Market reforms: shock therapy and privatisation
After the USSR ended (December 1991), Russia was a new state with a failing economy. President Boris Yeltsin and the government of Yegor Gaidar chose fast change, called shock therapy.
- 2 January 1992: most prices were freed. Shops filled up because goods could now be sold at market prices, but prices rose about 26 times in one year (inflation near 2,500%) and many people lost their savings.
- Voucher privatisation (1992-94): each citizen received a voucher (10,000 roubles) to buy shares in state firms. Most people sold them cheaply or put them in funds.
- "Loans for shares" (1995): a few rich bankers lent money to the state and received big shares of oil and metal firms. A small group of very rich owners, nicknamed oligarchs, emerged.
- Output fell: Russia's economy shrank by about 40% from 1990 to 1998. 17 August 1998: the state could not pay its debts (default) and the rouble crashed.
Inflation fell to 11% in 1997, but the crash in 1998 raised it again. Growth began only in 1999.
Politics and the Constitution of 1993
The old Soviet-era parliament (the Congress of People's Deputies and Supreme Soviet) opposed Yeltsin's reforms and his powers. In 1993 the dispute grew.
- April 1993: a vote (referendum) showed more people trusted Yeltsin than parliament.
- 21 September 1993: Yeltsin ordered the parliament to stop work. Its leaders refused and held the White House building. On 3-4 October there was armed fighting in Moscow and the building was taken by troops.
- 12 December 1993: voters approved the new Constitution and elected the first State Duma.
What the Constitution says:
- Russia is a democratic, federal, law-based state. Power is divided in three: executive (President and government), legislative (Federal Assembly) and judicial (courts, with a Constitutional Court).
- The President is directly elected, is head of state, names the prime minister and can issue decrees. In the 1996 election Yeltsin won against the communist leader Gennady Zyuganov.
- The Federal Assembly has two chambers: the Federation Council (upper, with two members from each region) and the State Duma (lower, 450 deputies). Parties and elections are allowed, and rights of citizens are listed.
Federal relations and the regions
Russia is a federation of many "subjects": republics, regions, cities of federal rank and others. In 1991-92 many regions wanted more power.
- Federation Treaty (31 March 1992): signed by most republics and regions. Tatarstan and Chechnya did not sign.
- Bilateral treaties: from 1994, the centre signed treaties with many regions (the first with Tatarstan) that set which powers each side holds. These helped calm things but also made rules uneven.
- Chechnya: its leaders declared independence in 1991. In December 1994 the federal government sent troops, and there was a war until 1996, when a peace agreement was signed. A second war began in 1999. Many civilians and soldiers suffered in these wars, and towns were destroyed.
- Governors: in the 1990s the governors of most regions were elected, and they bargained with the centre.
Daily life in the 1990s
The 1990s were a hard time for many and an exciting one for some.
- Hardship: wages and pensions were paid months late, prices were high, some people were paid in goods or used barter. Savings in roubles lost value. Life expectancy fell, especially for men.
- New things: kiosks and street markets, imported goods, private shops and firms, mobile phones and early internet cafes, private TV channels and more newspapers, and freedom to travel abroad.
- Inequality: a few got very rich while many became poor. Families helped each other with garden produce and relatives' money.
- Culture and belief: churches reopened, new films, pop music and books appeared, and old Soviet heroes were debated. Sports funding fell but athletes competed under the Russian flag.
Foreign policy of the 1990s
Russia became the "continuing state" of the USSR: it took the Soviet seat at the UN and as a nuclear power, and took over most of its debts and property abroad.
- CIS: the Commonwealth of Independent States (December 1991) tried to keep links with other former republics. Russia also kept a special interest in these "near abroad" countries.
- Nuclear weapons: Soviet missiles in Ukraine, Belarus and Kazakhstan moved to Russia. START II (signed 1993) planned cuts in long-range weapons.
- With the West: loans from the IMF, Partnership for Peace with NATO (1994), the NATO-Russia Founding Act (1997), the Council of Europe (1996), and the G8 group (1997). Russia opposed NATO growing eastward and the 1999 NATO action in Kosovo.
- With Asia: a 1993 treaty with India kept friendship, and ties with China were strengthened. Arms sales and trade with India continued.
On 31 December 1999 Yeltsin resigned and Vladimir Putin, then prime minister, became acting President.
Try it
In the free-play step slide to 1992, 1995 and 1998. Predict: when is the price bar tallest? Which year shows the effect of the 17 August default? Compare the 1992 bar with the 1997 bar: roughly how many times lower is the inflation figure in 1997?
Key formulas and definitions
- Prices freed: 2 January 1992; inflation about 2,500% in 1992 (prices about 26 times)
- Voucher privatisation 1992-94; loans for shares 1995
- Federation Treaty: 31 March 1992 (Tatarstan and Chechnya did not sign)
- Constitution approved by vote: 12 December 1993; State Duma = 450 deputies
- First Chechen war: December 1994 to 1996; second war from 1999
- Rouble crash and default: 17 August 1998
- Yeltsin resigns 31 December 1999; key words: shock therapy, voucher, oligarch, federation
Worked examples
1. What was shock therapy?
A plan to change the economy very fast: free prices, reduce state spending and privatise firms. It ended shortages in shops quickly but caused a huge price rise and hurt savings and pay.
2. Prices rose 26 times in a year. A loaf cost 2 roubles. What did it cost at the end of the year?
2 x 26 = 52 roubles.
3. Explain how the 1993 Constitution divided power.
It created three branches: the President and government (executive), the Federal Assembly with the Federation Council and State Duma (legislative), and courts including a Constitutional Court (judicial). The President was strong: head of state, able to issue decrees and name the prime minister.
Common mistakes
- Saying Russia's Constitution dates from 1991. It was approved on 12 December 1993.
- Mixing the two parliament chambers: the Federation Council is the upper chamber of regions; the State Duma is the lower chamber.
- Thinking privatisation always gave ordinary people a fair share. Most vouchers were sold cheaply and big firms ended up with a few owners.
- Saying the first Chechen war ended in 1999. It ended in 1996; the second began in 1999.