Diplomarbeit, 2004
87 Seiten, Note: 1,3
Preamble
Table of Contents
Abbreviations
Index of Figures
Index of Tables
Abstract
Zusammenfassung
Introduction
1 Economic Situation in Russia during the 1990s
1.1 Overview
1.1 Regionalism and Sectoral Structure
1.1.1 Structure of Regions and Their Economic Structure
1.1.2 Sectoral Structure
1.2 Economic Policies
1.2.1 Fiscal Policy
1.2.2 Monetary Policy
1.3 Banking System
1.4 Financial Markets
1.4.1 Credit Market
1.4.2 Foreign Exchange Market
1.4.3 Securities Market
1.5 Inflation
1.6 Initial Conditions for Enterprises
2. Legal and Tax Issues in Russia
2.1 Legal Overview
2.2 Property Rights
2.2 Legal Issues in Corporate Governance
2.3 Law Enforcement in Russia
2.3.1 Court System
2.3.2 Corporate Governance
2.3 Semi-legal Structures and Corruption
2.4 Conclusions on Legal Issues
2.5 Taxation
2.5.1 Taxation System of the 1990s
2.5.2 Regional Structure
3 Definitions of Non-Monetary Transactions
3.1 Primary Markets
3.2 Secondary Markets
4. Theoretical Explanations and Causes of NMTs and NMT Markets
4.1 Liquidity and Credit Squeeze
4.1.1 Macroeconomic View
4.1.2 Microeconomic View
4.2 Implicit Subsidies
4.3 Rent Seeking
4.3.1 Governmental Officials
4.3.2 Managers
4.4 Network Effects
4.5 Tax Evasion
4.6 Regional and Sectoral Differences
5. Empirical Support for Explanations and Causes
5.1 Empirical Studies and Difficulties
5.2 Evidence from the Empirical Studies
5.3 Liquidity and Credit Squeeze
5.3.1 Microeconomic View
5.3.1 Macroeconomic View
5.4 Implicit Subsidies
5.4.1 Governmental Entities
5.4.2 Inter-Enterprise Sector
5.5 Rent Seeking and Network Effects
5.6 Tax evasion
5.7 Regional and Sectoral Structure
6. Non-Monetary Transaction Markets of the 1990s
6.1 NMT Markets as a Russian Phenomenon
6.2 Liquidity
6.3 Instruments of Primary and Secondary Markets
6.3.1 Barter
6.3.2 Offsets
6.3.3 Veksels
6.4 Segmentation of NMT Markets
6.4.1 Characteristics of Enterprises
6.4.2 Effects of NMTs Usage
6.5 Conclusion
7. Effects Associated with NMT
7.1 Reallocation of Credit
7.2 Lack of Restructuring
7.4 Reduction of Transparency
7.5 Limit of Disorganization in Transition
8. International Comparison and Current Situation
8.1 NMTs in Other Transition Economies
8.2 NMTs in Western Europe and the USA
8.3 Current Situation in Russia
Bibliography
Appendix
Appendix 1.1.2
Appendix 1.5
Appendix 5.1
Appendix 5.3
Appendix 5.4
Appendix 5.7
Appendix 7.2
Having lived and studied for the largest part of my life in Germany and in the US, I still maintain close ties to Russia, the country of my birth. Due to this fact, it was extremely exciting for me to discover further details about the economic development of the years of ongoing transitions in Russia, as I worked on this thesis.
Russia seems to be developing into a democratic and stable country, opening large opportunities to Western investors. However, as Russian poet Tyutchev noticed in 1866, “Russia cannot be understood by intellect”. This is still true today, and, probably, will be true in the future. Russia has some traits that are indeed difficult to explain rationally, both in social and economic ways. Non-monetary transactions (NMTs), that were and are occurring in Russia, can be probably characterized as one of the phenomena to be attributed to these traits. The amount of NMTs in Russia during 1990s led some scholars to re-examine the widely accepted macroeconomic mathematical models and to add barter transaction to those models.
Considering my professional future, there may very well be opportunities for me to work with Russia and former Soviet Republics. Thus, this paper adds to my understanding of the business world and economy in Russia.
I would like to thank those people who provided useful input to this paper, especially: Professor Craig Holden, Professor Clare Francis, Barbara and Robert Aspy, and Jacqueline Arnos.
Alexander Gruen, Bloomington, April 7, 2004
Abbildung in dieser Leseprobe nicht enthalten
Figure 1.1: NMT in % of industrial sales (monthly data)
Figure 1.2.1: Russia: Federal Deficit 1992-98
Figure 1.2.2: Interest Rates and GKO Yields (annual)
Figure 1.3: Commercial bank credit to private sector to GDP, in %
Figure 1.5: Increase in Prices of Industrial Output in Russia in %
Figure 5.2: Reasons for Using NMTs
Figure 5.4.1: Late and in kind tax payments and industrial NMT.
Index of Tables
Table 5.4.2: Gasprom Deliveries, Sales and Cash Receipts, 1997
Table 6.4.2: Distribution of barter products as depending on barter level (%)
Table 8.1: Percentage of firms in sample reporting each level of barter and non monetary transactions, by country
This paper analyzes non-monetary transactions (NMTs) in Russia during the 1990s. This work introduces the topic and provides a rather extensive review of the overall economic, political and legal situations. After definition of the instruments and markets of NMTs, and a summary of the possible causes for NMTs, these causes are reviewed through empirical analyses. Based on identified causes of NMTs, an attempt is made to characterize the structure of non-monetary markets using attributes of financial markets. Market description is followed by the discussion of effects on the economy. The paper is concluded with a comparison to other countries and the most recent available information about NMTs in Russia.
Major results of this paper include an attempt of description and characterization of the markets of NMTs. Up to this point, mostly causes, their empirical evidence and their effects have been debated, without identifying any market structure. Further, empirical evidence to support theoretical causes is summarized and critically reviewed.
Diese Diplomarbeit analysiert die nicht-monetären Transaktionen (NMT) in Russland in den 90ern. Die Arbeit hat einen einführenden Charakter in das Themengebiet der NMT und bietet zunächst einen Überblick über wirtschaftliche, politische und gesetzliche Situation des Landes. Nach der Definition der nicht-monetären Instrumente, möglicher Märkte der NMT und einer Zusammenfassung der theoretischen Ursachen für die NMT, folgt ein Überblick über empirische Untersuchungen der Ursachen. Darauf basierend, wird ein Versuch unternommen, die Märkte der NMT mithilfe einiger Attribute der Finanzmärkte zu charakterisieren. Der Beschreibung der Märkte folgt eine Diskussion über Auswirkungen der NMT auf die Wirtschaft. Die Arbeit schließt mit einem Vergleich der NMT zwischen verschiedenen Ländern und dem neusten Informationsstand über NMT in Russland.
Die Ergebnisse dieser Arbeit beinhalten eine mögliche Charakterisierung der NMT-Märkte. Bis zum heutigen Zeitpunkt wurden meistens nur Ursachen der NMT, empirische Beweise und Auswirkungen untersucht, ohne auf die Struktur der Märkte einzugehen. Die Arbeit präsentiert weiterhin eine kritische Gegenüberstellung der theoretischen Ursachen der NMT mit den bereits existierenden empirischen Studien über NMT in Russland.
This thesis explores the construct of non-monetary transactions (MNTs) in Russia during the 1990s. Based on different theoretical and empirical causes of NMTs, this paper attempts to describe NMT markets using common attributes of financial markets. It is subdivided into eight chapters. The first two chapters provide the situational background information about Russia’s economy in transition and form a foundation for further discussion. The first chapter focuses on structural, political and institutional background and infrastructure, before describing the conditions of enterprises inherited from the Soviet regime. Chapter two provides a legal and tax overview, focusing on economic related laws, such as property rights and corporate governance laws and their enforcement, before discussing tax relevant issues. Chapter three discusses the definitions of instruments in non-monetary transactions and their possible markets.
Chapters four and five discuss causes of NMTs in Russia based on background information of the first two chapters. Whereas chapter four provides theoretical explanations for causes of different NMTs, chapter five summarizes the empirical results to accept or to reject the theories discussed in chapter four.
Based on previous results, an attempt is made in chapter six to define and to analyze markets of NMTs and their structure, while chapter seven describes the major effects of NMTs on Russian economy. Chapter eight concludes the thesis with an international comparison and the latest development of NMTs in Russia
This chapter discusses the overall economic development of Russia in the decade of the 1990s, which gives rise to the significant amount of non-monetary transactions (NMTs). Starting with the overall economic overview and parallel development of NMTs, this chapter further explores regional and structural issues of Russia, before turning to politics, institutions and financial markets. The chapter is concluded with the discussion on inflation and overall conditions of enterprises inherited from the Soviet regime.
After the fall of the Soviet Union in 1991, Russia began its struggle to transform its planned economy into a market economy. By 1996, the overall economic situation seemed to stabilize and even some economic growth is recorded for the first time in 1997. (Freinkman et al. 1999) However, Russia also experienced adverse effects of transition. Industries and institutions collapsed, corruption and chaos rose, and the global crisis of 1997 forced the situation in the country to deteriorate. In August 1998, the Russian government defaulted. The economy began to recover again in 1999 (Kim at al 2001).
Carlin et al (2000) stated that historically, barter is observed in relatively simple societies with a comparatively undifferentiated division of labor. This phenomenon has also been experienced by the more complex societies in the aftermath of serious crises such as wars. In Russia of the ‘90s, non-monetary transactions developed in parallel to the “official” economy. Figure 1.1 on the following page shows the overall development of the NMTs, measured in percentage of industrial sales. There is a constant upward trend of the NMT up to the 1998 crisis with some decrease afterwards. Kim et al (2001), subdivide the decade in three periods.The first, from 1991-1994, is referred to as “post-Soviet instability”; the second, 1995-98, is called “first stabilization”; the third, after 1998, “stabilization after crisis.” It should be noted that the rate of increase of NMTs becomes the highest during the second period, “the first stabilization.” First data on NMTs is available in 1992, according to REB (2001), with no empirical research being conducted before. The Russian tradition of non-monetary transactions seemed to be quite widespread during Soviet times, especially during “perestroika”, during which the government tried to “re-build” the system by increasing the independence of enterprises. This policy led to “vigorous in-kind exchanges...[already] in 1989-90” (Yakovlev 2001, p.1). Only during 1991, with the old pricing systems in place, enterprises had chances to solve their liquidity needs using money and savings, which contributed to the decline of NMTs that year.
Figure 1.1: NMTs in % of industrial sales (monthly data)
Abbildung in dieser Leseprobe nicht enthalten
Source: Russian Economic Barometer (2001)
Freinkman et al (1999) summarized that Russia is a decentralized federal state consisting of 89 “subjects of the federation”. Subjects of the federation have their own elected legislatures and executives as well as independent budgetary and administrative status. The next lower level of administration is comprised of “raions” (districts) and larger cities. There are 1868 districts and 650 larger cities. Below these, districts are subdivided in 437 cities, 2,022 townships and 24,307 villages.
The economic structure of Russia is geographically concentrated. Large parts of industrial outputs are produced in only a few regions. As of 1995, 74 per cent of fuels and 75 per cent of metals were produced in the top 10 regions. One Siberian republic produced, for example, 25 per cent of the world’s diamonds. Most regions, even large concentrated producers of an industry, lacked diversified economic structures. Thus, the dependence on a single sector left the vast majority of the regions vulnerable to economic upheavals of the 1990s.
One of the Gaddy and Ickes (2002) and Serebryakov (2002) observations includes the differences in the sectoral structure of the Russian economy and their different valuation during the 1990s. Whereas most industries’ output declined significantly, some industries, such as raw material producing industries, especially natural gas and oil, managed to either increase their production or they experienced only a small reduction in their output.1 Most of the industrial sectors fell victims to the distorted price system of the planned economy. In the beginning of 1992, prices were revalued and different entities found themselves competing against international competitors in the world markets. Thus, many sectors, especially the underdeveloped consumer goods sector, decreased their output to a fraction of the level of 1990.2 The other accompanying phenomenon of the ‘90s demonstrated that most industrial sectors scaled down their value chain to produce only the basic products.
Different regions and their different economic development also applied to the policies of every region. Freinkman et al (1998) noticed that some regions generally embraced market reforms, others were not able to depart from standards of socialistic price restrictions, large subsidies and barriers to trade, others assimilated a mixture of both. The growing regional variation was characterized as a “dangerous heterogeneity” (Freinkman et al (1998), p. 13) which might lead to political fragmentation. During the ‘90s, regions diverged on several political issues: price liberalization, subsidies, and protection of regional markets. Whereas the federal economic policy is discussed below, it is important to keep in mind that many regions were almost not affected by certain federal policies.
Price controls were almost fully removed in the beginning of 1992. With explicit governmental subsidies before 1992 and freedom of pricing after 1992, the country found itself in an environment of galloping inflation.3 In the time span from 1995 until 1998, the Russian government tightened its fiscal policy. This tightening was done by controlling expenditures and increasing revenues. As Figure 1.2.1 suggests, the primary deficit moves into slight surplus, but still stays below the mark of 4 per cent of GDP, accounting for the portion of interest payments.
The government controlled the expenditure by accumulating payments in arrears, which made up to 5 per cent of GDP by early 1998. Further, it tried to decrease the explicit subsidies to enterprises. (Commander and Mumssen 1998)4
Figure 1.2.1: Russia: Federal Deficit 1992-98
Abbildung in dieser Leseprobe nicht enthalten
Source: Commander and Mumssen (1998)
Despite the efforts, the revenue side shrunk due to an overall bad economic condition, tax evasion and non-cash tax payment. A prohibitive policy on federal governmental in-kind tax payment acceptation in 1998, was reversed after the crisis. The other source of deficit finance, treasury notes market of GKO increased dramatically from 4 to 17 per cent of GDP, with GKO promising up to 150 per cent coupon payment, as Figure 1.2.2 shows. The high coupon payment on GKO was also responsible for the increasing interest payments as it is shown in the Figure 1.2.1 above. (Potemkin 2000)
The era of the 1990s is largely discussed in literature as the decade of demonetization.4 This phenomenon is observed as deceleration in the growth of M2 and diversion of money from the real sector to the financial markets. Monetary policy, described as shock policy, led to a high level of interest rates. In Figure 1.2.2, the development of interest rates, their spread and yields on GKO, the governmental short term notes, during the highest rise of NMTs in the 90’s, can be seen for the period of 1995-98 (“first stabilization”):
Abbildung in dieser Leseprobe nicht enthalten
Source: Commander and Mumssen (1998)
Abbildung in dieser Leseprobe nicht enthalten
Figure 1.2.2: Interest Rates and GKO Yields (annual)
With GKO yielding up to 150 per cent per year in 1996, the rational investors were unlikely to find the same rate of return in any real sector entity. Therefore, large amounts of money were used to acquire the governmental securities. Further, the real lending rates of the banks were prohibitively expensive during this period for firms. Due to the tight monetary policy, nominal yields were brought under 20 per cent in 1997, before increasing again toward the crisis of 1998. (Commander and Mumssen 1998)
According to Potemkin (2000), most of the Russian banks became commercial banks in the beginning of the 1990s. Many banks were established by industrial enterprises so that the numbers of the commercial banks went from virtually non-existent to over 800 in 1991-1992 (Lane 2000). One of the specialties of the Russian banking system was the fact that about 50 per cent of assets were tied up in core accounts and mandatory accounts of the CBR, ruble transaction between banks and others. All these non-financial operations had no ambition to receive any kind of financial returns. For this development, Potemkin (2000) formulates two reasons.
Firstly, less than 205 per cent of the bank assets consisted of liquid deposits that needed to be serviced, and, respectively, market return on which should be earned. Russian banks seemed to be satisfied without running advertisement campaigns, establishing branches, and hiring highly qualified people in order to attract investments. Instead, banks radically slowed down the transaction speed to be able to retain the money possibly long and to finance themselves. Banks were not able to handle the inflationary pressures of the beginning and mid-'90s. Thus, the customers’ trust vanished and left the banks with the overall capitalization of USD 6 billion6 in 1998. (Matloff 1998). Figure 1.3 stresses the inability and unwillingness of banks to lend to private sector. The credit to the private sector amounted at most to 10 per cent of the GDP7 during the period from 1994-98. Banks increasingly concentrated on financing the government and shifting their liquid asset portfolio to GKO procurement. Lane (2000) stressed that the growth of governmental financing went up from 2.1 to 41.3 per cent of all commercial banks’ assets during the period of 1993-1997.
Figure 1.3: Commercial bank credit to private sector to GDP, in %
Abbildung in dieser Leseprobe nicht enthalten
Source: Commander and Mumssen (1998)
Secondly, during the explosive growth period of the banks in the beginning of the 1990s, many banks were established using a disproportional amount of tangible assets, such as buildings, cars, computers, etc. Those assets could not be used for financing or lending to customers. The amount of operational resources was regulated by the CBR to be proportional to the total deposit capital. This phenomenon was the main reason the enterprises and individuals brought in their tangible assets as deposit capital for the newly created banks.
Unfortunately, there seemed to be no room for any learning curve mistakes for the newly established and inexperienced banks. Even the slightest liquidity problem could take such a bank to the edge of bankruptcy. The numbers confirm this hypothesis: in 1995, CBR called back 225 licenses and issued 86; in 1996, 289 licenses were called back and 15 issued. In Matloff (1998), analysts predicted closure of half of the 1500 Russian banks after the crisis of August 1998.
The development of the Russian credit market was based on a weak banking system and consumers’ distrust. As estimated by Matloff (1998) only 50 per cent of total private savings were accumulated in the banks. Furthermore, the biggest part of the credit market was represented by inter and intra bank credits, with little ambition to finance enterprises. The overall market carried only 2-3 per cent in long term loans, with the rest being short-term and super short-term loans, ranging from a couple of days to a month. The yields of the credit market had little to do with the processes in the real economy. The reasons for this asymmetry of financial and real sectors were twofold. On the one hand, there was a dependency on the government and governmental control over the banks, due to explicit regulation and due to the fact that more and more liquid assets were used to finance the federal budget. Smaller banks became more and more dependent on CBR subsidies and payments to stay afloat. On the other hand, a large lucrative ruble and a foreign currency semilegal cash inter-bank market emerged in the middle of the ‘90s, creating more incentives for the banks not to participate in the real economy. (Potemkin 2000)
The first organized foreign exchanges were established in 1991. In the beginning, regardless of the efforts of Ministry of Finance and of the CBR, forex markets experienced large ruble devaluation. The reactions to interventions of CBR have a time lag, so that in 1995, the US dollar lost about 20 per cent of its value. Due to these upheavals of the exchange rate, a corridor for USD-ruble exchange rate was set in place with monitoring and intervention if necessary by the CBR. The non-cash trading volume rose to USD 30 billion per year. The markets were regionally split, which contributed to divergence of exchange rates up 10-20 points from the official rate.
Another development in the forex-market was the unregulated cash inflow of US currency into the Russian market, which amounted to USD 20.5 billion in 1995 and USD 51.5 billion in 1996. The dollar became the prevalent currency, with most goods and services being priced in “certain units”8. The US currency was recognized as the legal means of payment up to 1996. During the 1990s, Russia became the largest cash market for US dollars. Serebryakov (2002) pointed out that the volume of cash dollars in 1995 exceeded the ruble cash volume. The US currency was largely used by all classes of the population primarily as a savings instrument and also as a means of payment.
Futures cash markets were not regulated by government and, therefore, were unstable. Most rules were set by the exchanges or by the biggest player in the market, sometimes after the trade. (Potemkin 2000).
The securities market developed in parallel to the credit and foreign exchange markets. In the beginning of the transition period, securities of private companies were almost non-existent. In 1992, the government tried to place one of its first GDO, 30 years, 15 per cent coupon long term bills. Unfortunately, with the ruble devaluating by a factor of 30, only 10 per cent of the GDOs were emitted. Almost simultaneously, the markets were hit by “vouchers”9, shares of privatized companies. By the end of 1993, secondary markets for vouchers exceeded the governmental issues in their volume, trading mostly OTC in cash and not being registered. By 1994, the Russian voucher market was said to be one of the largest illegal securities markets in the world. (Potemkin 2000)
Inflation skyrocketed during the 1990s as can be seen in the Figure 1.5 below, achieving very high levels in the beginning of the decade and decreasing before the 1998 crises. It evolved again at the end of the decade.
Figure 1.5: Increase in Prices of Industrial Output in Russia in %
Abbildung in dieser Leseprobe nicht enthalten
Source: Serebryakov (2002), author's calculations
Kim’s et al (2001) subdivision of the decade in “post-Soviet instability”, “first stabilization” and “stabilization after crisis” was also applicable in regards to inflation. During the first period, some of the reasons for the inflation were price liberalization in 1992 and also the existence of the ruble zone, in which several former Republics issued currency independently. Serebryakov (2002) argued that inflation was a response to opening markets to world wide competition. With world prices for raw materials being significantly higher than the fixed Soviet prices, many enterprises scaled back their value chain and sold raw materials abroad. Especially energy and fuel sectors started to compete on the world stage by significantly raising their prices10 compared to the former planned price system. Since every enterprise relied on the input of some of the latter sectors, the overall input prices increased, leading to higher overall output prices.
Due to tight fiscal and monetary policies, the explosive growth of inflation in the beginning of the decade, pushed by costs of raw materials and the dollarization of the country was brought under control after 1996. Inflation became an issue again after the crisis of 1998.
Historically, Soviet enterprises operated under a planned economy. Vast efforts were put into achieving the mandatory outputs that were prescribed by the 5- year-plan. Gaddy and Ickes (2002) elaborated three main factors that confronted the post-Soviet enterprises throughout the transition.
First, there were distorted pricing systems for outputs of Soviet enterprises. The prices did not reflect the true value of inputs and labor in the final product. Especially, the prices of electricity and fuel sectors were largely undervalued in comparison to the world market. After opening the market to world wide competition, many enterprises found themselves not creating, but destroying value.
Second, the Soviet system and the post-Soviet society relied heavily on the social services of the enterprises. Enterprises not only produced goods and services, but they were also responsible for the renovation of schools and the repairs of roads. Mainly because of their social responsibility in society, upper management and directors of large enterprises accumulated “relational capital”11, a system of networks to their suppliers and customers.
Third, Russian enterprises concentrated the most value-added activity in the resource sectors. According to calculations of Gaddy and Ickes (2002), the resource sectors made up 79.9% of the total market capitalization value in 199812, employing 2% of the workforce. The entire manufacturing sector with employment of 20.6% was valued at one per cent.
McKinsey (1999) also found that the overall condition of real sector’s assets was far from being competitive worldwide. Moreover, the assets were never used to their full capacity, remaining inefficient. The Soviet enterprises concentrated mainly on producing military and industrial goods. The production of consumer goods was underdeveloped. After 1991, most consumer good enterprises found themselves competing with foreign consumer goods, whereas industrial and military enterprises were neglected.
Hainsworth and Tompson (2002) pointed out the Russian folk wisdom to hold that Russia ‘is a country of unread laws and unwritten rules’ and that ‘the imperfection of our laws is compensated for by their non-observance’. This chapter discusses the facts pointed out by the folk wisdom, which compose the legal basis of inter and intra-enterprise operations. After an overview over the legal system in Russia during the decade of the 1990s, the chapter discusses important “external” and “internal” laws affecting the enterprises, the former being property rights and their effects on the enterprises and the latter being laws of corporate governance. Then, the discussion moves from law existence to law enforcement in courts and in the field of corporate governance. The discussion on legal issues is concluded, after touching on corruption and semi-legal structures. The second chapter ends with an outline of taxation issues. Together with the first chapter, this chapter discusses the socioeconomic and legal basis in Russia.
Trunk (2003) described the controversy about Russian legal development during post-Soviet era. He noticed that in the beginning of the decade the Russian legal system was almost non-existent and, therefore, referred to as “legal nihilism” (Trunk 2003, p. 28). Since then its ratings have significantly improved. The structure of Russian law is comparable to the structure of continental Europe and is based on the tradition of the Latin law system. There are some differences in the modern jurisprudence, which go back to the transition from a one-political-party state and planned economy to a free economic democratic market.
The main document of Russian law is the Constitution from 1993, which replaced the old Soviet Constitution from 1978. The new constitution sets the federal structure of the country, as described in Chapter 1, and also includes a collection of basic human rights. It is enforced through the Constitutional Court of Russia that was founded in 1991 and contributes to the political importance with its major decisions.
Unfortunately, the field of administrative law was less developed than other legal fields. There were many individual laws passed during the ‘90s, but many of them were passed relatively late such as cumulatively reformed taxation laws13 (1998 and 2000), customs laws (1993 and 2003) and social security laws. The overall system still has many divergent gaps and contradicting laws the country fails to deal with due to lack of organizational and financial resources.
Russian civil law is stated in the Civil Code (1994 and 2000), which is based on the former Soviet Civil Code, but also contains many new laws. Some of these laws, based on the free market system are company law, credit law and the new contract law. Thus, civil and commercial law are tied together in the Russian Civil Code. The Civil Code is supplemented by different Codes for special legal situations, such as employment law and property law (both from 2001). Additionally, there are also the Company and the Limited Liability Acts, which add to the large amount of overlapping and contradicting laws, which in turn, raise the level of confusion and of legal uncertainty.
The relevant criminal laws for the economy, such as insolvency felony and computer felony, were implemented in 1996. In this case, as in many other cases, Russian officials planned to change many things at once, without allocating enough resources. Therefore, as with many other legal provisions in Russia, the theoretical and real law and its enforcement showed a significant difference. This perception arose because most laws were violated by powerful individuals and entities in the beginning of the decade. Even today, prosecution seems to be based not on the ambition of achieving equal rights for all, but on political opportunities in the external environment. However, the government tries to win the confidence of the legal system back, which is reflected in a growing number of legal cases in the courts. Even president Putin declared judiciary reforms to be one of the major issues for his term.
Rolfes (1996) declares that property rights, especially land rights, are among the most important rights for healthy economic conditions of a country. During the Soviet time, land was under the total control of governmental bureaucracy. There was a small exception in the form of miniature gardens of average Russians. After the dissolution of the Soviet Union, the effects of total land control became apparent in a severe housing shortage, in the inefficient location of enterprises, and in the collective agricultural system. There were no property laws in the beginning of the ‘90s, since old laws did not apply anymore and new ones were not yet created.
[...]
1 Please refer to Appendix 1.1.2, Table A1.1.2 for details.
2 The condition of enterprises is further discussed in Chapter 1.6
3 Please refer to the discussion on inflation below.
4 Capital“ by Gaddy and Ickes (2002) is further discussed in Chapter 4
5 In Western Europe banks usually amount 40-60 per cent (Potemkin 2000)
6 Market capitalization of Deutsche Bank AG alone was EUR 27.3 billion in 2002 (The Deutsche Bank 2004)
7 Commander et al (1998) estimate that OECD countries’ commercial bank credit was around 20 per cent of GDP in 1997 'certain units” or “udelnye yedinitsi”, implied labeling in USD or , later on, Euro
8 Deutsche Bank AG alone was EUR 27.3 billion in 2002 (The Deutsche Bank 2004)
9 “Vouchers” were distributed among the workforce of a state enterprise, amounting in their sum to the “value” of the enterprise.
10 Please refer to Appendix 1.5 Table A1.5 for details
11 The theory of „Relational Capital“ by Gaddy and Ickes (2002) is further discussed in Chapter 4
12 Calculated as a percentage of total market capitalization of the Russian Stock Exchange (RTS) (Gaddy and Ickes 2002)
13 Please refer to Chapter 2.5 for further discussion on Taxation Laws.
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