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Shock Therapy in Russia and Bolivia

Shock Therapy in Russia and Bolivia. Russia Bolivia. Comparing Russia and Bolivia. Russia and Privatization Methods. First Plans for Privatization were passed in 1991 In October of 1992, each Russian citizen received 10,000 rubles worth of vouchers. Privatization Continued.

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Shock Therapy in Russia and Bolivia

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  1. Shock Therapy in Russia and Bolivia Russia Bolivia

  2. Comparing Russia and Bolivia

  3. Russia and Privatization Methods • First Plans for Privatization were passed in 1991 • In October of 1992, each Russian citizen received 10,000 rubles worth of vouchers

  4. Privatization Continued • Vouchers were immediately exchangeable for shares in enterprises selected for privatization • Everything not so smooth…

  5. Problems • Managers • Feared that they would lose their power • Stage 2 (1994) “Loan for Shares” • Auctions were changed right up to the time of their meeting and only insiders new • Were given large loans to buy the vouchers off the less educated lower classes • Very political, had to keep the Upper class happy so the politicians in office were able to stay and continue Privatization

  6. Problems Continued • Public • Very skeptic • Had been told for 70 years that Privatization was bad and now the government is turning around and saying the exact opposite • Were tricked into selling the vouchers for dirt cheap prices which inflation then caused them to be almost worthless • Ended up bartering for vodka and other goods instead • It was very valuable to be educated during this time

  7. Reasons for Quick Transition • Leaders felt political pressure that they must make changes and make them quickly so that the citizens could see the advantages of Privatization • Much different than neighboring Poland • Privatization laws passed in 1990 • First Auction wasn’t until 1995 • Russia passed late 1991 and first auction in December 1992

  8. Bolivia

  9. Bolivia • In 1985 the Inflation rate was an astounding 13,000% • Implemented a new monetary policy • Boliviano introduced • Government began to cut spending

  10. Problems • Has caused oilmen and industrial soy farmers to gain massive profits • Main Agricultural Products :soybeans, coffee, coca, cotton, corn, sugarcane, rice, potatoes • The income levels for most have become stagnant • Half the population now lives on $2 a day

  11. GDP Growth

  12. Bolivia • Gonzalo Sánchez de Lozada • The brains behind the economic reforms • People didn’t see the quick results and he was ousted as president • Feels that if he would’ve had more time things might have worked out better • Bolivia today now has high unemployment and is one of the poorest countries in South America

  13. Non-Policy Problems in Bolivia • Wars in the late 19th and early 20th centuries cost Bolivia it’s seacoast • Since independence, Bolivia has lost over half of its territory to neighboring countries due to wars.

  14. Question to Think About • As you can see with Inflation and GDP Growth Bolivia seems to be fixing some problems, but they are still the poorest country in South America. Could it be that no matter what policies the Bolivians put in place they will never be able to be a big time player in the world economy because of out lying problems such as where they are located and natural resources?

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