CampbelPrivatization - Shock Therapy in Russia and Bolivia...

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Unformatted text preview: Shock Therapy in Russia and Bolivia Russia Bolivia Comparing Russia and Bolivia RUSSIA Population Type of Shock Date of Shock GDP per Capita 2004 143,420,309 Regime Change (Privatization) 1990 $2,302 BOLIVIA 8,989,046 Monetary Therapy (Decrease Hyperinflation) 1985 $1,036 Russia and Privatization Methods First Plans for Privatization were passed in 1991 In October of 1992, each Russian citizen received 10,000 rubles worth of vouchers Table 2: Privatization and Employment Source: World Bank, Private Sector Development in Europe and Central Asia Number of Enterprises 140000 120000 100000 80000 60000 40000 20000 0 1990 1991 1992 1993 1994 1995 1996 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Total Number of Enterprises Privatized Each Year Private Sector Share of Employment (percent) Private Sector Share Privatization Continued Vouchers were immediately exchangeable for shares in enterprises selected for privatization Everything not so smooth... Labor Productivity in Selected Transition Countries, 19891998 "Staged" Privatization Poland 36% Hungary 29% Mass Privatization Czech Republic 6% Russia 33% Source: Economic Commission for Europe, Economic Survey of Europe, 1999 Problems Managers Feared that they would lose their power Stage 2 (1994) "Loan for Shares" Very political, had to keep the Upper class happy so the politicians in office were able to stay and continue Privatization Auctions were changed right up to the time of their meeting and only insiders new Were given large loans to buy the vouchers off the less educated lower classes Problems Continued Public Very skeptic Were tricked into selling the vouchers for dirt cheap prices which inflation then caused them to be almost worthless Ended up bartering for vodka and other goods instead It was very valuable to be educated during this time Had been told for 70 years that Privatization was bad and now the government is turning around and saying the exact opposite Reasons for Quick Transition Leaders felt political pressure that they must make changes and make them quickly so that the citizens could see the advantages of Privatization Much different than neighboring Poland Privatization laws passed in 1990 First Auction wasn't until 1995 Russia passed late 1991 and first auction in December 1992 Bolivia Inflation in Russia vs Bolivia 100000 10000 1000 Annual % Bolivia Russia 100 10 1 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Year, 0 = Start of Shock Bolivia In 1985 the Inflation rate was an astounding 13,000% Implemented a new monetary policy Boliviano introduced Government began to cut spending Problems Has caused oilmen and industrial soy farmers to gain massive profits Main Agricultural Products :soybeans, coffee, coca, cotton, corn, sugarcane, rice, potatoes The income levels for most have become stagnant Half the population now lives on $2 a day GDP Growth Real GDP Growth 15 10 5 Annual % 0 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 Bolivia Russia -5 -10 -15 -20 Year, 0=Start Shock of Bolivia Gonzalo Snchez de Lozada The brains behind the economic reforms People didn't see the quick results and he was ousted as president Feels that if he would've had more time things might have worked out better Bolivia today now has high unemployment and is one of the poorest countries in South America NonPolicy Problems in Bolivia Wars in the late 19th and early 20th centuries cost Bolivia it's seacoast Since independence, Bolivia has lost over half of its territory to neighboring countries due to wars. Question to Think About As you can see with Inflation and GDP Growth Bolivia seems to be fixing some problems, but they are still the poorest country in South America. Could it be that no matter what policies the Bolivians put in place they will never be able to be a big time player in the world economy because of out lying problems such as where they are located and natural resources? ...
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