Barter in Russia : Liquidity Shortage Versus Lack of Restructuring

The rapid growth of barter is one of the most surprising phenomena in Russia. As a percentage of industrial sales it steadily increased from 5% in 1992 to nearly 55% in 1998. Unknown in CEEC's transition countries, barter is only one aspect of the Russian economy's demonetisation process, along with dollarisation, growing arrears, and the widespread use of veksels and offsets. Barter is often seen as the consequence of the lack of restucturing, but some authors argue that it is a mechanism used to avoid shutting down potentially viable firms, in a context of market imperfections. The implications differ depending on the analysis chosen. In the first case, an expansionary monetary policy might not be appropriate, while the contrary is true if the demonetisation process jeopardizes potentially good enterprises. This paper aims to assess this phenomenon in the Russian economy. The paper's main contribution to work in this field (reviewed and documented in section 2) is to highlight two different rationales for barter. Before studying the latter more closely, section 3 uses official monthly data collected by the central bank of Russia, the Goskomstat and the Russian Economic Barometer(REB), to emphasize the macro-economic features of barter in Russia, and, more specifically, the link between monetary policy and bartering activity. It appears that macro-economic policy and macro-economic indicators are unable to explain the whole process. In section 4, quarterly statistics for 1995 and 1996 taken from the REB survey of roughly 200 firms make it possible to implement a more qualitative survey. The conclusion is striking: barter is used by potentially viable firms as a way of avoiding closure, while at the same time financing increasing inventories and soft goods in the case of indebted firms who use barter transactions, ban credit and choose to accumulate arrears in order to avoid restructuring