Skip to main content Accessibility help
  • Print publication year: 2012
  • Online publication date: December 2012

5 - From Hyperinflation to Financial Stability


When communism collapsed, macroeconomic chaos prevailed. In late 1991, salespeople stood behind the counters of the large Moscow grocery stores, but they had absolutely nothing to sell. Even the last inedible fish and vegetable conserves had been sold out. Long lines lingered outside other shops that had received some substandard meat. The lines could last for days, and entrepreneurial organizers distributed numbers to the queuing public, but the produce distributed could scarcely pass for meat. Some kolkhoz (collective farm) markets that sold private produce existed, but they were few, and their prices were several times higher than the official state prices.

In the Russian language, the verbs buy and sell had been replaced by take and give, showing how unequal Russians perceived the exchange between goods and money. People stopped going to work because they could not use the money they earned, and they needed the time for queuing. Inflation in the Soviet Union had exceeded 100 percent in 1991. Life was hell.

The imbalances were such that prices had to be deregulated, but when they finally were, they skyrocketed in almost all transition countries. The first section of this chapter offers an overview of how extreme inflation actually was. Many major steps had to be taken to achieve reasonable price stability. The second section makes the point that national currencies had to be established. Third, fiscal policy had to be tightened. Fourth, monetary policy also had to be made strict. Fifth, the exchange rate had to be unified and devalued to become competitive. Sixth, a new tax policy was needed. Alas, these tasks were complex, and the local knowledge of macroeconomics was minimal. The very institutions of macroeconomic policy had to be built or rebuilt. The dramas of financial stabilization engaged all. The main outside actor became the International Monetary Fund (IMF), which played the key role of providing advice on and funding for macroeconomic stabilization.

Related content

Powered by UNSILO