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Books by Grigory Yavlinsky
Economics and Politics in Russia
The Center for Economic and Political Research (EPIcenter)
Nizhni Novgorod-Moscow, 1992
CHAPTER 2. The New Policies of the Administration.

2.1 The Course of Economic Policy

Choice of Strategy

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Three principle tasks lay before post-socialist economies in the process of their transfer to market principles of organization.

1. Systemic changes, by which we mean institutional and structural changes. Institutional transformation is change in the organization of the entities of economic relations. Above all, this means property relationships (juridical ownership, factual instructions), privatization, land reform, reforms in social spheres (switching the responsibility of paying for medical care, education and other services earlier provided by the government over to the population) and others. Structural transformation is the change to market principles of economic organization. This includes changes in the structure of final demand. Related to this is the necessary underpinning of industry to prepare it for these new demands. In addition, in order to survive the change to a more open economy and the liberalization of external trade, enterprises must become competitive.

2. Liberalization of economic relations, the reduction and fundamental change in the role of the government in the economy. To some extent, measures of this sort can act as temporary substitutes for long-term systemic changes.

3. Financial stabilization. Of foremost importance is the stabilization of the national currency, inasmuch as practically all post-socialist economies found themselves at a point of market transformation with seriously imbalanced government finances and disordered monetary circulation.

Simultaneously applying all three of the above elements of post-socialist economic transformation as instruments of economic regulation would result in uncoordinated efforts. The separate measures would also considerably counteract one another. Liberalization and financial stabilization can occur at the same time and during a short time period, but systemic changes are more disposed toward longer-term processes and demand a greater freedom in fiscal manoeuvres. The transformation strategy must, therefore, include priorities; either the task of liberalization and financial stabilization or systemic, and above all, institutional changes.

In the autumn of 1991 the Russian administration chose the path along which Eastern European countries have been traveling for two years. Its priorities are liberalization and financial stabilization. This goal corresponds with the views held by Western economists regarding the paths to be taken by post-socialist economies. Such a policy is also recommended by international financial organizations to countries requesting economic aid. The main aspects of this strategy comprise an immediate "big bang" at the moment of transition toward new prices, the liberalization of economic relations and the consequential enforcement of a strict fiscal policies for a drawn out length of time, which is necessary for the eventual beginning of an economic recovery.

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