Thirty years of economic transition in the former Soviet Union: Macroeconomic dimension

Abstract

The paper contains a retrospective analysis of macroeconomic policy and reforms in the countries of the former Soviet Union (FSU) from 1992 to 2021, after obtaining political and economic independence in 1991. Special attention is given to problems of macroeconomic stabilization and economic growth. As a result of structural distortions inherited from the Soviet economy and the slow pace of economic and institutional reforms, the FSU countries suffered from a long and deep output decline in the 1990s. Their post-transition growth recovery in the 2000s did not last long. Furthermore, they remain vulnerable to both domestic and external economic shocks. Given the limited predictability of post-COVID global economic trends and the damaging consequences of the war in Ukraine, this vulnerability will likely continue in the next couple of years.

Thirty years of economic transition in the former Soviet Union: Microeconomic and institutional dimensions

“…producer subsidies, the primary source of fiscal deficit and macroeconomic disequilibria (see Section 2; Dabrowski, 2022a). At the same time, it was the most politically difficult component of a market transition.…”

“…In 1992, only Russia accomplished meaningful progress on this front. The long and painful process of the dissolution of the Soviet ruble area (Odling-Smee and Pastore, 2001; Dabrowski, 2022a) and the introduction of new national currencies in most FSU countries only in the second half of 1993 postponed their convertibility. Seven FSU countries accepted Article VIII of the IMF Articles of Agreement related to current account convertibility between 1995 and 1997.…”

“…The widespread reservations about foreign investors combined with their risk aversion limited possibilities of involving them in purchasing controlling packages of shares of privatized enterprises or forming joint ventures, at least initially. The delayed macroeconomic stabilization and resulting high inflation (Dabrowski, 2022a) made the correct valuation of privatized firms difficult.…”

“…Twelve republics, which remained at that time Union's members, 1 gained full sovereignty. Although some market-oriented reforms were undertaken since 1987, under the perestroika (reconstruction) policy initiated by the General Secretary of the Communist Party of the Soviet Union (CPSU) Mikhail Gorbachev, they had only partial and often chaotic character, causing severe macroeconomic imbalances and making the Soviet economy unmanageable (Dabrowski, 2022a). Thus, the dissolution of the USSR, the collapse of the political and ideological monopoly of the CPSU (formally dissolved at the end of August 1991), and the dramatic economic crisis of 1989-1991 created the political room and necessity to initiate more comprehensive economic transformation.…”

“…Our analysis concentrates on the microeconomic and institutional dimensions of economic transition. Macroeconomic issues have been the subject of another paper (Dabrowski, 2022a) but are referred to when necessary. The same concerns political and geopolitical changes in the region: although they are not the central topic of our analysis, they are considered an essential determinant of economic policies and reforms.…”