[SOUND] As you remember in the previous lecture, we have analyzed the initial years of transition, namely the year 91 92 where lots of efforts have been made in the direction of transition to a market economy. And a lot of state enterprises were privatized, a lot of initial reforms have been introduced. And now we come to the next period of time in the Russian economy in transition, namely after the year 1993. It is undertitled economic transition under presidential authority, and the new Prime Minister. As I have already described that a lot of opportunities were open through the national economic development within the initial years of reforms. People started to get used to reforms after shock therapy, after all of the sudden and brisk changes, they started to become accustomed to changes. Some two years from the start of reform, somewhere in the year 93. Enthusiasm was gradually building up to begin new activities within the new market environment after decades of absence of private initiative and massive non responsibility. You should definitely understand how people were enthusiastic about opening up new enterprises, being involved in some kind of business activities. They never had an experience like that. So when they started to realize that a new world was open for them, for absolutely new life, they started to become part of that life, to belong to the market economy. So this period provided for a good opportunity to really build a new economy for a new mighty country with a new robust setup, fundamentals with market principles that would rule within this economy, that were expectations. As usual, something happens which does not let dreams to become reality. So this time, we entered the period of political clashes in the year 1993. It is not the subject of this lecture to make the analysis on the political situation of that period of time, but definitely it influenced in a dramatic way the transition in Russian economy. You know the story, that there was a clash between the President and the Parliament, and the Parliament was sitting in the White House. And then [COUGH] there was a hard confrontation between the two major power alliance within the Russian society. And then as a result of that clash, the President came out as a winner, although the Constitutional Court took the side of the Parliament. So the Parliament and the Constitutional Court have not succeeded in convincing the President that they were right in making things the way they wanted to make things. To legalize the victory of the President's concept, they organized the referendum back in December 12 of the year 1993. And during the referendum, the majority of the people approved the new Constitution, and Russia became the presidential republic. The role of the president has been upgraded to a great extent, while the role of the Parliament has been downgraded. [COUGH] The reason I'm taking just briefly about those political developments of the time, because definitely it influenced a lot the future development of economic transition. And there was a radical shift in the checks and balances system, you know that checks and balances system is a fundamental of any democratic society. So the pendulum shifted in the President's favor. For good or for bad, that's not for us to decide. We will try to make the objective analysis of how it influenced the development, the economic development. Definitely, one of the new developments which influenced to a great extent economic reforms in Russia was the nomination of the new Prime Minister. Since December of the year 1993 Victor Chernomyrdin replaced Egor Gaidar at this key position for the economic transition. So definitely there was a substantial change in economic transition priorities. There were a lot of changes. There were a lot of nuances. State required more finance, to undertake the measures it wanted to undertake. So that was a period of time when the state policy was focused on heavy borrowing, both on domestic market and on foreign markets. Gradually, external debt started to grow, and you can see here the figure, that the peak, the external debt of the Russian Federation reached something like $190 billions, so that was a huge amount of money. And at a certain period of time, nobody believed that Russia would be able to repay it, although with the time being, we managed to repay all the debts to external lenders. So, domestic indebtedness at that time was estimated roughly to a similar extent, and resulted in something like $200 billion. So those were huge money available for the government at that time, roughly $400 billion. That was, at that period of time, that was really something worth to do something with. So the question is, why we always try to ask those questions in order to understand to which extent the governmental policies were optimal. Now we ask still another question, how wise the money available was used, and that we will try to understand in understanding the transition, because the question of money is always a crucial one. So the way the money is being used predetermines to a certain extent the success or nonsuccess of any event, of any policy. [SOUND]