Travel Russia

Economy in Russia

The economy of Russia, as in other former Soviet republics, was severely disjointed by the dissolution of the USSR in 1991. But by the mid-1990s there were signs that the economic decline had been arrested. An economy once overly dependent upon heavy industry, particularly military manufactures, had begun to recast itself with an increasing consumer orientation.

Economic decline began in the last years of the Soviet period. After the breakup of the USSR, gross domestic product (GDP) continued to contract, by 1994 falling to nearly half the level held when free-market reforms began in late 1991, a greater drop than industrial nations experienced during the Great Depression of the 1930s. Despite this, the government moved forward with privatization and projected that the economy would begin to grow by 1997. Inflation, while still high, had been restrained to an estimated 250 percent annually in the mid-1990s. At the start of the reform period, the price of consumer goods had risen by about 2600 percent annually. Still, the Russian economy faced difficulties in the mid-1990s. Unemployment reached an estimated 7 percent, which although low by the standards of many industrialized nations, was far higher than Russia experienced during the worst of the economic transformation. The country's budget deficit remained high, and Russia's currency, the ruble, continued to fall against major world currencies. The emergence of a service sector was hindered by growing organized crime and an entrenched bureaucracy.

Among the causes of the Russian economic crisis were the disruption of traditional trade patterns and shocks caused by economic reforms. Trade between Russia, other former Soviet republics, and Eastern European countries declined markedly starting in the late 1980s, when Eastern European countries achieved independence from Moscow and the Soviet-controlled system of trade and production began to disintegrate. Trade between Russia and other republics suffered from disputes over terms of trade, especially over the price of Russian oil exports. Overlapping property claims by different levels of government administration within Russia added to the confusion in conducting business with Russia.

Market reforms, vigorously pursued by President Boris Yeltsin and his supporters beginning in early 1992, were met with widespread resistance by industrial managers and other conservatives. (See the Government section of this article.) Despite protests by government officials, the Central Bank of Russia extended large subsidies to inefficient enterprises in 1992, which contributed to inflationary pressures and increased the government deficit. Beginning in mid-1993, however, the bank began to adhere to governmental directives on subsidies. Privatization continued-about 14,000 of all state and municipal enterprises had been privatized by early 1995-but the process depended to a large degree on the support of local officials. Privatization proceeded much faster in certain cities, such as Nizhniy Novgorod, Saint Petersburg, and Yaroslavl', than in the country as a whole. In addition, the legal framework for privatization was incomplete. Privately owning, selling, and renting land was not legally permitted until October 1993, when President Yeltsin issued a decree that repealed a ten-year moratorium on reselling land that had been imposed by the legislature.