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Russian Privatization

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

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Russian Privatization

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  1. Russian Privatization Jordan Ford

  2. 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

  3. Russia

  4. Basic Information • Capitol: Moscow • Current Govt. Structure : Federation • Currently in Power: Vladimir Putin http://www.cia.gov/cia/publications/factbook/geos/rs.html

  5. Basic Info. (cont.) • GDP (PPP): $1.535 trillion (2005 est.) • Compared to USA: $12.37 trillion (2005 est.) • GDP Growth Rate: 5.9% (2005 est.) • GDP per capita (PPP): $10,700 (2005 est.) • Inflation Rate: 12.9% (2005 est.) http://www.cia.gov/cia/publications/factbook/geos/rs.html

  6. 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 (1928-53) strengthened Russian dominance of the Soviet Union

  7. History (cont.) • General Secretary Mikhail Gorbachev (1985-91) 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…

  8. 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

  9. PrikhvatizatziyaPhase 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’ http://www.pitt.edu/~gmmst11/russ0871/timeline.html

  10. PrikhvatizatziyaPhase II • July 22, 1994: Yeltsin announced ‘Phase II’ • 1995: Sales of larger, high-value enterprises to financial/industrial groups • Loans-for-Shares • Govt. Need for Ruble • Banks loan Ruble to State • Collateral was shares in state-owned companies • Auctions • Companies bought for fraction of worth • Yukos incident • 1996: Yeltsin elected to second term • 1997: End of Phase II http://www.cipe.org/publications/fs/ert/e32/e32_09.htm

  11. 1990-1996

  12. PrikhvatizatziyaPhase 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 • Aug. 1998: Financial Crisis • collapse of Russian markets • currency (Ruble Collapse) • economy • 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 http://www.cipe.org/publications/fs/ert/e32/e32_09.htm http://library.findlaw.com/1998/Sep/1/128169.html

  13. PrikhvatizatziyaPhase 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. http://www.cia.gov/cia/publications/factbook/geos/rs.html

  14. Phase II Financial Crisis Phase I Phase III

  15. 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 1990-Present • Ukraine seems to be effected by the financial crisis of Russia (Their economy seems to stagnate)

  16. Comparison Between Other Transitioning Countries GDP Growth %

  17. Financial Crisis

  18. Outcome • Rapid mass privatization is likely to lead to massive corruption by managers and controlling shareholders unless a country has a good infrastructure for controlling corruption. • Russia accelerated the self-dealing process • Which lead to Corruption • Lack of Tax laws • Labor productivity gain, 1989-1998 • Hungary (Gradual): 29% • Poland (Gradual): 36% • Czech Republic (Rapid): 6% • Russia (Rapid): 33% Source: Economic Commission on Europe, Economic Survey of Europe, 1999

  19. Outcome • Developing the institutions to control self-dealing is central to successful privatization of large firms. • Privatization matters in the long run! • Russia facilitated privatization politically • However! Russia is not out of the woods yet! • 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 broad-based economic growth. • weak banking system • a poor business climate that discourages both domestic and foreign investors • corruption and widespread lack of trust in institutions.

  20. 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

  21. Questions?!

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