Thayer Watkins
Silicon Valley
& Tornado Alley

The Reformers in Russia in the 1990's

The Reformers

The Nature of Feasible Reform in Russia in the 1990's




Yegor Gaidar

Yegor Gaidar

The reformers, under the leadership of Yegor Gaidar, did drastically reduce subsidies to state enterprises and cut the the military budget by two-thirds in 1992. Gaidar also instituted a high value-added tax. GDP continued to decline but at a reduced rate.

Western economists attribute the ongoing and debilitating inflation in the early 1990's in Russia to the monetary policies of the dedicated Communist Viktor Gerashchenko who was the head of the Central Bank. Given Gerashchenko's political affiliations it would not be implausible that he would have deliberately sabotaged the reform, but it appears that the sabotage was not deliberate. Instead the inflation was generated as a result of Gerashchenko's coverage of the deficits of the state enterprises. He did not print up money to cover those deficits; instead he granted the enterprises accounts at the Central Bank. This had the effect of creating checking account money and generated the same inflation as the printing up of paper money would have. As the prices rose so did the deficits of the state enterprises and hence the size of the accounts Gerashchenko had to issue them. This process led to hyperinflation. Because pensions were not indexed the hyperinflation led to the pauperization of the retired people of the country.

When Gerashchenko was replaced at head of the Central Bank the rate of inflation was brought down from thousands of percent per year to about ten percent. Later, as a result of political bargaining between the President of Russia, Boris Yeltsin, and the legislature, the Duma, Gerashchenko was put back in charge of the Central Bank.

Yegor Gaidar, as the most prominent reformer, was blamed for the hyperinflation, but his removal of price controls in itself would have resulted in only a one time price rise. The chronic hyperinflation required an ongoing expansion of the money supply. The monetary policy of the time was largely or completely outside of his control. In his book, Days of Defeat and Victory, he makes some comments that indicate that he accepted the necessity of creating additional money to cover the deficits of the state enterprises.

Gaidar was removed from his prime ministership early. He was not the iron general that Chubais was and was not equiped to deal with the hurricane political movements of the time. He appears to be one of the most humane and sincere figures to appear on the political scene in human history. When he was asked by an interviewer years after he was out of the political limelight what he wanted for the future Gaidar replied, "I want to be a European without leaving Russia."

Yegor Gaidar died on December 16th of 2009 from fluid in his lungs resulting from a heart failure. He was only 53 years of age. Although he was acting prime minister of Russia only from June of 1992 to December of 1992 he was a key figure in the transformation of the Russian economy.

(To be continued.)

Anatoly Chubais


Anatoly Chubais
Chubais was widely recognized as a superb organizer. He was adept at recruiting people of talent and allowing them to fulfill their functions. Chubais understood the importance of not trying to micromanage or to second guess on the work of his subordinates. Gaidar said of Chubais that he was a friend whose loyalty was the supreme standard against which all others' friendships were measured.

There was good reason for Chubais to be refered to as the Iron General. One of Chubais' characterisitics was to choose a goal and devote his full energies to the achievement of that specific goal without being distracted by subsidiary goals.


Chubais chose Dmitry Vasiliev to be a major figure in managing the privatization program. Chubais set up a Russian bureau of privatization called GKI from its name in Russian. Vasiliev was given the job of drafting proposed legislation for privatization. It was a tough assignment because it had to be done very quickly and the support for such legislation in the legislative body, the Supreme Soviet dominated as it was by Communist Party appointees, was minimal. In other words, Vasiliev was given an assignment of running through a minefield. The task of getting the legislature to agree to any plan Vasiliev came up with fell to Chubais.









Chubais later became the top executive of the Unified Energy System, the electric power monopoly of Russia. Although he could be considered one of the Russian Oligarchs of the 21st century he still maintains a role as a reformer. He has been trying to revise the rate schedule for electricity. The revisions would involve Russia's large enterprises paying more for electricity. In March of 2005 there was an attempt to assassinate Chubais and a top leader in the Unified Energy System charged that the plan to charge large enterprises more for their electricity was the motivation for the assassination attempt.


Grigory Yavlinsky

Grigory Yavlinsky is a figure that could have been one of the most important in Russian history. He was an important advisor to Mikhail Gorbachev and was working on his program of transition for the Soviet system. He had written a plan for a 500 day transition of the economy. Although relative cautious considering what actually took place in Russia in the 1990's it was considered too big of a step for the top leadership of the Soviet Union to undertake. Yavlinsky's plan got tabled and before it could be reconsidered the table and all else was swept away.

(To be continued.)

The Privatization Programs in Russia in the 1990's


Hyperinflation in Russia in the 1990's

HOME PAGE OF applet-magic
HOME PAGE OF Thayer Watkins