Egor Gaidar became a member of the Government on November 6, 1991. This date can be considered the starting point of economic reforms in Russia. The authorities set themselves the task of ridding the country of the communist past as soon as possible. It was impossible to do this without radical changes in the economy, which had existed for many years as a planned economy.
Gaidar's reforms served as a lever that created a free market in Russia. The government of that period liberalized retail prices, reorganized the tax system, and created a new foreign trade system. All these drastic changes were soon called "shock therapy."
Price liberalization
On October 28, 1991, a few days before the appointment of Yegor Gaidar as Deputy Prime Minister for Economic Policy, Russian President Boris Yeltsin made a keynote speech at the Congress of People's Deputies of the RSFSR. The head of state announced the need for price liberalization. It was she who was the most important sign of the classical market economy. The initiative of the president was adopted unanimously by congress delegates.
The beginning of Gaidar’s economic reform was to be implemented as soon as possible. It was planned that liberalization would be announced on December 1. The Union republics, which still had a single ruble zone with Russia, opposed this. Gaidar’s reforms were remembered by compatriots by the name of this economist for a reason. Although new bills before parliament were defended by Boris Yeltsin, who used his presidential powers, the development of all projects lay on the shoulders of Yegor Timurovich and his team.
The actual beginning of Gaidar’s economic reform took place on January 2, 1992, when the president’s decree "On measures to liberalize prices" was adopted. Changes made themselves felt instantly. The state stopped regulating 80% of wholesale prices and 90% of retail prices. The federal government temporarily retained control only over socially significant consumer goods: milk, bread, etc. This reservation was not in vain accepted. Gaidar's economic reform was carried out in conditions of public turbulence, when the population was left empty-handed after the crisis of the planned system and the collapse of the Soviet system.
Gaidar's program
In preparing its program, the government proceeded from the point of view that Russia has no “special way”, and it needs to adopt all the basic features of Western market economies. Until the end of 1991, it was still not clear what agenda the Russian authorities would choose. Different politicians and economists proposed their projects: Yavlinsky, Shatalin, Saburov, Abalkin, etc.
As a result, the Gaidar program “won” after all. It was not only economic. Reforms were to build a new national statehood in the country through the construction of market relations, the place of which was empty after the collapse of communism. Yegor Gaidar set forth his ideas in the documents “Immediate Economic Prospects of Russia” and “Russia's Strategy in Transition”. According to these projects, reforms were carried out on the basis of the principles of privatization, liberalization and financial stabilization.
The Gaidar team identified three main problems that the young state inherited from the Soviet Union. These were inflationary, payment and systemic crises. The last of these was that government authorities lost their own ability to regulate the flow of resources.
First of all, it was planned to restructure and substantially increase the general level, as the Rakovsky government did in Poland at one time. Gaidar believed that in this case, inflation would persist in the country at first for about six months. However, this project had to be abandoned. Calculations showed the authorities that for another six months of the crisis, the country simply could not stand it. Therefore, it was decided to begin radical liberalization immediately. Time has shown that neither one nor the other way promised the economy anything good.
Economic collapse
Price liberalization has led to many negative consequences that were inevitable with such a forced pace of economic change. The new order on the market was contrary to monetary policy - already in the summer of 1992, domestic enterprises lost their working capital. In the spring, the Central Bank began to issue a large number of loans to industry, farmers, the former Soviet republics, etc. This was done in order to cover the budget deficit. However, at the same time, a tremendous jump in inflation occurred. In 1992, it reached a level of 2, 500%.
The collapse occurred for several reasons. First of all, the catastrophe erupted due to the fact that before the liberalization of prices there was no replacement of money that would save the country from obsolete Soviet rubles. The new currency appeared only in 1993, when Gaidar's economic reform was already completed, and he himself left the Government.
Hyperinflation left a significant part of the Russian population without a livelihood. In the mid-90s, the proportion of low-income citizens was 45%. The Soviet deposits of the population in Sberbank depreciated, having lost their purchasing power. The government blamed the crisis on the Supreme Council, which forced it to carry out an additional issue of currency.
The issue of additional money supply began to be practiced in the last Soviet years, when the state financed domestic expenses with its help. When Gaidar's reforms began, this system finally collapsed. The former republics of the USSR paid the same rubles to Russian enterprises, which only intensified the crisis. In the summer of 1992, special non-cash correspondent accounts were created as a countermeasure, with the help of which settlements with other CIS countries began.
Parliament versus Government
Gaidar’s economic radical reforms have been harshly criticized from the outset. As you know, on April 6 they opened their VI congress. By this time, the government had received a fairly cohesive opposition, the basis of which was agrarian and industrial lobbyists, dissatisfied with the reduction in state funding.
At one of its meetings, the congress adopted a resolution in which the main claims to the policy of the Government were formulated. Reforms of E.T. Gaidar were called the cause of a number of economic problems: a decline in the standard of living of the population, the destruction of previous economic ties, a recession, a lack of money, etc. In general, the Government was unable to keep the situation under control. Deputies believed that Gaidar’s reforms were carried out without regard to the opinion of society and the owners of enterprises. In the resolution, the congress delegates suggested that the president change the economic course taking into account all their proposals and reservations.
In response to the attack by the deputies, the Government, together with Gaidar, handed over to Boris Yeltsin a letter of resignation. In the attached report, the ministers criticized the proposals of the congress, noting that if the government takes this course, then government spending will rise to over a trillion rubles, and inflation will reach the threshold of 400% per month.
The resignation was not accepted, but Yeltsin still made concessions to the deputies. He introduced new people to the Government - the so-called “red directors”, who lobbied for the interests of the owners of large enterprises who received their posts in the Soviet years. In this cohort were Vladimir Shumeyko, Georgy Hizhu and Vladimir Chernomyrdin.
Then there were attempts to stabilize the financial situation. To do this, the Government has reduced government spending, as well as introduced new taxes. In May 1992, inflation declined slightly. Another requirement of the Supreme Council was fulfilled - monetary policy was significantly softened. The Government also allocated 600 billion rubles to pay debts to miners and other workers on strike at large enterprises.
In July, there was a reshuffle in the leadership of the Central Bank. The new head, Viktor Gerashchenko, who already held this position in the Soviet Union, opposed the reform of E. Gaidar, which involved cutting costs. In the second half of 1992, the volume of lending to the Central Bank grew by 3 times. By October, the budget deficit was reduced by 4% of GDP compared with August figures.
Start of privatization
In June 1992, Yegor Gaidar became chairman of the government. In the same summer, privatization began in Russia. The reformers wanted to implement it as quickly as possible. The Government believed that Russia needed the emergence of a class of owners, which would become a pillar and support of the state’s economic policy. Privatization of enterprises took place at a time when factories and factories actually went bankrupt. Businesses sold for nothing. Shopping took an avalanche-like character. Due to the numerous holes in the legislation, transactions were committed with violations and abuses.
When the reforms of E.T. Gaidar had already ended, in the mid-90s, collateral auctions took place in Russia, at which the largest and most important enterprises of the country passed into the hands of new owners at repeatedly low prices. As a result of these deals, a new class of oligarchs has emerged, leading to an even greater social divide between rich and poor.
Supporters of Gaidar’s government reform and privatization believed that it was necessary to abandon the old Soviet system of national economy with excessive monopolization and centralization as soon as possible. The forced pace of sales has led to numerous excesses and mistakes. According to opinion polls, about 80% of the population of Russia considers the results of privatization illegitimate.
Vouchers
For mass privatization, a voucher was introduced - a privatization check, which was intended to be exchanged for assets in state enterprises. He was transferred to private hands. It was planned that with this tool municipal enterprises will become private property.
A total of about 146 million vouchers were printed. Citizens who received the check could use paper to subscribe for shares of the whole enterprise or to participate in the auction. Also paper could be sold. Residents of the country could not participate in privatization directly. They needed to corporatize their enterprises or transfer vouchers to check investment funds (CHIF). In total, more than 600 such organizations were created.
Practice has shown that privatization checks have in fact become objects of speculation. Many owners of these securities sold them to dubious businessmen or invested in private equity funds, hoping to receive significant dividends. As a result of this practice, the real value of securities quickly fell. In such circumstances, the population began to seek to get rid of vouchers as soon as possible. Basically, they settled in the hands of shadow merchants, speculators, officials and the administration of the enterprises themselves.
Due to its haste, privatization (the name of Gaidar’s economic reform) took place in the context of price liberalization, when the cost of a voucher fund was ten times less than the real value of enterprises. According to estimates, speculators were able to buy the 500 largest factories and plants for $ 7 billion. However, in reality they were estimated at 200 billion dollars. This was the so-called “wild capitalism”, which allowed 10% of the population to establish control over the national heritage. The main income came from the export of gas, oil and non-ferrous metals. Enterprises with new owners not only did not return profits to the Russian economy. They did not even go to repay the rapidly growing external debt of the state.
Agricultural policy
In 1992, the beginning of Gaidar's reforms was also marked by changes in the village. An important role in the agricultural economy began to play new forms of farms. Closed and open joint stock companies, cooperatives, and also limited liability partnerships appeared. In total, they accounted for about 2/3 of the agricultural sector of the economy. The crisis hit hard on all these new farms. Lacked agricultural machinery, cars, mineral fertilizers, etc.
The government adopted a program to eliminate the remnants of the Soviet system - state and collective farms. In March 1992, in Russia there were approximately 60 thousand individual farms of the farm type. By the fall, their number increased five times. However, due to lack of technology, they still could not provide the country with a sufficient amount of yield. Regression led to the fact that by the mid-90s production fell by 70% compared with the last Soviet season. The farmer could not feed Russia, and all because of a significant increase in the prices of reagents, equipment, etc.
Defense Industrial Complex
In 1992, the state sharply reduced arms purchases. In the Soviet era, the military-industrial complex became too bloated. The lion's share of the budget was spent on it. In the conditions of the economic crisis, the state simply could not provide work for most of the enterprises, which led to their bankruptcy and sale to third parties.
Particularly acute was the problem with research and development (R&D). The funding procedure for this complex was destroyed, due to which highly qualified teams broke up and were left without work. It was then that the so-called “brain drain” began - the emigration of scientists, engineers, designers, etc. They massively left for Western countries in search of a better share, while their enterprises stood idle idle.
The government, while reforming the defense industry complex, made several serious mistakes: it did not begin to restructure or transfer the factories to the reserve. Some experts note that the authorities acted incorrectly when they lifted the restriction on the import of consumer goods, which left enterprises without a niche in the market.
The resignation of Gaidar
In December 1992, Yegor Gaidar resigned from his post as Prime Minister. His departure was a compromise in relations between the Supreme Council and the President of Russia. It was assumed that the agreement would allow a painless referendum on the new constitution. However, in 1993, deputies refused to fulfill their obligations, which led to a conflict between the Government and the President. It ended with the October events, when Moscow survived several days of street fighting.
That fall autumn, Gaidar once again returned to the Government and became the first deputy chairman, as well as the Minister of Economy. He finally left the top leadership posts on January 20, 1994. By this time, all the main economic reforms of E. Gaidar had already been carried out, and the country was living in a new economic reality.
Positive Reform Results
Back in December 1992, on the eve of his first resignation, he summed up his work. The Head of Government at the VII Congress of People's Deputies emphasized the main successes of the authorities. The tax system was reorganized, privatization and agrarian reform began (reorganization of state farms and collective farms), the fuel and energy complex was restructured, oil companies were created, and the cost of purchasing ammunition and military equipment was reduced.
The Minister of Economics and Gaidar’s colleague Andrei Nechaev also called other important steps of the Government during the crisis period. In addition to the liberalization of prices already described above, the state allowed free trade and settled foreign debts by opening credit lines in the West. Gaidar’s reform of 1992 reduced the budget deficit. Important tax innovations were the emergence of taxes on oil production. The planning system of the economy has remained in the past. The state began to resort to government orders. In the field of investment, relations between the government and private entrepreneurs have become key. Trade with the former Soviet republics was built in a new fashion - it switched to world prices and market fundamentals.
E.T. Gaidar, whose economic reforms led to the restructuring of all financial relations, advocated the establishment of commercial principles in the export of arms for the army. An important innovation was the adoption of the bankruptcy law. With the advent of a market economy, the first investment companies were created, as well as exchanges, which could not be in the USSR.
