ECONOMIC REFORMS AFTER THE DISSOLUTION (1991):
• After the dissolution of the soviet union, in 1991, under the regime of Boris Yeltsin, the Russian economy was opened. Privatization of the state owned enterprises took place.
• The two fundamental and interdependent goals were macroeconomic stabilization and economic restructuring for the transition from central planning to a market-based economy.
• The previous government followed implementing fiscal and monetary policies that promote economic growth in an environment of stable prices and exchange rates.
• The latter required establishing the commercial, legal, and institutional entities like banks, private property, and commercial legal code.
• Opening domestic markets to foreign trade and investment, thus linking the economy with the rest of the world, was an important aid in reaching these goals.
CREATION OF MARKET BASED ECONOMY:
• Yeltsin announced the shock therapy which resulted into high poverty, corruption and hyperinflation.
• In 1992 and 1993, the Government expanded the money supply and available credit at explosive rates, by lifting the price controls, that led directly to high inflation and to a deterioration in the exchange rate of the ruble.
• In 1992, due to sudden removal of price controls and increase of heavy money supply in the market, there was hyper inflation and the value of ruble deteriorated. So much so that, by the end of 1992, the money supply had increased 18 times as compared to the start of 92.
STEPS BY THE GOVERNMENT:
• The credit in market went on increasing. Thus t ...