Fiscal Crisis, Monetary Stabilization and Investment in Russia (Working papers No.3E)

Starting from 1992, a low level of production investment has been one of the major problems for Russian economy. Investment crisis occurred in spite of the relatively high level of domestic saving exceeding 20% of GDP. During all the years of market transformation, the excess of domestic savings over domestic investment caused the capital flight from Russia. Without changing this tendency, neither the beginning of economic growth nor an active integration of Russia in the global economy is hardly possible. This article concerns the analysis of macroeconomic conditions favouring the rise of investment activity at the post-reform period.

The economic liberalisation in 1992 allowed Russia to solve various urgent problems: to liquidate monetary overhang and shortage of goods, create money-based market mechanisms of exchange, improve public finance, solve the problem of overaccumulated sovereign debt and raise official foreign reserves, open the economy for international trade. Among important institutional changes are: establishment of the two-level banking system, privatisation of a considerable part of state enterprises and the capital market creation.

However, all these steps were necessary for the first stage of reforms, but not sufficient to considerably improve the investment environment and opportunities. In particular, the political situation in Russia in 1992-1995 was the main obstacle for macroeconomic stabilisation and reform of public finance.