Structural Reforms in Russia

Structural Reforms in Russia was adopted to form the institutional framework for the development of business across the country. Broadly, structural reform means the transformation of the institutional economy. Issues like corporate governance, bankruptcy procedures, privatization and issues related with budget expenditure are very important in this respect.

Aim of the Structural Reforms in Russia:

The primary aim of the structural reform was to help the companies to minimize their costs and administrative risks.

Reform Processes:

1. Privatization: Government started privatization to generate efficient business incentives. According to another policy, large corporations were established whose shares were owned by the state. This was done by government in order to maintain a continuous flow of funds and to reorient the unused assets into production.

   A new policy was declared to encourage competition and to support small and medium scale businesses.

   The government of Russia realized that the state was not able to manage its properties efficiently. So, in 1999, the Russian State Property Management gave some new concepts of privatization which was approved by Government Resolution No.1024 which indicated towards further privatization.

   According to those concepts the State Property Management proposed to reduce the number of unitary enterprises and then regroup them into joint stock companies.

   Beside privatization, much importance was given on asset reallocation to improve productivity.

2. Trade Policy: International trade policy was a part of structural reform in Russia which had been changed in 1999. The Russian currency was devalued by varying the prices of the raw materials and international energy. The government concentrated on protecting domestic market and export of the domestic goods.

   The terms and conditions of raw material trade and trade of energy resources were changed drastically and domestic market prices were increased. This situation was not favoring the secondary industries and also disturbed the price stability. Therefore, the domestic producers suffered a lot.

   However, despite the above mentioned fact, the predictability and stabilization of the international trade policy helped Russia to restructure the economy.

3. Tax Reform: The main aim of the tax reform was to minimize the tax burden . The reform started with a reduction in the value added tax rate by 10%. The profit tax rate was reduced as well by 5% . In spite of that, the government of Russia failed to resolve issue like high ceiling of the tax rate that enticed the tendency to avoid tax..
4. Infrastructure Monopolies: Since 1998, the Government and and as well as the infrastructure monopolies were not willing to undertake structural reform programs. Therefore, the structural adjustment issues were not taken care of by the government. But, internal regrouping of the infrastructure monopolies were needed which could help to restructure the economy.

In the early 1999, the government kept out the issue of infrastructure monopoly reform from its economic agenda. More stress was given on controlling the infrastructure monopoly prices. The infrastructure monopoly prices were controlled through an indexing system on the basis of wholesale industrial price change.

The agenda of infrastructure monopoly reform was started in Russia finally, due to the pressure of the international financial institutions. The reform measures were:

A) Improvement of the payment system in the infrastructure monopoly sectors.

B) Improvement in the transparency of the information provided by the monopolies.

C) Strictness of the Infrastructure monopolies’ cost controlling systems.

D) Institutional disjunction of the non monopolistic and naturally monopolistic divisions of the sectors.