Russia's Economic Reforms in Jeopardy Amid Cabinet Shift

Strategic Insights -

Russian President Boris Yeltsin's hopes for sustained economic reforms have taken a severe blow as Prime Minister Viktor Chernomyrdin takes control of the Cabinet following a key economic reformer's departure. Former finance minister Boris Fyodorov's resignation, triggered by the resignation of market reform architect Yegor Gaidar, has raised concerns about Russia's ability to control inflation and maintain Western aid.

Key Takeaways:

  • The departure of key economic reformers Boris Fyodorov and Yegor Gaidar has led to a major setback for President Yeltsin's economic reform direction.
  • Prime Minister Viktor Chernomyrdin's new Cabinet has been criticized for abandoning monetary policies and adopting a more social spending focus.
  • Former finance minister Boris Fyodorov predicted hyperinflation and a plummeting rouble, with the currency potentially crashing to 12,000 per US dollar by the end of the year.
  • The Russian Central Bank has intervened heavily to try and prevent the collapse of the rouble, spending $US1 billion in the past two weeks.
  • The new Cabinet has been marked by the appointment of conservative figures, such as Alexander Zaveryukha, who is likely to push for more subsidies and support for the rural sector.
  • The Western community's aid to Russia has been made conditional on continued economic reforms, but that has been thrown into doubt following the Cabinet shift.

Statistics:

  • Former finance minister Boris Fyodorov predicted annual inflation of 360 per cent.
  • The Russian Central Bank has spent $US1 billion in the past two weeks to support the rouble.
  • The new Cabinet has been marked by the appointment of conservative figures, such as Alexander Zaveryukha, who is likely to push for more subsidies and support for the rural sector.
  • The Russian Government has introduced a law making trade in dollars and marks illegal in Russian shops.
  • The US President, Bill Clinton, and Russian President Boris Yeltsin had committed to continued economic reforms just a week prior to the Cabinet shift.

Sources:

  • The Moscow Times, Friday
  • The Economist, UK