FordRusPrivat - Russian Privatization Jordan Ford Outline...

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Unformatted text preview: Russian Privatization Jordan Ford Outline Basic Information Background Leading to Privatization Definition Stages of Privatization Mass Privatization (I) Loans for Shares (II) 1998 Financial Crisis (III) Overall Outcome Further Research Russia Basic Information Capitol: Moscow Current Govt. Structure : Federation Currently in Power: Vladimir Putin Basic Info. (cont.) GDP (PPP): $1.535 trillion (2005 est.) GDP Growth Rate: 5.9% (2005 est.) GDP per capita (PPP): $10,700 (2005 est.) Inflation Rate: 12.9% (2005 est.) Compared to USA: $12.37 trillion (2005 est.) History Leading to Privatization Repeated devastating defeats of the Russian army in World War I Overthrow in 1917 of the imperial household The Communists under Vladimir Lenin seized power soon after and formed the USSR. Iosif Stalin (192853) strengthened Russian dominance of the Soviet Union History (cont.) General Secretary Mikhail Gorbachev (198591) introduced openness and restructuring in an attempt to modernize Communism This openness splinter the USSR into 15 independent republics in December 1991 Which leads us to why Russia privatized... Definition Privatization Conversion of a state run company into a public company, often accompanied by a sale of its shares to the general public. Also known as: Denationalization Prikhvatizatziya Phase I: Mass Privatization 1991: First privatization laws passed October 1992: Voucher privatization begins December 1992: Start of auctions Jan. 1992: Price Controls Lifted "Shock Therapy" December 1993: New Constitution Ratified June 30, 1994: End of `Phase I' Prikhvatizatziya Phase II July 22, 1994: Yeltsin announced `Phase II' 1995: Sales of larger, highvalue enterprises to financial/industrial groups LoansforShares Govt. Need for Ruble Banks loan Ruble to State Collateral was shares in stateowned companies Auctions Companies bought for fraction of worth Yukos incident 1996: Yeltsin elected to second term 1997: End of Phase II 19901996 Privatization and Employment Source: World Bank, Private Sector Development in Europe and Central Asia 140000 Number of Enterprises 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 Employm Private Sector Share Prikhvatizatziya Phase III 1998: Govt. tries various measures to make the process more fair Drop restrictions on foreign participation and instituting the valuation of assets by international advisors collapse of Russian markets currency (Ruble Collapse) economy Aug. 1998: Financial Crisis 1999: High oil prices and cheap ruble help with economic rebound 2000: Investment and Consumer Demand Real fixed capital investments have averaged gains greater than 10% over the last five years Prikhvatizatziya Phase III Russia ended 2005 with its seventh straight year of growth, averaging 6.4% annually since the financial crisis of 1998. Russian foreign debt declining from 90% of GDP to around 36%. These achievements, along with a renewed government effort to advance structural reforms, have raised business and investor confidence in Russia's economic prospects. $1,600,000,000,000 $1,400,000,000,000 $1,200,000,000,000 $1,000,000,000,000 $800,000,000,000 $600,000,000,000 $400,000,000,000 $200,000,000,000 $0 Poland GDP (current US$) Russian GDP (current US$) Ukraine GDP (current US$) Poland GDP (PPP) Russian GDP (PPP) Ukraine GDP (PPP) GDP 8 9 9 1 9 3 9 5 9 7 9 9 0 1 2 0 1 9 1 9 1 9 1 9 1989-2004 2 0 1 9 1 9 0 3 Analysis Declining GDP up until the Financial Crisis of 1998 Phase II had more decline was a result from the selling of firms and corruption Relatively higher GDP compared to other transition countries Poland has a slowly increasing GDP from 1990Present Ukraine seems to be effected by the financial crisis of Russia (Their economy seems to stagnate) Comparison Between Other Transitioning Countries GDP Growth % Infaltion 1800 1600 1400 1200 Annual % 1000 Inflation (consumer prices) Inflation (food prices) Inflation (GDP deflator) 800 600 400 200 0 1990 1991 1992 1993 1994 1995 1996 1997 1990-2004 1998 1999 2000 2001 2002 2003 2004 Outcome Rapid mass privatization is likely to lead to massive Russia accelerated the selfdealing process Which lead to Corruption Lack of Tax laws corruption by managers and controlling shareholders unless a country has a good infrastructure for controlling corruption. Labor productivity gain, 19891998 Hungary (Gradual): 29% Poland (Gradual): 36% Czech Republic (Rapid): 6% Russia (Rapid): 33% Source: Economic Commission on Europe, Economic Survey of Europe, 1999 Outcome Developing the institutions to control selfdealing is central to successful privatization of large firms. Russia facilitated privatization politically Economic growth slowed to 5.9% for 2005 while unemployment and inflation remain high. Russia's manufacturing base is decaying and must be replaced or modernized if the country is to achieve broadbased economic growth. weak banking system a poor business climate that discourages both domestic and foreign investors corruption and widespread lack of trust in institutions. Privatization matters in the long run! However! Russia is not out of the woods yet! Further Research Do crisis' fuel revival in a diminishing economy? More research on other struggling transition economies Unemployment rate Productivity rates Actual intention of the Russian Government Fueled corruption Vouchers Loans for Shares Analysis of corruption index with GDP and FDI Future of Russia? Time will tell FDI Analysis of GDP Questions?! ...
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This note was uploaded on 07/17/2008 for the course ECON 508 taught by Professor Fleisher during the Winter '06 term at Ohio State.

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