Russia Launches 'Shock Therapy' Economic Reforms: Price Liberalization Triggers 2,520% Inflation and Economic Collapse

Russian President Boris Yeltsin ordered the liberalization of foreign trade, prices, and currency, launching the radical ‘shock therapy’ economic transformation designed by Deputy Prime Minister Yegor Gaidar, a 35-year-old liberal economist advised by Harvard’s Jeffrey Sachs. The reforms ended Soviet-era price controls on all but a few essential goods, causing prices to increase 245% in January alone and 2,520% over the full year of 1992. While the price liberalization quickly brought consumer goods back into shops where shelves had long been almost bare, it also decimated the savings of ordinary Russians and triggered hyperinflation that would erode the value of the ruble at 25% per month. The shock therapy program was based on neoliberal economic theories promoted by Milton Friedman’s Chicago School and the IMF’s structural adjustment playbook, advocating rapid privatization, budget stabilization, ending subsidies, and immediate transition to market capitalism without social safety nets. The reforms were implemented during a moment of maximum chaos following the December 1991 dissolution of the Soviet Union, exploiting the crisis to push through policies that would have faced massive popular resistance under normal circumstances. By the end of 1992, Russia’s budget deficit reached 20% of GDP, far exceeding the 5% target stipulated by IMF conditions. The shock therapy approach in Russia stood in stark contrast to China’s gradual market reforms, and would ultimately lead to a 40-50% GDP collapse worse than the U.S. Great Depression, the emergence of a oligarchic kleptocracy, and the deaths of millions of Russians from economic devastation. Naomi Klein’s ‘The Shock Doctrine’ later identified Russia as a quintessential example of ‘disaster capitalism’—using crisis and shock to impose unpopular neoliberal policies.