In the previous part (you will find it here) we have reached the moment when the USSR collapsed. The US has become a global power. What happened next?
Is the story over?
“End of history” – such a slogan often appeared in the media and public debates at the beginning of the 90s. Probably from the perspective of today’s observer of the political and economic scene this sounds naïve, not to say ridiculous. How could people then believe that the world had survived until all countries were peacefully converting to democracy (let’s ignore the fact that some nations are culturally unsuitable for this model of governance), wars will cease and free market will everywhere? The liberals are unfortunately often able to float too much.
To understand the naivety described above, it is worth outline the background of those events. In 1989 communism collapsed. The countries of the Eastern Bloc began to introduce free market reforms. With varying intensity. In the literature on the subject, you may even find the opinion that Leszek Balcerowicz belonged to radicals, so Poland also underwent economic transformation quite hard (especially those who were unable to find themselves in the new reality) suffered.
Balcerowicz’s radical changes
Balcerowicz was not known before. His reforms, however, were right. He allowed to close unprofitable state-owned enterprises. In addition, it banned the financing of the budget deficit by the NBP and introduced a few simplifications for companies. In addition, unpopular decisions appeared: he introduced popiwki (tax on “excessive wages”) and imposed on foreign traders the obligation to resale NBP foreign exchange at a fixed rate. It also enabled the creation of a benefit system for group layoffs. He also established the so-called “Anti-inflationary anchor” – fixed exchange rate of PLN to USD (9500: 1) for the period from January 1990 to May 1991. In addition, he asked the IMF for help and started talks with the Paris Club and London Club on deferment of loan repayments.
He also started monetary reforms. In 1991, the zloty exchange rate was devalued from PLN 9,500 for one dollar to PLN 11,100 for USD 1. Stiffened against a basket of five currencies. A system of daily devaluation was also introduced in October. The rate of decline was set at 1.8 percent. monthly. This system operated until 1997. Then for about two years the course was only partially controlled, and on January 12, 1999 the zloty exchange rate was based on supply and demand.
Earlier, on January 1, 1995, new money was also put into circulation. After denomination, the new PLN 1 was the equivalent of PLN 10,000. Pennies have returned. However, the old money was still in circulation until January 1, 1997. This was the last step in the fight against hyperinflation. To illustrate: in 1994, monthly salaries ranged from PLN 10-20 million; PLN 5-10 thousand was paid for the newspaper; a liter of milk cost over PLN 5,000; kilogram of sugar close to PLN 10,000; the price of vodka ranged between 70-80 thousand zł.
Balcewicz’s reforms can be assessed differently. However, they were necessary, although the fact is that they hit those citizens who did not understand the idea of a free market. As a result, they stimulated populists like Andrzej Lepper, who headed the agricultural movement, and then the Samoobrona party, and, as he declared, fought to fight social inequalities.
That’s all about Poland. Anyway, we recommend to you our entire cycle regarding the deterioration of money in our country over the centuries, which you will find at this link.
A world of crises
Let’s look at other countries. In Latin America, the Brady Plan less known on our continent was implemented, which assumed the stabilization of local currencies.
The US was also involved in reforms in Russia, which was re-established as an independent state after the collapse of the USSR. However, it turned out that the implementation of the free market in former communist countries (actually they were still at certain levels – you can’t just change the human mentality) is quite a crazy undertaking. Americans, moreover, cannot understand today that democracy and the free market are not something fully understandable and obvious to everyone, as evidenced by attempts to organize free elections, e.g. in Iraq after the overthrow of Saddam Hussein. It was no different in the case of Russia. Free market reforms did one thing: a strong oligarchy was created in this country, and social inequalities only worsened. The stability of the state was initially threatened by emotionally unstable president Boris Yeltsin, who was putting troops on the street to suppress the riots. It is worth noting that the situation in terms of political stability changed only when Vladimir Putin took power in the Kremlin. However, this is a topic for another article.
In the countries stabilizing their economies, there were further crises. Their residents experienced currency appreciation, a negative balance of payments or sudden capital outflows. In 1994, there was a financial crisis in several post-communist countries. Then Mexican finance collapsed. Again, the US went to help the southern neighbor and again – not because they were so generous. The point was that it threatened their stability. It is a bit like a situation in which we help, a neighbor whose apartment is on fire, so that the irritating nostrils of smoke do not go to our premises. Anyway, it also casts a completely different light on the program wall of Donald Trump, which he promoted in the 2016 presidential election, or e.g. the reluctance of the Germans to help the Greeks during the financial crisis. The states simply help others when it is in their interest (it is not without reason that Poland intervened in Ukraine during the Orange Revolution), but after some time the citizens of the stronger countries begin to be irritated that they must constantly help the weaker (in their opinion the latter are often loafers).
In 1997, the economic crisis occurred in the Czech Republic. Our southern neighbors have carried out reforms in a milder form than we are. Thus, they did not experience a large jump in unemployment. However, they suffered the harmful effects of this fearful transformation in 1997, when they fell into some stagnation.
In a similar period, the crisis also erupted in Asia. In Japan, the economic downturn has continued since the beginning of the 1990s. Natural disasters, such as the Kobe earthquake that hit the insurance market, did not improve.
The year 1997 was also terrible for Thailand and Hong Kong, which was then handed over to China, which resulted in a capital outflow of investors who were afraid of what Beijing intends to do with the new acquisition. In November, even Hong Kong stock panic broke out. Further crisis erupted in South Korea, Malaysia and Indonesia.
The following year, the crisis also erupted in Russia. In August, there was panic on the dance floor. In 1999, the crisis swept through Brazil.
In turn, 2000 is of course the bursting of the dotcom bubble in the USA …
As seen in the second half There was no global crisis in the 1990s, but individual crises erupted in individual countries around the world.
And no, it wasn’t the end of the story …