Effects of Economic Reform in Russia

Economic Reform in Russia was started to achieve macroeconomic stability and to restructure the country’s economy. So the effects of economic reform in Russia can be described by focusing on those areas.
Macroeconomic Stability:
In the early nineties the Russian economic structure was very poor and the output was decreasing.

The main reasons for that were:
A huge amount of productions that was not able to fulfill the demands of real market. Therefore, the rate of inflation increased.
Usages of market instruments went low for the dominance of the communist regime.
The number of skilled labors decreased.
After the currency crisis in 1994, the Russian government applied some new method for macroeconomic stabilization. As a result, like the other post communist countries, the contribution to the gross domestic product by the Russia’s service sectors increased.
It can be depicted through a table given below.

Years Industry’s contribution(%) to GDP Agriculture’s contribution(%) to GDP Service Sectors’ contribution(%) to GDP
1989 50.2 16.8 33
1992 41.3 7.1 51.6
1995 39.2 7.9 52.9
1998 36.2 5.4 58.4

From the above table it is very clear that the contribution by the industries and agricultural sectors get decreased over the years while the service sectors’ contribution to GDP increased. Therefore it can be understood that Russia was inching towards a developed economy from the developing one and that is only because of the economic reform.

The net capital outflow of the non financial private sectors was substantial due to the corruptions in reporting the payments of the imported and exported goods and transfer of illegal assets. But through economic reform the net capital outflow had decreased over the years. This is shown in the table below.

In this table the year wise amount of net capital outflow is given.

1994 1997 2000 2003
$12.4 billions $25.9 billions $22.8 billions $12.2 billions

Moreover, the macroeconomic stability helped Russia to go for further reform both in terms of economic and political.

Social Effects:
Before economic reform, Russia’s social conditions were not good because of the decreasing real registered incomes and as well as the inequality in incomes of the citizens. After the crisis in 1998, the real disposable income also decreased a lot. In addition to that, wages and incomes decreased continually because the government was not paying for wages, social transfers and pensions regularly. After the economic reform, expenditures for social policies, like social transfer, pension etc, were increased by 7% of the Federal Budget. So the living standard of the Russian citizens improved.

Through economic reform the rate of unemployment decreased as well. It is depicted here in a tabular form.

Year 1992 1994 1996 1998 2000 2002
Unemployment Rate (%) 4.8 7.8 9.6 13.3 9.3 8.0

So from the above table it was clear that the employment issues had been improved, which helped to build a good society. Not only that, but also the income policies were improved which lowered the inequality in incomes.

Other Effects:
The economic reform in Russia summoned the structural and institutional reforms. Privatization was done rapidly. In 1999, the private sector’s total production was 70% of GDP in comparison with the pre-reform period which was only 5%. The small private businesses grew rapidly through the period of economic reform and their share increased by 13%. The new private enterprises’ share in employment was 40% in 2002.

But in Russia, the government continued to intervene into the production, consumption and distribution of goods and services which was a hindrance for economic freedom. The need for civil society, electoral process, independent media and economic liberalization was still there, for without these things economic freedom can’t be achieved. However, corruption had been restricted to some extent.

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Last Updated on : 26th June 2013

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