Editor's Introduction

In September 1996, newly appointed Russian minister of finance Aleksandr Livshits proclaimed that his country's macroeconomic crisis had been overcome. To be sure, inflation has been falling in Russia for over a year, and reached negative levels in August. The ruble has been more or less stable since the introduction of the currency corridor in early July 1995, and the Central Bank of Russia indicated in September that itwould steadfastly pursue policies of monetary austerity.

Editor's Introduction

This issue of >i>Problems of Economic Transition>/i> presents a variety of articles that survey many of the most important issues facing transitioning economies. The background to this collection of articles is the near stagnation of economic reform and development in many of the Newly Independent States, first of all Russia. Over the course of the past twelve months, Russian economic policymaking has been largely adrift. President Yeltsin was hampered or distracted by important regional elections, his own presidential election, serious health crises, an uncooperative parliament, political jockeying and infighting among key political and economic personalities and interest groups, and an increasing focus on foreign policy problems, particularly NATO enlargement.

Editor's Introduction

This issue of >i>Problems of Economic Transition>/i> is divided into two general categories. The first group of articles deals with the problems of economic reform and recovery and includes articles that provide both general overviews and more speclfic analyses. The first article, by Andrei Illarionov of the Institute for Economic Analysis in Moscow, is a detailed, though quite comprehensive study of the current macroeconomic situation in Russia. Illarionov outlines Russia's recent macroeconomic history and a "chain" of crises that, at least superficially, contributed to Russia's continued economic decline and stagnation in 1996. Among the crises that interacted in this way are the fiscal crisis (budget formation), the accumulation of state debt, and the investment crisis. Illarionov constructs a policy dilemma for Russian leaders in which their policies have succeeded in overcoming the threat of hypedation but have driven the economy into prolonged and severe depression. The issue now, which Illarionov puts in comparative perspective, is to reduce state spending in such a way as to avoid doing further damage to the economy and, ideally, to spark new growth. He devises an "ideal" spending model for the Russian budget based on the budgets of some other developing countries. He asserts that without fundamental macroeconomic change, recovery of the Russian economy willbe very unlikely.

Editor's Introduction

Continuing the discussion of Regional Economic Reform and Development from the April issue >i>of Problems of Economic Transition>/i> is the first article, by V. Semenov et al., on Russian federalism, which discusses the political-economic problems of democracy building. In particular, the central questions concern the shift from a centralized state in which subnational regions had little real autonomy, toward a more modern federative structure. This article concludes a series published in >i>Rossiiskii elconomicheskii zhurnal>/i> that takes a broad look at these questions and turns the focus of the discussion to the issue of fiscal federalism. After briefly describing some principles of constructing federal budget systems, the authors analyze the Russian case and prescribe specific policy reforms to improve the effectiveness of the consolidated (federal and regional) budget.

Editorâs Introduction

This issue of >i>Problems of Economic Transition>/i> continues an examination of two major sets of interrelated questions: the reform debate in Russia and industrial restructuring. Serious questions of reform and direction of policy are taken up in articles that focus on conversion, foreign arms sales, and new industrial structures. Industrial reform and modernization in Russia is one of the most critical elements of the reform agenda that remains to be addressed resolutely. Industrial reform could carry as many serious political risks in the short term as it does economic benefits. Thus, progress on this front is bound to be somewhat uneven and slow.

Editor's Introduction

This issue of >i>Problems of Economic Transition>/i> continues our series on Russia's economic debate with an article by one of Russia's leading economists and political figures, Egor Gaidar. Gaidar's article, entitled "New Tasks: The Choice Is Ours," lays out in straightforward terms the fundamental inconsistencies of the current stage of reform in Russia and offers guidance on the direction that new, corrective policy should take. Underlying Gaidar's understanding of how best to secure Russia's progress toward a market democracy is the importance he attaches to economic growth. More specifically, Gaidar is concerned that not only has Russia generally grown poorer since achieving independence, but wealth differentialsâthat is, the gap between the haves and the have-notsâare growing, with a small share of the population amassing a very large share of the total national wealth. While Gaidar believes that the first priority must be to raise the overall level of economic activity, he also wants the wealth gap to be narrowed somewhat so as to broaden the base of support for continued change along market democratic lines.

Editor's Introduction

As this issue of >i>Problems of Economic Transition>/i> goes to press, the Russian government has once again suffered a major setback. This time, several senior officials and prominent reformers were sacked or demoted for their involvement in a scandal involving large ($90,000) advance payments for a book on Russian privatization. At the top of the list is First Deputy Prime Minister Anatolii Chubais. He lost his position as minister of finance, but for now retains his other title. Also implicated (and fired) was Maxim Boiko, head of Russia's privatization program and a deputy prime minister.

Editor's Introduction

As this issue of >i>Problems of Economic Transition>/i> goes to press, observers of the Russian scene are keeping a watchful eye on the political underpinnings of Russian economic reforms. After the December 1995 Duma elections, which saw a strong turnout for left-of-center groups and the subsequent sacking of key reformers in the government, including Anatolii Chubais, the June presidential elections take on heightened importance. Currently, the lead candidates are President Boris Yeltsin and leader of the Communist Party of the Russian Federation Gennadii Ziuganov. There are both short-term and long-term concerns associated with the presidential campaign and election. In the short term, President Yeltsin has already begun to increase state spending and credits to state enterprises in an effort to win support. This type of budget busting, plus the replacement of Chubais with the much more conservative Kadannikov as deputy prime minister for economics, has jeopardized Russia's relationship with the West, particularly the IMF and the World Bank. Even if the immediate issue of the IMF loan is resolved to everyone's satisfaction, strains in the relationships will remain, as will doubts over Yeltsin's real commitment to reform. In the longer run, many Russian and Western observers are concerned that if Yeltsin wins he will be too weak to promote reforms. First, his health is likely to restrict his ability to push reforms past a conservative Duma. Second, it is likely that in order to win he will have to seriously compromise his earlier positions on key reform issues including macrostabilization policies, privatization, and market access. If Ziuganov wins the election, it is fairly certain that reforms will at least be frozen, if not rolled back significantly.

Editor's Introduction

Russia's reform initiatives from 1992 through 1994 have set many important forces in motion. Economic decision making has been decentralized, prices have been liberalized, the economy has been opened for both trade and investment. The critical process of privatization has already resulted in a significant restructuring of the economy. Not surprisingly, these developments have been especially destabilizing. The key overall goal for Russian policy in the next stage of reform (roughly 1995-97 according to the official plan) is to capitalize on the progress made so far while at the same time reversing some of the negative trends that still plague the economy.

Editor's Introduction

This issue of >i>Problems of Economic Transition>/i> publishes, in its entirety, the monograph >i>How to Revive Russia's Economy>/i>, by the former minister of the economy of the Russian Federation, Evgenii G. Iasin. Also presented here is a brief biographical sketch, which highlights some of his major professional accomplishments.