Encyclopedia of Russian History

by James Millar

  Many of Russia’s most typical dishes reflect the properties of the traditional Russian masonry stove, which blazes hot after firing and then gradually diminishes in the intensity of its heat. Breads and pies were traditionally baked when the oven was still very hot. Once the temperature began to fall, porridges could cook in the diminishing heat. As the oven’s heat continued to subside, the stove was ideal for the braised vegetables and slow-cooked dishes that represent the best of Russian cooking.

  The Orthodox Church had a profound influence on the Russian diet, dividing the year into feast days and fast days. The latter accounted for approximately 180 days of the year. Most Russians took fasting seriously, strictly following the proscriptions against meat and dairy products.

  From the earliest times the Russians enjoyed alcoholic beverages, especially mead, a fermented honey wine flavored with berries and herbs, and kvas, a mildly alcoholic beverage made from fermented bread or grain. Distilled spirits, in the form of vodka, appeared only during the fifteenth century, introduced from Poland and the Baltic region.

  The reforms carried out by Peter I greatly affected Russian cuisine. The most significant development was the introduction of the Dutch range, which relied on a cooktop more than oven chambers and resulted in more labor-intensive cooking methods. The vocabulary introduced into Russian over the course of the eighteenth century reveals influences from the Dutch, German, English, and ultimately French cuisines. By the close of the eighteenth century, Russia’s most affluent families em512

  FOREIGN DEBT

  ployed French chefs. With so much foreign influence, Russian cuisine lost its simple national character. The eighteenth-century refinements broadened Russian cuisine, ushering in an era of extravagant dining among the wealthy.

  The sophistication of the table was lost during the Soviet period, when much of the populace subsisted on a monotonous diet low in fresh fruits and vegetables. Shopping during the Soviet era was especially difficult, with long lines even for basic foodstuffs. Hospitality remained culturally important, however, and the Soviet-era kitchen table was the site of the most important social exchanges.

  The collapse of the Soviet state brought numerous Western fast-food chains, such as McDonald’s, to Russia. With the appearance of self-service grocery stores, shopping was simplified, and food lines disappeared. However, food in post-Soviet Russia, while plentiful and widely available, was expensive during the early twenty-first century. See also: AGRICULTURE; CAVIAR; PETER I; RUSSIAN ORTHODOX CHURCH; VODKA

  BIBLIOGRAPHY

  Glants, Musya, and Toomre, Joyce, eds. (1997). Food in Russian History and Culture. Bloomington: Indiana University Press. Goldstein, Darra. (1999). A Taste of Russia: A Cookbook of Russian Hospitality, 2d ed. Montpelier, VT: Russian Life Books. Herlihy, Patricia. (2002). The Alcoholic Empire: Vodka and Politics in Late Imperial Russia. New York: Oxford University Press. Molokhovets, Elena. (1992). Classic Russian Cooking: Elena Molokhovets’ A Gift to Young Housewives, tr. Joyce Toomre. Bloomington: Indiana University Press.

  DARRA GOLDSTEIN

  FOREIGN DEBT

  The first stage in Russia’s involvement with international capital markets was associated with the great drive for industrialization that marked the final decades of the nineteenth century. The backwardness of the country’s largely rural economy implied substantial needs for imports, which in turn meant foreign borrowing. The epic railway construction projects in particular would not have been possible without such financing. With growing volumes of Russian debt floating abroad, the country became increasingly vulnerable to speculative attacks, which could have proven highly damaging. The skillful policies of finance ministers Ivan Vyshnegradsky and Sergei Witte averted such dangers. By imposing harsh taxes on the rural economy, they also managed to promote exports from that sector, which made for a healthy trade surplus. As a result of the latter, by the end of the century the currency qualified for conversion to the gold standard.

  Russia thus entered the twentieth century with a stable currency and in good standing on foreign capital markets. The Bolsheviks put an end to that. By deciding to default on all foreign debt of Imperial Russia, Vladimir Lenin effectively deprived the Soviet Union of all further access to foreign credit. Since the economy remained backward, all subsequent ambitions of achieving industrialization thus would have to be undertaken with domestic resources, or with the goodwill of foreign governments offering loan guarantees.

  An early illustration of problems resulting from the latter scenario was provided during World War II, when the Soviet Union received substantial military assistance from its western allies, shipped via the famed Murmansk convoys. Known as “Lend-Lease,” the program was not originally intended as a free gift, but during the subsequent Cold War the Soviet Union refused to make repayments. In 1972 the United States followed a previous British example in forgiving ninety percent of the debt. When Vladimir Putin became president in 2000, about $600 million of the remainder was still outstanding-and more had been added.

  Toward the end of the Soviet era, much-needed modernization of the economy produced growing demands for imports of foreign technology, which in turn required foreign credits. Eager to have good relations with Mikhail Gorbachev, many Western governments gladly offered guarantees for such loans. By the end of 1991, with the Soviet Union in full collapse, those loans went into effective default. The total of all outstanding Soviet foreign debt came to almost $100 billion.

  The first decade of Russia’s post-Soviet existence was heavily marked by problems surrounding the handling of that debt. While foreign creditor governments remained insistent that it be repaid, they were also willing to offer substantial new credits in support of Russia’s economic transition. The Russian government responded by evolving a

  513

  FOREIGN DEBT

  strategy for debt management that rested on aggressively threatening default on old debt in order to obtain forgiveness, rescheduling, and fresh credits.

  Much of the subsequent political wrangling would revolve around Russia’s increasingly controversial relations with the International Monetary Fund (IMF). An initial credit of $1 billion was granted in July 1992, when Russia became a member of the Fund. In 1993, a further $1.5 billion was paid out, under a special “Systemic Transformation Facility” (STF). As Moscow failed to live up even to the soft rules of the STF, the IMF withheld disbursement of an agreed second $1.5 billion tranche.

  Following severe criticism for having failed to offer proper support, in April 1994 the Fund decided to release the second tranche of the STF. The essentially political nature of the relation was now becoming evident. Despite Russia’s continued problems in honoring its commitments, in April 1995 the IMF granted Russia a $6.5 billion twelve-month credit, and in March 1996 it agreed to a three-year $10.1 billion “Extended Fund Facility.”

  The latter was the second-largest commitment ever made by the Fund, and there was little effort made to hide its essentially political purpose. The objective was to secure the reelection of Boris Yeltsin to a second term as president, and the IMF was not alone in offering support. On a parallel track, France and Germany offered bilateral credits of $2.4 billion, and the “Paris Club” of foreign creditor governments agreed to a rescheduling of $38 billion in Soviet-era debt.

  The latter was of particular importance, in that it opened the doors for Russia to the market for Eurobonds. Receiving its first sovereign credit rating in October 1996, in November the Russian government placed a first issue of $1 billion, which was to be followed, in March and June of the following year, by two further issues of DM2 billion and $2 billion, respectively. Up until the crash in August 1998, Russia succeeded in issuing a total of $16 billion in Eurobonds.

  As the Russian government was gaining credibility as a debtor in good standing, other Russian actors, ranging from city governments to private enterprises, also began to venture into the market. Russian commercial banks in particular began securing substantial loans from the
ir partners in the West.

  Compounding the exposure, the Russian government was simultaneously saturating the market with ruble-denominated government securities, known as GKO and OFZ. While these instruments technically represented domestic debt, they became highly popular among foreign investors and therefore essential to the issue of foreign debt.

  The final stage of Russia’s financial bubble was heralded with the onset of the financial crisis in Asia, during the summer of 1997. At first believed to be immune to contagion by this “Asian flu,” in the spring of 1998 Russia was becoming seriously ill. In May, the Moscow markets were in free fall, and by June the IMF was under substantial political pressure to take action. Some even warned of pending civil war in a country with nuclear capacities.

  Following protracted negotiations, on July 13 the Fund announced a bailout package of $22.6 billion through December 1999, which was supported both by the World Bank and by Japan. A first disbursement of $4.8 billion was made on July 20, and the financial markets began to recover confidence. On August 17, however, the Russian government decided to devalue the ruble anyway and to declare a ninety-day moratorium on short-term debt service.

  The potential losses were massive. The volume of GKO debt alone was worth about $40 billion. To this could be added $26 billion owed to multilateral creditors, and the $16 billion in Eurobonds. There also were additional billions in commercial bank credits, including about $6 billion in ruble futures contracts. And there still remained $95 billion in Soviet-era debt, some of which had been recently rescheduled.

  In the spring of 1999, few believed that Russia would be able to stage a comeback within the foreseeable future. One foreign banker even stated that he would rather eat nuclear waste than lend any more money to Russia. The situation was aggravated by suspicions that the Russian Central Bank was clandestinely bailing out well-connected domestic actors, at the expense of foreign investors. It was also hard for many to accept the Russian government’s unilateral decision to ignore its Soviet-era debt and to honor only purely “Russian” debt.

  A year later, fuelled by the ruble devaluation and by rapidly rising oil prices, the Russian economy was making a spectacular recovery. In 2000, the first year of the Putin presidency, GDP grew by nine percent. The federal budget was finally in the

  514

  FOREIGN TRADE

  black, with a good margin, and foreign trade generated a massive surplus of $61 billion. Despite this drastic improvement in economic performance, the Russian government nevertheless appeared bent on continuing its policy of threatening default in order to secure further restructuring and forgiveness of its old debts.

  For the German government in particular, this finally proved to be too much. When the Russian prime minister Mikhail Kasyanov hinted that Russia might not be able to meet its full obligations in 2001, Chancellor Gerhard Schroeder informed Moscow that in case of any further trouble with Russian debt service, he would personally do all he could to isolate Russia. The effect was immediate and positive. From 2001 onward Russia has been current on all sovereign foreign debt (excluding the defaulted GKOs).

  In support of its decision to fully honor its credit obligations, the Russian government made prudent use of its budget surplus. By accelerating repayments of debt to the IMF, it drew down the principal, and by introducing a strategic budget reserve to act as a cushion against future debt problems, it strengthened its credibility. The reward has been a series of upgrades in Russia’s sovereign credit rating, and a calming of previous fears about further rounds of default.

  While this has been positive indeed for Russia’s international standing, it has not come without a price. Every billion that is paid out in foreign debt service effectively means one billion less in desperately needed domestic investment. In that sense, it will be a long time indeed before the Russian economy has finally overcome the damage that was done by foreign debt mismanagement during the Yeltsin years. See also: BANKING SYSTEM, SOVIET; BANKING SYSTEM, TSARIST; ECONOMIC GROWTH, SOVIET; ECONOMY, CURRENT; INDUSTRIALIZATION; LEND LEASE.

  BIBLIOGRAPHY

  Hedlund, Stefan. (1999). Russia’s “Market” Economy: A Bad Case of Predatory Capitalism. London: UCL Press. Mosse, W.E. (1992). Perestroika under the Tsars. London: I.B. Taurus. Stone, Randall W. (2002). Lending Credibility: The International Monetary Fund and the Post-Communist Transition. Princeton, NJ: Princeton University Press.

  STEFAN HEDLUND

  FOREIGN TRADE

  Owing to its geographic size and diversity, Russia’s foreign trade has always been relatively small, as compared to countries of Western Europe with whom it traded. Nevertheless, foreign trade has provided contacts with western technologies, ideas, and practices that have had considerable impact on the Russian economy, even during periods when foreign trade was particularly reduced. From earliest times Russia has typically traded the products of its forests, fields, and mines for the sophisticated consumer goods and advanced capital goods of Western Europe and elsewhere. Trade with Persia, China, and the Middle East, as well as more remote areas, has also been significant in certain times.

  The first recorded Russian foreign trade contact was a treaty concluded in 911 by Prince Oleg of Kiev with the Byzantine emperor. During the medieval period most of the trade was conducted by gostiny dvor (merchant colonies), such as the Hanseatic League, resident in Moscow or at fairs at Novgorod or elsewhere. This practice was quite typical of the European Middle Ages because of the expense of travel and communication and the need to assure honest exchanges and payment.

  During the early modern period Russian iron ore was very attractive to the British, but until the coking coal of Ukraine became available during the nineteenth century, Russia had to import much of its smelted iron and steel. Up to about 1891, when Finance Minister Ivan Vyshnegradsky raised the tariff, exports of grain and textiles did not suffice to cover imports, interest on previous loans, and the expenses of Russians abroad. Hence Russia had to depend on more foreign capital. Although Russia was known in this period as the “granary of Europe,” prices were falling because of new supplies from North America. Nonetheless, Vyshne-gradsky insisted, “Let them eat less, and export!”

  One aspect of the state-promoted industrialization of 1880-1913 was an effort by the state bureaucracy to increase exports in support of the gold-backed ruble, introduced in 1897. To develop outlets for Russian manufactures, the next minister of finances, Count Sergei Witte, encouraged Russians consular officials to cultivate markets in China, Persia, and Turkey, where prior trade had been mostly in high-value goods such as furs. Witte’s new railways, built for military purposes, made exchange of bulkier items economical for the first time. Subsidized sugar and cotton textiles

  515

  FOREIGN TRADE

  would be sent to Persia and the East, with foreign competition foreclosed by prohibition on transit routes. Nonetheless, in 1913 fully sixty percent of Russian exports were foodstuffs and animals, another third lumber, petroleum, and other materials. Scarcely six percent were textiles, much of it from tsarist Poland. Russian imports were luxury consumer goods (including coffee and tea), equipment, and cotton fiber. Spurred by railroads, industrialization, and a convertible currency, foreign trade during the tsarist period reached a peak just before World War I with a turnover of $1.5 billion in prices of the time. This total was not matched after the Communist Revolution until the wartime imports of 1943, paid for largely by loans. Exports were approximately one-tenth of gross domestic product in 1913, a proportion hardly approached since. They were only four percent of GDP in 1977, for example.

  Under the Bolsheviks, Russia conducted an off-and-on policy of self-sufficiency or autarky. According to Michael Kaser’s figures, export volumes rose steadily from five percent of the 1913 level in 1922 to sixty-one percent by 1931. When Britain signed a trade agreement in 1922 and others followed, the Soviet government began to buy consumer goods to provide incentives for the workers. They also bought locomotives, farm machinery, a
nd other equipment to replace those lost in the long war years. Exports also rose smartly.

  With the beginnings of planning at the end of the 1920s, however, trade fell off throughout the 1930s and the first half of the 1940s, reflecting extreme trade aversion and suspicions of western intentions on Josef Stalin’s part, as well as the general world depression, which adversely affected Russia’s terms of trade. Russia wanted to be as self-sufficient as possible in case war cut off its supplies, as indeed occurred from 1939 to 1945. Imports of consumer goods fell precipitously, but so did some important industrial materials that were now produced domestically. Since 1928, Russian exports have averaged only about one to two percent of its national income, as compared with six to seven percent of that of the United States in a comparable period. Imports showed a similarly mixed pattern, with imports much exceeding exports during the long war years.

  After World War II, Russia no longer pursued such an extreme policy of autarky. Export volumes rose every year, reaching 4.6 times the 1913 level by 1967. But they were still less than four percent of output. The statistical breakdown of Soviet trade was often censored. Its deficits on merchandise trade account and invisibles were financed in unknown part by sales of gold and by borrowings in hard currency. The latter resulted in a growing hard-currency debt to western creditors from 1970 onward, amounting to an estimated $11.2 billion by 1978. Neglect of comparative advantage and international specialization has probably been negative for economic growth and consumer welfare.

  During the post-World War II period, most Soviet merchandise imports and exports were traded with the other Communist countries in bilateral deals concluded under the auspices of the Council of Mutual Economic Assistance (COMECON). Even though trade with the developed capitalist countries of the West and with less developed countries increased throughout this era, USSR trade with other “socialist” states still exceeded fifty percent of the total in 1979, while the share of the West was about one-third. Trade with COMECON members was nearly balanced year by year, but when it was not, the difference was credited in “transferable rubles,” a book entry that hardly committed either side to future shipments. Franklyn Holzman termed this feature of Soviet trade “commodity inconvertibility,” as distinct from currency inconvertibility, which also characterized intra-bloc trade and finance.