In doing this project, two countries, Russia and Ukraine, have been selected. For the past 10 years or so, these two countries have changed profoundly. It is no longer government by a single socialist party that imposes its official ideology on the citizenship. Russian and Ukrainian societies have opened themselves up to the rest of the world and to a new pluralism of views and ways of life. As a former resident of Soviet Union, all of this was unthinkable during the many years of closed Soviet socialism.
The Russian and Ukrainian economies have also changed. They are transforming themselves from a centrally managed to a market economy, but a very peculiar market economy. The economic stagnation that began a bit over a decade ago has become a steep production decline in these two countries. Inequality has also increased, and mass poverty has become a fact of life in Russia as well as in Ukraine. It is surprising that such a decline took place in the countries well endowed with natural resources, a relatively well-educated labor force, and rich industrial and technological traditions. The question to ask is what ought to be done in order to enhance the economical and social standards of these two countries.
In 1992, the Russian Federation embarked on the long and difficult path of transitions toward a market economy. This process has resulted in a profound change in Russian’s economy, even though the transition is far from complete and has often been accompanied by disappointment and setbacks. Nevertheless, recent economic developments are encouraging, and there are firm grounds for sustainable growth and development.
The economic situation appeared to stabilize in 1997 with a substantial reduction in inflation and the signs of positive GDP growth. However the financial crisis of 1998 showed that these developments were not based on a sustainable foundation for economic growth. The principal reason was an unsustainable fiscal and public debt situation combine with continuing structural weakness. These fundamental problems also reflect weak implementation of fiscal and structural reforms, which result from limited involvement of legislative bodies in the design of reforms, and their implementation.
The situation has radically changed in 2000. On December 31, 1999, the sudden resignation of Boris Yeltsin was followed by the appointment of Vladimir Putin as acting president, of the Russian Federation. The new Russian government, formed after the major reorganization of ministries in May-June 2000, has embarked on a course of reforms unparalleled since the initial launch in early 1992. Deregulation and increased transparency of the business environment, comprehensive administrative, judicial and public service reforms, and changing nature of the social welfare.
Despite the generally positive economic developments, the government still faces a number of key challenges in building the foundation for sustainable growth. While in the short-run, the real devaluation of the Ruble has helped engineer a rebound in economic activity, translating this into sustainable economic growth is another major challenge that requires addressing structural issues, most notably the non-payments problem. A related challenge is to improve the investment climate by increasing transparency and addressing corruption and bureaucratic, while at the same time strengthening internal and external economic growth. Challenges are vast and so are the government’s plans. Only time will allow to judge the actual breakthrough the government is able to achieve. This is, in brief, a picture of current economic situation in Russian Federation.
Ukraine re-established its independence in August of 1991, after more than 70 years of Soviet rule. As a nation of almost 50 million people, Ukraine is strategically located between east and west, with a great endowment of human and physical capital. For all the potentials that the country holds, the first decade of independence must be considered one of missed opportunities and great disappointment on the economic and social fronts.
Ukraine has a well-educated, highly skilled labor force. Due to the country’s rich soil, agriculture accounts for a large percentage of GDP. Ukraine was the “bread basket” of the former Soviet Union. According to Ukrainian National Bank report, Ukraine as a republic of former Soviet Union, accounted for the quarter of Soviet grain production, one fifth of its meat and dairy output, and more than one half of its sugar and beef production. Moreover, Ukraine has a fairly well developed infrastructure that provides a good basis for growth.