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Government financial transfers and enterprise adjustments in Russia

By M. Schaffer

Abstract

This paper analyses the adjustments of state-owned enterprises in Russia to the economic reforms started in early 1992, drawing on evidence from enterprise visits, larger enterprise surveys, and aggregate data on the enterprise sector, and making direct comparisons to comparable experiences in Poland, Hungary and the (former) CSFR, the leaders in transition from socialism in Central and Eastern Europe (CEE). We find that enterprise adjustment in Russia has broadly followed the pattern observed in the leading CEE economies in transition. Demand and output have dropped, and many enterprises have changed their product mix in response without substantial new investment; firms are looking for new customers, though progress in terms of exports is still limited; they are containing wage costs and shedding labour, albeit more slowly than firms in the CEE countries; the levels of interenterprise credit (payables and receivables) has increased but has stabilized at levels comparable to those observed both in other transition countries as well as in West European economies; enterprises have been moving payment methods and avoiding extending trade credit if possible. However, there are also signs that adjustment in the enterprise sector is uneven, that the overall pace of adjustment is low by CEE standards, and that governmental transfers are behind this. Whereas financial environment of enterprises is still soft, and the state is the source of this softness. The financial transfers to enterprises take two forms: subsidies, and directed credits. The case of directed state credits is analyzed in some detail, and evidence is presented suggesting that they are allocated accordingly to "need" meaning that the recipient enterprise is in financial difficulties and/or it is politically important

Topics: HD Industries. Land use. Labor, HJ Public Finance
Publisher: Centre for Economic Performance, London School of Economics and Political Science
Year: 1994
OAI identifier: oai:eprints.lse.ac.uk:20907
Provided by: LSE Research Online
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