Fiscal Crisis, the Tiananmen Option, and the Dissolution of the USSR

Abstract

This chapter examines the growth of the Soviet budget deficit from 1989 through 1991. The government plugged the increasingly large hole in its budget by printing money. This caused a surge of inflation that made economic mechanisms ground to a halt. The security services, backed by allies in heavy industries and collective farms, sought to resolve the problem by emulating post-Tiananmen China. They launched a coup in August, 1991 to reestablish authoritarian rule. The coup leaders hoped this would provide the power they needed to balance the budget. In fact, the subsidies that flowed to the military and other interest groups were the main cause of the budget deficit. The putsch could only have succeeded in resolving the country’s deficit if the new leaders cut spending on the military, farms, and heavy industries—the very groups that supported the coup. That was never a plausible outcome. Lacking fresh ideas to resolve the country’s economic crisis, the coup collapsed and the USSR hurtled toward disintegration.