3. Shock Therapy in Post-Communist Regimes

SHOCK THERAPY IN POST-COMMUNIST REGIMES

• The collapse of communism was followed in most of these countries by a painful process of transition from an authoritarian socialist system to a democratic capitalist system.
• The model of transition in Russia, Central Asia and east Europe that was influenced by the World Bank and the IMF came to be known as ‘shock therapy’.
• Shock therapy varied in intensity and speed amongst the former second world countries, but its direction and features were quite similar.
• Features of Shock Therapy:

1. Each of these countries was required to make a total shift to a capitalist economy, which meant rooting out completely any structures evolved during the Soviet period.
2. Private ownership became the dominant pattern.
3. Privatisation of state assets and corporate ownership patterns were to be immediately brought in.
4. Collective farms were to be replaced by private farming and capitalism in agriculture.

• Shock Therapy also changed the external orientation of these economics:

1. Development was now envisaged (to bring) through more trade, and thus a sudden and complete switch to free trade was essential.
2. The free trade regime and foreign direct investment (FDI) were to be the main engines of change. Also involved:

• Foreign investment
• Financial Opening/de-regularisation
• Currency Convertibility
• Finally, the transition also involved a break-up of the existing trade alliances among the countries of the Soviet bloc:

1. The states were to adopt the western eco system(capitalism).
2. The Western capitalist states now became the leaders and thus guided and controlled the development of the region through various agencies and organisations.

Consequences of Shock Therapy

Bad results are:

• Largest – Garage sale

1. 90 % of the state-owned industries were to put upon sales to private individual companies.
2. Virtual disappearance of entire industries happened, they were undervalued and sold through auction at thrown away prices.
3. All citizens were given vouchers to participate in sales, but many sold it in black market for extra money.

• De- regulation of currency

1. The value of Russian currency “ruble” decreased.
2. The rate of inflation was so high that people lost all they savings.
3. The collective farm system disintegrated leaving people without food security and Russia, started to import food.
4. In 1999 the GDP of Russia was less than that of the previous year

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• Social-Welfare Declined

1. The withdrawal of government subsidies pushed large sections of the people into poverty. Basic needs weren’t fulfilled now.
2. The middle classes were pushed to the periphery of society, and the academic and intellectual manpower disintegrated or migrated.

• Mafia Emergence

1. Many economics activities controlled by Mafia’s.
2. Privatisation led to new disparities.
3. Post-Soviet states, Russia, was now divided as rich and poor regions.
4. Economic inequality between people started increasing at a high rate.

• Ignorance of Democratic Institution

1. Construction of democratic institutions weren’t given much importance.
2. As the constitution of countries were drafted in hurry, President was given high powers.
3. In Central Asia, the presidents had great powers, and several of them became very authoritarian.
4. The presidents of Turkmenistan and Uzbekistan appointed themselves to power for first ten years and then extended it for another ten years, not allowing any opposition to take place.

• No Judicial Culture

1. A judicial culture and independence of the judiciary was yet to be established in most of these countries.

• Countries started reviving in 2000, as most of the countries were oil, gas and mineral rich countries.
• Azerbaijan, Kazakhstan, Russia, Turkmenistan and Uzbekistan were major oil and gas producers and exported them for money.
• Other countries on their territories got rent for the oil pipelines passing through them.

2.Tensions and Conflicts

• Most of the former Soviet Republics are prone to conflicts, and many have had civil wars and insurgencies, growing involvement of outside powers complicate the situations.
• Chechnya and Dagestan [Russian Republics]- had violent secessionist and movements.

1. Moscow’s method of dealing with Chechen rebels and indiscriminate military bombing had led to many human right violations but have failed to deter the aspirations for independence.
2. Tajikistan witnessed a civil war that went on for 10 years till 2001.

• The region as a whole has many sectarian conflicts.

1. In Azerbaijan’s province of Nagorno-Karabakh, some locals Armenian’s wanted to secede and join Armenia.
2. In Georgia, two provinces demanded independence which later turned out to be civil war.
3. Countries and provinces are fighting over river waters, which makes ordinary citizens life difficult.
4. The Central Asian Republics has areas with vast hydrocarbons resources, at the same time it has become a zone of competition between outside powers and oil companies.
5. Region which next to Russia, China, Afghanistan, Pakistan and Close to West Asia, US wanted the military base in that region and paid to all Central Asian States to hire bases, and to allow airplanes to fly over their territories during the war in Afghanistan and Iraq. (After 11 September 2001)
6. In easter Europe, Czechoslovakia divided themselves into two independent countries. i.e., the Czechs and the Slovaks.
7. After 1991, Balkan republics of Yugoslavia was broken into independent provinces like Croatia, Slovenia and Bosnia and Herzegovina etc.
8. Serbs opposed this, and a massacre of non-Serb Bosnians followed.
9. The NATO intervention and the bombing of Yugoslavia followed the inter-ethnic civil war.

• Russia perceives these countries to be “Near Abroad” and tells these countries should be under their influence.
• China has interest because of oil resources and settling around borders to conduct trade.

3.India And Post-Communist Countries

• India has good relations with all states but it is stronger with Russia.
• India’s relations with Russia are an important aspect of India’s foreign policy.

1. It is popular in history
2. Russian people keep names after Bollywood actors.
3. Bollywood song are popular in Russia and many post- Soviet countries.

• India and Russia share a vision of multipolar world order.
• More than 80 bilateral agreements have been signed between India and Russia as a part of Indo-Russia strategic Agreement of 2001.
• India has benefits with relationship, which being on:          

1. Kashmir Issue
2. Energy supply (oil crisis)
3. Sharing information on international terrorism
4. Access to Central Asia
5. Balancing relationships with China
6. Military hardware’s from Russia

• Russia is important for India’s nuclear energy plans. Ex- Russia gave cryogenic rocket to India when we needed it.