The Yeltsin–Gaidar government reforms (), known also as the Gaidar reforms are the changes in the economy of Russia and public administration system carried out by the Cabinet of Boris Yeltsin and Yegor Gaidar from January 2 to December 15, 1992.
The Yeltsin-Gaidar government liberalized retail prices, liberalized foreign trade, reorganized the tax system and other reforms that radically changed the economic situation in the country. The result of the reforms is Russia's transition to a market economy. During the reform of retail price liberalization, prices increased 10,000 times, and after the reform to the present day, approximately 325 times.
Economic situation before the start of reforms In December 1992, Yegor Gaidar reported to the 7th Congress of People's Deputies of Russia that the primary problem at the start of the government's work was to prevent disruptions in the life support system, primarily in food supplies. According to data cited by economist Yevgeny Yasin, by the end of 1991, food rationing standards in most regions were: sugar - 1 kg per person per month, meat products - 0.5 kg (with bones), animal butter - 0.2 kg. The following data are cited in the collective work of the IET edited by Gaidar: by the end of 1991, commodity reserves of meat and fish in retail trade had decreased to 10 days, in January 1992, food grain reserves (excluding imports) amounted to about 3 million tons with a need of 5 million tons per month. In 60 of the 89 Russian regions, grain reserves were exhausted and bread production was carried out "on the fly" immediately after the grain was imported.
The situation was complicated by the fact that the country's foreign exchange reserves were almost exhausted.Последний банкир Империи //интервью с Геращенко Grain was purchased abroad only through foreign loans, and the government did not even have enough money to pay for the freight of ships.Чешинский Л.С (Председатель комитета по хлебопродуктам) Гайдару Е. Т. (зам. Председателя Правительства РФ). Архив ЦБ. Д. 5088. 27.11.1991. Л. 169 Some of the food came in the form of humanitarian aid from Western countries.Бесплатных ланчей не бывает // Журнал «Коммерсантъ» № 35 (35) от 06.09.1993
Telegrams coming from the regions also spoke of the critical situation with food supplies in a number of regions.
A letter from the Deputy Ministers of Finance of the USSR to the Committee for the Operational Management of the National Economy of the USSR in September 1991 stated: "Considering that most of the goods are immediately sold out, it can practically be considered that the ruble has no commodity backing today... The total budget deficit for the budget system as a whole in the ruble circulation zone will amount to 300 billion roubles. A deficit of this size is a disaster for finances and money circulation. At the same time, it leaves no chance for a significant real improvement in the situation before the end of the year…”.
Beginning of the reform
In early autumn 1991, it became clear that the USSR was unable to pay its foreign debt. Negotiations with creditors led to the signing of a memorandum in late October, "On Mutual Understanding Regarding the Debt to Foreign Creditors of the USSR and Its Successors." Eight of the fifteen Soviet republics acknowledged their joint liability for this debt. Foreign banks, for their part, demanded an urgent transition to market reforms. In the autumn of 1991, Yegor Gaidar's "economic program" was born. President Boris Yeltsin announced its main provisions on October 28 in a programmatic speech at the V Congress of People's Deputies of Russia. It envisaged privatization, price liberalization, commodity intervention, and rouble convertibility. Proclaiming this course, Boris Yeltsin assured his fellow citizens that "things will get worse for everyone in about six months." This will be followed by "a reduction in prices, filling the consumer market with goods, and in the fall of 1992 - stabilization of the economy, gradual improvement in people's lives".А. Островский В. 1993. Расстрел «Белого дома»
On November 21, following the results of the second round of negotiations with the G7 countries on external debt, the Soviet Union was granted a short-term deferment on its debt obligations. On December 5, the "Treaty on Succession to the State Debt and Assets of the USSR" was signed. This treaty determined the amount of the USSR's total debt - $93 billion - and the share of each of the 15 republics in repaying the Soviet debt. Russia's share was 61.3%, or about $57 billion. Seven republics (Azeri SSR, Latvian SSR, Lithuanian SSR, Moldavian SSR, Turkmen SSR, Uzbek SSR and Estonian SSR) refused to sign this treaty. The main condition for granting another deferment on debt obligations was "cooperation with the International Monetary Fund" (IMF) in implementing "market reforms". As Ruslan Khasbulatov claimed, "the program of reforms in Russia as a complete document" did not exist, and the reforms that began in January 1992 and were called shock therapy were based on "strict recommendations and demands of the International Monetary Fund".
The draft presidential decree was prepared by Gaidar's team on November 15. Price liberalization was supposed to be announced on December 1, 1991. However, under pressure from other union republics that had a common rouble zone with Russia, price liberalization was postponed first to December 16, and then to the beginning of January 1992.
Price liberalization was carried out on January 2, 1992. At the same time, enterprises and retail establishments received the right to independently set prices for their products, and import restrictions were abolished. Together with the decree on free trade and the acceleration of privatization of state enterprises that was issued soon after, this meant the end of the Soviet command-administrative economic system and the transition to a market economy. // Интерфакс
Gaidar's hopes of filling stores with goods and solving the problem of shortages were justified.Биографическая справка // Полит.ру Г. И. Герасимов, «История современной России: поиск и обретение свободы (1985—2008)», с. 89-91 In the book by economist L. Lopatnikov, data are presented that inventories in retail and wholesale trade, as well as industry, which by January 1992 constituted 45% of the December 1990 level, had grown to 75% of this level in June. Market mechanisms began to operate in the economy. On the contrary, Sergey Kara-Murza cites data from the "State Report on the Health of the Population of the Russian Federation in 1992" and notes that a "general deficit" of food, "previously unthinkable" arose in the country.
Before price liberalization, the government took a number of measures to provide social support to low-income population. On December 26, 1991, the presidential decree "On additional measures of social support for the population in 1992" was issued. In February 1992, a decree was also adopted on one-time payments to low-income groups of the population and a government resolution was issued on the creation of territorial social support funds. As the Minister of Economy Andrey Nechayev wrote, in 1992, funds were allocated for targeted social support for those in need, federal and regional social support funds were created, charity canteens were opened, and subsidies for dairy products, basic types of baby food, and some services were allocated from regional budgets. But, according to Nechayev, "it was impossible to compensate for the price increase for everyone and in full".
The second problem facing Gaidar's government was the breakdown of the monetary circulation system. In the last years of the USSR, money emission was widely used to finance domestic expenditures.Раевский В. А. (заместитель министра финансов СССР) — Государственному совету. Об эмиссии денег и о состоянии Союзного бюджета. Архив ЦБД 4809. 18.11.1991.Л.24-26, 30. The consequences of this policy were unsatisfied demand, an increase in private savings, and a deficit. After the price liberalization, the excess of uncommodified money was bound to lead to a sharp increase in prices, creating the threat of hyperinflation. Financial stabilization in these conditions was complicated by the fact that the former Soviet republics could now independently issue rubles, paying them with Russian enterprises. This increased the money supply within Russia. The problem was solved only by mid-1992, when correspondent accounts were introduced for settlements with other CIS republics that were part of the ruble zone.
To combat inflation, the Russian government had to sharply reduce government spending, which was provided by printing money. Funds for the purchase of weapons were reduced by 7.5 times, centralized capital investments by 1.5 times, and price subsidies by almost 3 times. Another measure of financial policy was the introduction of a value-added tax. Administrative regulation of foreign trade was replaced by the introduction of duties and tariffs. These decisions made it possible to balance the budget for the first quarter of 1992 without a deficit. At the same time, the actual execution of the budget for the first quarter occurred with a deficit of 2% of GDP, without large-scale money emission.
According to official data from Rosstat in January 1992, immediately after liberalization, prices increased by 3.5 times (by 345.3%) in a month.Индексы потребительских цен на товары и услуги населению по Российской Федерации в 1991—2009 гг. // Росстат
In February, inflation dropped to 38% in a month, and in May it was equal to 11.9%. As inflation decreased in the first half of 1992, support for the Gaidar government grew.
The book by economists Vladimir Mau and I. Starodubrovskaya stated: “According to the Moscow service ‘Opinion’, support for Yegor Gaidar's activities as head of the government was 39% in February (inflation 27.3%), 49% in July (inflation 7.1%) and 31% in September (inflation 15.2%). Similar data are also provided by VTsIOM.”
The collective work edited by Rustem Nureev asserts that as a result of price liberalization, by mid-1992, Russian enterprises were left practically without working capital.«Экономические субъекты постсоветской России (институциональный анализ)» Глава «Откуда пошёл российский бизнес, или как возникла „экономика физических лиц“»// Под ред. Р. М. Нуреева. — Москва: Московский общественный научный фонд, 2001, серия «Научные доклады» As economist D. V. Kuvalin wrote, the depreciation of working capital contributed to the acute crisis of mutual non-payments between enterprises.Д. Б. Кувалин «Экономическая политика и поведение предприятий: механизмы взаимного влияния» Глава «Способы адаптации российских предприятий к трансформационному экономическому кризису» — М.: МАКС Пресс, 2009 Due to non-payments, wage arrears began to grow rapidly and there was a threat of stopping vital industries: water supply, electricity, transport and others. Thus, the problem of non-payments became one of the main factors determining the economic situation in Russia at that time.