In time of crisis, barter works and may have saved Russia in 1998
After the collapse of the Soviet Union caused it to split up into its components, the newly-established nations each faced an economic crisis. In Russia the crisis lasted for a decade. Inflation had destroyed the currency. There was no banking sector to speak of. And the central government had failed to monetize the nation’s potential production through a functioning monetary system.
The answer? Barter! Not only among individuals, but also among businesses and even with the central government. According to a study from the period by Dr. David Woodruff of MIT, “As of early 1998, 50-75 percent of exchange in industry took the form of barter…” With regard to payment of taxes, “In 1997, at least one-quarter of the revenue collected for the federal budget took a non-monetary form.”
At the time, the International Monetary Fund, which was trying hard to impose harsh neoliberal bank-centered policies on Russia, was urging Western governments to take a hard line in trying to force Russian government officials to carry out an anti-barter crackdown. The Russians resisted . Within a couple of more years the Russian economy had begun to move forward again under President Vladimir Putin.
But barter had saved the day. In his study, Woodruff advised against IMF policies, writing: “The rich countries can no longer afford the illusion that they can impose policies on Russia regardless of their domestic support. ”
Source: Dr. David Woodruff, “The Russian Barter Debate: Implications for Western Policy,” November 1998, Ponars Policy Memo 38, Massachusetts Institute of Technology.
Copyright 2010 by Richard C. Cook
Richard C. Cook is a former federal government analyst who writes on public policy issues. His website is www.richardccook.com.