History of the Russian Federation

The modern history of Russia began with the Russian SFSR, a constituent republic of the Soviet Union, gaining more political and economical autonomy amidst the imminent dissolution of the USSR during 1988–1991, proclaiming its sovereignty inside the Union in June 1990, and electing its first President Boris Yeltsin a year later. The Russian Soviet Federative Socialist Republic was the largest Soviet Socialist Republic, but it had no significant independence before, being the only Soviet republic to not have its own branch of the Communist Party.
The RSFSR was the largest of the fifteen republics that made up the USSR, accounting for over 60% of its GDP and over 50% of its population. Russians also dominated the Soviet military and the Communist Party. As such, the Russian Federation was widely accepted as the USSR's successor state in diplomatic affairs and it assumed the USSR's permanent membership and veto in the UN Security Council.
Prior to the dissolution of the USSR, Yeltsin had been elected President of the RSFSR in June 1991 in the first direct presidential election in Russian history. This ensured that he would be the political leader of the Russian successor state following dissolution. This situation resulted in political turmoil as the Soviet and Russian leadership wrestled for control, which culminated in the 1991 August coup, where the Soviet military attempted to overthrow Mikhail Gorbachev. Although the coup was ultimately averted, this situation contributed to rising instability in the Soviet Union. As the USSR was on the verge of collapse by October 1991, Yeltsin announced that Russia would proceed with radical reforms, including shock therapy policies to introduce capitalism. This caused a sustained economic recession, and GDP per capita levels eventually returned to their 1991 levels by the mid-2000s. Following Yeltsin's resignation in 1999, Russia's politics have since been dominated by Vladimir Putin, serving as either President or Prime Minister. Although the Russian economy has improved significantly under Putin's leadership following relative economic chaos under Yeltsin, Putin has also been widely accused of corruption, authoritarian leadership, and widespread human rights abuses. An authoritarian form of governance in Russia since 2000 has been called Putinism.
For the most part, the Russian armed forces were in near complete disarray by 1992, one year after dissolution. This degraded military effectiveness would become all too clear during the 1994 Chechen War, and in the interim posed significant practical challenges for global security and arms control. Under Russian leadership, the Lisbon Protocol ensured that former Soviet republics would disarm themselves of nuclear weapons. This affected Kazakhstan in particular, as it hosted a significant share of the world's nuclear weapons immediately following the dissolution of the Soviet Union. However, the former Soviet republics were able to maintain transnational cooperation in other military areas, like establishing shared responsibility for the rocket and space infrastructure such as the Baikonur Cosmodrome.

Reforms

"Shock therapy"

With the dissolution of the Warsaw Pact and COMECON and other treaties that served to bind its satellite states to the Soviet Union, the conversion of the world's largest state-controlled economy into a market-oriented economy would have been extraordinarily difficult regardless of the policies chosen. The policies chosen for this transition were liberalization, stabilization and privatization. These policies were based on the Washington Consensus of the International Monetary Fund, World Bank and Treasury Department.
On 2 January 1992, Yeltsin—acting as his own prime minister—enacted the most comprehensive components of economic reform by decree, thereby circumventing the Supreme Soviet of Russia and Congress of People's Deputies of Russia, which had been elected in March 1990, before the dissolution of the USSR. While this spared Yeltsin from the prospects of bargaining and wrangling with Soviet deputies, it also eliminated any meaningful discussion of the right course of action for the country.
The programs of liberalization and stabilization were designed by Yeltsin's deputy prime minister Yegor Gaidar, a liberal economist inclined toward radical reform, and widely known as an advocate of "shock therapy". Shock therapy was originally used in Bolivia by notable economist Jeffery Sachs to combat inflation in the 1980s. Having achieved some major successes in Bolivia, shock therapy was then imported to the Polish context following the dissolution of the Soviet Union, and Russia shortly after.
The partial results of liberalization included worsening already apparent hyperinflation, initially due to monetary overhang and exacerbated after the central bank, an organ under parliament, which was skeptical of Yeltsin's reforms, was short of revenue and printed money to finance its debt. This resulted in the near bankruptcy of much of Russian industry.
The process of liberalization would create winners and losers, depending on how particular industries, classes, age groups, ethnic groups, regions, and other sectors of Russian society were positioned. Some would benefit by the opening of competition; others would suffer. Among the winners were the new class of entrepreneurs and black marketeers that had emerged under Mikhail Gorbachev's perestroika. But liberalizing prices meant that the elderly and others on fixed incomes would suffer a severe drop in living standards, and people would see a lifetime of savings wiped out.
With inflation at double-digit rates per month as a result of printing, macroeconomic stabilization was enacted to curb this trend. Stabilization, also called structural adjustment, is a harsh austerity regime for the economy in which the government seeks to control inflation. Under the stabilization program, the government let most prices float, raised interest rates to record highs, raised heavy new taxes, sharply cut back on government subsidies to industry and construction, and made massive cuts in state welfare spending. These policies caused widespread hardship as many state enterprises found themselves without orders or financing. A deep credit crunch shut down many industries and brought about a protracted depression.
The rationale of the program was to squeeze the built-in inflationary pressure out of the economy so that producers would begin making sensible decisions about production, pricing and investment instead of chronically overusing resources—a problem that resulted in shortages of consumer goods in the Soviet Union in the 1980s. By letting the market rather than central planners determine prices, product mixes, output levels, and the like, the reformers intended to create an incentive structure in the economy where efficiency and risk would be rewarded and waste and carelessness were punished. Removing the causes of chronic inflation, the reform architects argued, was a precondition for all other reforms: Hyperinflation would wreck both democracy and economic progress, they argued; they also argued that only by stabilizing the state budget could the government proceed to dismantle the Soviet planned economy and create a new capitalist Russia.
Nonetheless, radical reform continued to face some critical political barriers. The Central Bank was still subordinate to the conservative Supreme Soviet who continued to support socialist policies in opposition to Yeltsin and the presidency. During the height of hyperinflation in 1992–1993, the Central Bank actually tried to derail reforms by actively printing even more money during this period of inflation. After all, the Russian government was short of revenue and was forced to print money to finance its debt. As a result, inflation exploded into hyperinflation, and the Russian economy continued into an evermore serious slump.

Privatization

Upon the Soviet Union's collapse, the new Russian government was forced to manage the huge state enterprise sector inherited from the Soviet economy. Privatization was carried out by the State Committee for State Property Management of the Russian Federation under Anatoly Chubais with the primary goal being to transform the formerly state-owned enterprises into profit-seeking businesses, which would not be dependent on government subsidies for their survival. To distribute property quickly and to win over popular support, the reformers decided to rely mostly on the mechanism of free voucher privatization, which was earlier implemented in Czechoslovakia. The Russian government believed that the open sale of state-owned assets, as opposed to the voucher program, would have likely resulted in the further concentration of ownership among the Russian mafia and the nomenklatura, which they sought to avoid. Nevertheless, contrary to the government's expectations, insiders managed to acquire control over most of the assets, which remained largely dependent on government support for years to come. From 1992 to 1994, ownership of 15,000 firms was transferred from state control via the voucher program.
Privatization of the oil sector was regulated by presidential decree No.1403 approved on 17 November 1992. Vertically integrated companies were created by joining some oil-producing enterprises and refineries into open-stock companies. Starting in 1994 many former state oil companies were privatized. This privatization had been partial because the federal government had obtained ownership positions in several companies and had also retained full control over the transport of oil to lucrative world markets.
In 1995, facing severe fiscal deficit and in desperate need of funds for the 1996 presidential elections, the government of Boris Yeltsin adopted a "loans-for-share" scheme proposed by banker Vladimir Potanin and endorsed by Anatoly Chubais, then a deputy prime minister, whereby some of the largest state industrial assets were leased through auctions for money lent by commercial banks to the government. The auctions were rigged and lacked competition, being largely controlled by favored insiders with political connections or used for the benefit of the commercial banks themselves. As neither the loans nor the leased enterprises were returned in time, this effectively became a form of selling, or privatizing, state assets at very low prices.
The privatization facilitated the transfer of significant wealth to a relatively small group of business oligarchs and New Russians, particularly natural gas and oil executives.