Russia after Communism

 === RUSSIAN ECONOMY SINCE 1991 ===

Russia has probably been the subject of the most drastic economic and political changes 

for the past 15 years. In fact, it was clear in the 1980's that the Union of Soviet Socialist Republics was showing signs of collapse, with a leadership losing its authority, with an economy gone bankrupt, with its industries dilapidated, and with a workforce unable to meet the basic necessities of life. And to understand the current economic status and the economic rebuilding efforts of Russia, one needs to go a few decades back and understand the reasons lying beneath the secession of one of the two superpowers of the Bipolar World.

http://www.culture-of-peace.info/soviet-collapse/introduction.html

According to David Adam, political scientist and U.S. Ambassador to Panama, simply 

everyhting was working against the USSR in their race against the United States of America, and the rest of the "Capitalist Western World". Economically, politically, and socially, the USSR edging closer towards the breaking point every passing year.

However, one development is the key in the collapse and that is the arms race 

triggered by the former-U.S. President Ronald Reagan. The effects of this arms race were also felt in the United States in the form of a gigantic budget deficit and a high rate of uemployment.

However;

1) The U.S. GDP was a lot larger than that of the Soviet Union

2) The U.S. was engaging in free trade and all the other benefits 

of Capitalism, which the Soviets could not

Much of the structure of the Soviet economy that operated until 1987 originated under the leadership of Joseph Stalin, 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) formulated countrywide output targets for stipulated planning periods. Regional planning bodies then refined these targets for economic units such as state industrial enterprises and state farms and collective farms, each of which had its own specific output plan. Central planning 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. (Source: http://www.culture-of-peace.info/soviet-collapse/introduction.html)

Moreover, attempts to reform the Soviet economy, such as perestroika, had failed; and the economy kept going downhill until December 24, 1991, when the Soviet Premier Mikhail Gorbachev resigned from his position and announced that the Soviet Union had officially ceased to exist.

==THE POST-USSR ERA AND ECONOMIC REFORMS==

After the breakup of the USSR and the formation of the CIS(Commonwealth of Independent States), Russia had two related and interdependent economic goals to accomplish 

under the new Yeltsin administration: MACROECONOMIC STABILIZATION and ECONOMIC RESTRUCTURING, two policies to signal the transition from a centralized system to a market-based economy. Macroeconomic Stabilization consists of implementing fiscal and monetary policies, promoting economic growth in an environment of stable prices and exchange rates. On the other hand, Economic Restructuring requires establishing the commercial, legal, and institutional entities--banks, private property, and commercial legal codes--isntitutions that permit the economy to operate efficiently. Opening domestic markets to foreign trade and investment, thus linking the economy with the rest of the world, is an important aid in reaching these goals. At the time of the demise of the USSR, the Yeltsin administration had begun to attack the problems of macroeconomic stabilization and economic restructuring.

==THE YELTSIN ERA==

In October 1991, two months before the official collapse of the Soviet regime and two months after the August 1991 coup against the Gorbachev regime, Yeltsin and his advisers, including reform economist Igor Gaidar, established a program of radical economic reforms. The Russian parliament, the Supreme Soviet, also extended decree powers to the president for one year to implement the program. The program was ambitious, and the record to date indicates that the goals for macroeconomic stabilization and economic restructuring programs may have been unrealistically high. Another complication in the Yeltsin reform program is that since 1991 both political and economic authority have devolved significantly from the national to the regional level; in a series of agreements with the majority of Russia's twenty-one republics and several other subnational jurisdictions, Moscow has granted a variety of special rights and powers having important economic overtones.

(Source: Wikipedia)

==Seeking Macroeconomic Stabilization===

The Yeltsin Administration has also taken a number of macroeconomic policy measures to achieve stabilization. Those measures called for major reductions in government spending, targeting outlays for public investment projects, defense, and producer and consumer subsidies. The program was designed to reduce the government budget deficit from its 1991 level(20 % of GDP) to roughly 9 % of GDP by the second half of 1992 and to 3 % by 1993. The government imposed new taxes, and tax collection was to be upgraded to increase state revenues. In the monetary sphere, the economic program required the Russian Central Bank (RCB) to cut subsidized credits to enterprises and to restrict money supply growth. The program called for the shrinkage of inflation from 12 % per month by 1991 to 3 % per month by 1993.

==Economic Restructuring Efforts==

Immediately after the dissolution of the Soviet Union was announced, the Government lifted price controls on 90 % of consumer goods and 80 % of intermediate goods. It raised, but still controlled, prices on energy and food staples such as bread, sugar, vodka, and dairy products. These measures were to establish a realistic relationship between production and consumption that had been lacking in the central planning system.

To encourage the development of the private sector, fundamental changes were made in the tax system, including introduction of a value-added tax (VAT) of 28 % on most transactions, a progressive income tax, and a tax on business income; revisions in the system of import tariffs and export taxes; new taxes on domestic energy use to encourage conservation (a necessary step because energy prices were still controlled); and new taxes on oil and natural gas exports to narrow the gap between subsidized domestic prices and world prices and to prevent domestic energy shortages. A fixed exchange rate was to be established for the ruble, which then would become convertible. Many restrictions on foreign trade and investment also were to be lifted to expose Russia to the discipline of world prices.

==Fiscal and Monetary Policies of the Yeltsin Administration==

From the demise of the Soviet Union until 1993, the Government expanded the money supply and credits at explosive rates that led directly to high inflation and to a deterioration in the exchange rate of the ruble. 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 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, and by the end of 1992, the Russian money supply had increased by eighteen times.

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.

Government efforts to control 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 conservative Supreme Soviet, which encouraged the Soviet-style financing of favored industries. By the end of 1992, the Russian budget deficit was 20 % of GDP, much higher than the 5 % projected under the economic program and stipulated under the International Monetary Fund (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 reform advocate Yegor Gaidar as prime minister. Gaidar's successor was Viktor Chernomyrdin, a former head of the State Natural Gas Company (Gazprom), who was considered less favorable to neoliberal reform.

Chernomyrdin formed a new government with Boris Fedorov, 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 for the unemployed and pensioners.

The printing of money 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).

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, 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, head of the Central Bank, and nominating Tat'yana 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.

The government also began to address the interenterprise debt that had been feeding inflation. The 1995 budget draft, which was proposed in September 1994, included a commitment to reducing inflation and the budget deficit to levels acceptable to the IMF, with the aim of qualifying for additional international funding. In this budget proposal, the Chernomyrdin government sent a signal that it no longer would tolerate soft credits and loose budget constraints, and that stabilization must be a top government priority.

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 (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.

Late in 1995, Yeltsin fired Anatoly Chubais, 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. 

In 1996, a brand new problem had emerged: The Russian Government's tax revenue had fallen way shorter than the expected revenue, targets, causing problems in government spending and payment of wages to government officials and employees of state-run enterprises. This shortage was blamed mainly on the inefficient and corrupt tax collection system, which was to keep plaguing the government revenue in Russia.

(www.russianeconomy.org)

Two years later, in 1998, the situation got out of hand when the Russian government had literally gone bankrupt, unable to get any tax revenue and unable even to pay the interest of the debt. Fortunately, it was the IMF to come to the short-term rescue of Russia to ease the pressure a little by granting large funds, which is how Russia seems relatively stable on the present day. Things have gone slightly better ever since, but the inability of the Russian government to collect taxes(mainly due to tax evasion) still haunts the country. In addition, the funds that have saved Russia have to be paid back one day, and the only way to do so is to reform the tax system.

==Inflation==

 * 1992 - Retail prices go up by 2520%

 * January 1992 - The MONTHLY rate was 248%

 * 1993- Annual rate is 245%

 * 1994- Annual rate is 240%

 * Between 1994 - 1996: Fluctuating rates of inflation due to the unstable monetary policies of the Russian government

 * First half of 1996 - 16.4%

 * 1996-Present: More stable rates of inflation, with the exception of the Asian Crisis between 1998 and 1999. 

==Exchange Rates==

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. (Source: Wikipedia)

The exchange rate stayed turbulent until the turn of the millennium, when it started to stabilize. The Ruble was still depreciating but the fall was not as drastic in comparison to what was happening a few years back.

==The Nightmare of Exchange Rates==

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.

 ==THE BIG PICTURE==

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. (However, alternative estimates by Western 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.) Such a decline, however, was to be expected in an economy going through the transition from central planning to a market structure. Much of the decline in production has occurred in the military-industrial complex and other heavy industries that benefited most from the skewed 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 short-term 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, Yuri Luzhkov. 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 are 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.

==Russian Economy for the past 10 years==

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 with industrial sector posting high growth figures as well. Russia became the fastest growing economy in the G8. It is expected to grow about 6.5 % in 2006.

The Russian GDP, however, has 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.

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, the Asian financial crisis swept through the country, contributing to a sharp decline in Russia's earnings from oil exports and resulting in an exodus of foreign investors. Matters came to a head in August 1998 when the government allowed the ruble to fall precipitously and stopped payment on $40 billion in ruble bonds.

In 1999, output increased for only the second time since 1991, by an officially estimated 6.4%, regaining much of the 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 86% in 1999, compared with a 28% average in 1998 and a hoped-for 30% average in 2000. Ordinary persons found their wages falling by roughly 30% and their pensions by 45%. The Vladimir Putin government has given high priority to supplementing low incomes by paying down wage and pension arrears. Many investors, both domestic and international remain on the sidelines, scared off by Russia's long-standing problems with capital flight, reliance on barter transactions, widespread corruption among officials, and endemic organized crime.(Source:Wikipedia)

==Privatization==

The essence of economic restructuring, and a critical consideration for foreign loans and investment in Russia's economy, is the privatization program. In most respects, between 1992 and 1995 Russia kept pace with or exceeded the rate established in the original privatization program of October 1991. As deputy prime minister for economic policy, the reformist Chubais was an effective advocate of privatization during its important early stages. In 1992 privatization of small enterprises began through employee buyouts and public auctions. By the end of 1993, more than 85 % of Russian small enterprises and more than 82,000 Russian state enterprises, or about one-third of the total in existence, had been privatized.
By the late 1990's, many supporters of privatization seemed convinced that it was a success. However, privatization continues to be one of Russia's grandest problems, as more than a half of the country's industries are still owned by the state, and the process of privatization is subject to tremendous corruption.
 

 ==RUSSIA AND THE BIG CRASH OF 1998== 

http://www.iht.com/articles/1998/01/26/edethan.t.php

Inevitably, the Asian Crisis had hit the already-volatile-economy of Russia rather hard; with the stock market down by 25% and Foreign Direct Invesment coming to a "complete halt" for more than 4 months. 
It was only with the intensive help of the IMF that Russia could at least stand up on its feet, otherwise the economy had been going downhill as it had never been throughout the shaky 15 year history of Russian Federation.
Moreover, Russia's current president, Vladimir Putin, has shown closer cooperation with the IMF in order to pull Russia out of the late 90's economic turmoil. As a matter of fact, it seems like things look more normal on the present day for the time being, however with the ever-present economic volatility of Russia, it would not be impossible to see future economic crises shaking the economic and political foundations of Russia

 ==Krugman's Views on Russia==

Paul Krugman, economist/journalist whose views are rather "Neo-Keynesian", has written several articles on Russia in his New York Times column. Quite frankly, his views on Russia are accurate and well-argued, as he gives examples and even makes comparisons between Russia and more stable, wealthier Western countries.
Krugman's main argument on Russia is the inability and the lack of talent the Russian government shows, as he states that Russia's main problem is the fact that money goes out immediately after it comes in, and that is because of the government's bad policies. Moreover, the fact that there is an inability to collect taxes properly causes even more troubles for Russia, as borrowing consequently reaches ridiculous numbers. 
He claims that the other problem to plague the Russian economy is corruption. In fact, seven men control almost all of Russia's industrial and mineral wealth, while it is considered theft if anyone else attempts expanding his/her property. To make matters even worse, as Krugman says, that those powerful figures to own property are in the government, ruling the country.
Keeping all those in mind, Krugman suggests that FDI and foreign funds are barely coming into this environment of instability and corruption. In order to overcome its problems, Krugman suggests that Russia needs to reform its entire political and social structure, a task which is nigh-on-impossible to accomplish.

KRUGMAN ARTICLE: http://www.pkarchive.org/crises/bear.html

 ==CONLUSIONS==

Russia is known for going through drastic changes and revolution throughout its history, particularly during the 20th century. And its problems have always been complex, perhaps a too complex to solve overnight. Once again, the transition from communism to a free market economy has proven rough. However, one should also keep in mind that no country to switch from communism to capitalism had the easiest time. Economically speaking, Russia's problems trace back to the early 20th century, when the Bolsheviks imposed a centralized economic system on a country of peasants, rather than factory workers.
It is not an impossible task for Russia to stabilize and overcome its problems. However, it is for certain that it is going to take a long time. It is up to the future administrations to determine how long, though