Russia’s balance of payments difficulties are rooted in the basic structure and economic developments of the Soviet economy. A classical balance of payments crisis developed: macroeconomic imbalances increased, and structural problems created by decades of price distortions and central planning slowed domestic growth, including oil production. Three major systemic events had an impact on the balance of payments: the changes in external economic relations, including the disbanding of the Council for Mutual Economic Assistance (CMEA) in 1991; the disintegration of the U.S.S.R.; and the dismantlement of central planning and the introduction of market-related reforms in Russia from 1992. Although its savings balance has deteriorated since 1990, Russia has benefited from a decline in the implicit price subsidies to the former CMEA countries and the other states of the former Soviet Union.
The reform period in Russia that began in early 1992 has provided tentative lessons concerning the importance of a comprehensive set of economic policies and appropriate financial assistance. Although progress was made in price liberalization and in the reform of the exchange system during 1992, some key policy measures were not taken. In particular, interest rates were sharply negative in real terms and financial policies were loose, which gave rise to large capital outflows. In addition, the export regime remained highly restrictive. The policy of keeping domestic raw material prices below world market prices and protecting supplies for the domestic market through export quotas and tariffs restricted exports while encouraging illegal transactions.
Financial assistance from abroad increased substantially during 1992. Besides debt deferral, assistance came almost entirely from official creditors or was officially insured and linked to imports. It was extended on relatively short maturities, partly owing to Russia’s heavy reliance on credits for imports of agricultural products and other consumer goods, which will burden debt service in the coming years. The experience showed the importance of determining responsibility for the external debt and assets of the former Soviet Union, agreeing on the amount and terms of the financial arrangements at the government level with the other states of the former Soviet Union, and regularizing relations with external creditors so as to ensure uninterrupted flows of financial assistance.
Russia’s external prospects should be evaluated on the basis of its potential as an exporter to both the states of the former Soviet Union and other countries. External adjustment, including a reversal of the sharp export decline, will depend critically on economic policies, access to foreign markets for Russia’s exports, and external financial assistance on appropriate terms, including non-debt-creating flows in the form of foreign direct investment.