russia’s National Income, 1913 to 1928,” ''Journal of Economic History'' (2011) 71#3: 672–703
online
* Hass, Jeffrey K. ''Power, culture, and economic change in Russia: to the undiscovered country of post-socialism, 1988–2008'' (Taylor & Francis, 2011). * Markevich, Andrei, and Mark Harrison. "Great War, Civil War, and recovery: Russia's national income, 1913 to 1928." ''Journal of Economic History'' 71.3 (2011): 672–70
online
* Moser, Nat. ''Oil and the Economy of Russia: From the Late-Tsarist to the Post-Soviet Period'' (Routledge, 2017). * Nove, Alec. ''An Economic History of the USSR. 1917–1991'' (3d ed. Penguin, 1992). * Ofer, Gur. "Soviet Economic Growth: 1928–1985," ''Journal of Economic Literature'' (1987) 25#4: 1767–1833
online
* Simon, Rick. ''Labour and Political Transformation in Russia and Ukraine'' (Routledge, 2019).


External links



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