Market Reforms in Russia

This research reviews free market reforms in the Russian Federation. Where appropriate, the focus of this review is on the banking industry.

The emergence of the Russian Republic as an international player in its own right has occurred since 1991. With the demise of the Soviet Union, the former Soviet Socialist Republics became politically sovereign nations, among which was the Russian Federation, which includes the Republic of Russia and other autonomous republics. Hopes and dreams ran high in newly independent Russia, where the citizenry expected foreign investors to set up factories that would transform cheap raw materials from Russia into manufactured goods for export to other European countries. As is true of most dreams, things look different in the cold light of day.

Since the collapse of state socialism in Central and Eastern Europe in 1991, democracy and free enterprise have spread sporadically throughout the region. By 1995, more than a third of economic output was being produced by the private sector, shortages had virtually disappeared, and financial fortunes were being accumulated by a new class of entrepreneurs in the former socialist economies of Eastern Europe, especially so in the Russian Federation. Brown stated that: "The casual outside observer may be forgiven for assuming that it will be only a matter of time before these initially disadvantaged countries achieve sustained rates of economic growth and acquire the political and economic charact

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aimed at containing the nominal appreciation of the ruble. Inertia in the inflation process may also reflect lingering doubts about the stance of financial policies, and the memory of earlier failures to stabilize." Real wages in the Russian Federation remain low by Western standards�less that US$70 per month. At the same time, the government of the Russian Federation continues to resist realistic levels of taxation on the country's petroleum industry, leaving tax levels on that industry well below Western averages. These low taxation levels represent a form of subsidy, which are a part of a wider subsidy framework. "These subsidies include foreign trade regulations keeping domestic energy prices excessively low, credits carrying below-market interest rates, and tax exemptions. These hidden subsidies are sources of distortion and will need to be cut further as part of the effort to reduce broadly defined fiscal deficits." Privatization policies in the Russian Federation have been implemented in a less effective manner than is desired. Observers, however, see hope for the future. "While many Russian privatized enterprises are still overstaffed, handicapped by obsolete technologies, and poorly managed, survey evidence po

Category: Economics - M