In the aftermath of dismantling socialist regime, countries of ex-USSR began to make a drastic policy shift from a central planning system to a capitalist market economy. Since 1991, Russian reformists under the leadership of President Boris Yeltzin implemented a radical economic reform program called 'shock therapy'adopted from the model of Poland. The focal point of the reform program lied in the evaluation of economic policies pursued during the socialist system, and development of new economic reform program toward the transition of market economy, thereby making endeavor in transplanting its socialist system to the market economy. Therefore, Russian government adopted a package of ambitious reform programs including liberalization and privatization policy aimed at stabilizing macro-economy.
Within less than a year, however, the government had to revise the policy stance by facing a variety of problems, such as lack of appropriate government tools to reduce fiscal deficit and to increase government revenue, inefficient production system due to government monopoly, and strong resistances from conservatives. In addition, the economy experienced growing unemployment on account of persisting low economic growth and hyper-inflation triggered by underestimation of potential as well as repressed inflation embodied in the socialist system. In sum, Russian government in early 1990s failed to redress problems of inefficiency in economic management and social structure by implementing economic reform policies without consideration of its political and economic situation.
It is evaluated that price liberalization and privatization, essential parts of government-led 'shock therapy'in Russia distorted the redistribution function during transition period. Pricing by government, instead of market caused a failure in its adjustment mechanism. Russian hyper-inflation during 1990s is, therefore, the end result of government failure, such as government monopoly, excessive expenditure, and failure in economic policies. It is again the fundamental factor in structural fallacy of socialism prevailed in planning economies.
During 19921995, Russian government implemented appropriate macro-economic stabilization policies to lower inflation, which is assessed affirmatively. At present, it is evaluated that inflation is out of control of government in Russia. Government has reduced money supply and government expenditure in order to control price hike. But it soon had to face but a trade-off between price stability and rising unemployment.
In this regard, reform in Russia, the essential task of the current government should be appraised with long-term macro-economic criteria, not with performances or failures in the short-run.