Valentin Pavlov

A new 50-rouble banknote issued in 1991 during the Pavlov reform.

The Soviet monetary reform of 1991, commonly referred to as the Pavlov reform, was the last monetary reform prior to the dissolution of the Soviet Union, despite having made a speech 2 weeks before, saying there would be no such reforms. Initiated on 22 January 1991, it was intended to withdraw money from circulation for reallocation to the production of consumer goods, which were in short supply.[18] In a speech, Pavlov stated that the reason for the withdrawal was the government's belief that money was being sent to the Soviet Union from abroad, fuelling inflation. Although ridiculed by the Soviet press at the time, three years later the truth of Pavlov's statement was verified.[19] Mikhail Gorbachev then signed a presidential decree ordering the Soviet financial system to stop accepting and exchanging banknotes issued in 1961. The directive also included 50-rouble and 100-rouble banknotes issued in 1991. On 23 January 1991, the government began restricting monthly bank deposit withdrawals to 500 rubles with the official explanation that this was to freeze the income of corrupt officials, capitalists and criminals.[18]

Under the orders of Pavlov, the Government freed forty percent of prices on 1 January 1991, and introduced sales tax of 5%. Prices of consumer goods, in particular, were now considered free in the sense that negotiation became possible between producers and the distributor.[20] According to Philip Hanson in his book, The Rise and Fall of the Soviet economy: An Economic History of the USSR from 1945, Pavlov's reform was undermined by the Union Republics who failed to follow Pavlov's orders, along with the widespread existence of local monopolies, which tended to have their own definition of luxury goods and as a result imposed higher prices on such items.[21]

Soviet citizens had only three days from 23 to 25 January to exchange their old 50 rouble and 100 rouble banknotes for the new currency. Exchange could be postponed, but only through specialized government commissions. Due to this short exchange window, long queues formed in front of Soviet savings banks, even though it was also possible to exchange money at workplaces and post offices. This reform also dealt a crippling blow to Soviet citizens who had saved their money and could not move fast enough to get it exchanged; some lost as much as 15,000 - 30,000 rubles overnight.[18]

In the end the reform proved unsuccessful. The government only managed to withdraw 14 billion rubles from circulation of the country's money supply against an intended target of 81.5 billion rubles. As a result, the Pavlov reform did not put an end to inflation. Prices for items including food and transport rose by 100–300 percent, while the Soviet standard of living decreased sharply and the state budget deficit increased by an estimated 20–30 percent of GNP. In the aftermath of the reform, inflation exceeded the 50 percent mark every month.[18]

In June 1991, Pavlov, who felt that the office of Prime Minister had limited power, discovered that Gorbachev planned to replace him as Prime Minister. In response, he arrived at the Supreme Soviet of the Soviet Union "visibly nervous",[22] and in his report to the Supreme Soviet, he was forced to tell delegates of the faltering state of the Soviet economy. However, Pavlov blamed this on the ongoing War of Laws between the Supreme Soviet of the Soviet Union and the Supreme Soviet of the Russian Soviet Federative Socialist Republic (RSFSR),[22] which, he argued, could be resolved by introducing a state of emergency across the entire Soviet Union, or at least in certain economic sectors.[23]

According to Pavlov, the union's problems remained insoluble as long as Gorbachev retained so much power and had limited time to address important issues. To break the impasse, Pavlov called for a transfer of power from the President of the Soviet Union to the Prime Minister and the Cabinet of Ministers, (specifically, he wanted the Cabinet to have the right to issue decrees on economic affairs without the approval of the president), even creating a five-point resolution to that end for the legislature to consider. Pavlov received support for the idea from the Soyuz parliamentary faction leader Viktor Alksnis, who called for an immediate vote on the issue. However, several members of Soyuz also demanded a statement by the KGB and the Ministry of Defence to comment on the proposal. In retrospect, Alksnis notes that this resolution could have become a coup d'état had Pavlov consulted with them earlier.[22] According to historian Jerry F. Hough, Pavlov's program "was not directed as much at Gorbachev as at [Boris] Yeltsin".[24]

By the afternoon, the majority of Soyuz members favoured an immediate vote. The Chairman of the Supreme Soviet of the Soviet Union, Anatoly Lukyanov, had already departed for Novo Ogarevo to take part in constitutional negotiations and he promised to tell Gorbachev about the vote. In his place stood Ivan Laptev, a pro-Gorbachev reformer, who did not trust Lukyanov and tried to stall the vote by demanding[22] a statement from the KGB, Ministry of the Interior and the Ministry of Defence. According to Laptev, the mood was such that if a vote had been taken Pavlov would have won.[25] At the time, both the Soviet secret police and the military establishment in general wanted to strengthen the authority of the Soviet Government and so they too supported Pavlov's program.[24] Soyuz, through a vote, was able to increase the powers of the Cabinet of Ministers, and gave the institution the right of legislative initiative.[26]

Shortly afterwards, Jack Matlock, United States ambassador to the Soviet Union, told Gorbachev of the possibility of a coup attempt against him,[25] and the Soviet leader became worried when Anatoly Chernyaev informed him of mysterious troop movements outside Moscow. On 21 June, four days after Pavlov's speech, Gorbachev addressed the Supreme Soviet and told delegates that there were no differences in opinion between him and Pavlov. Even when he had been able to secure his position, Gorbachev's power within the system was already faltering,[27] although he succeeded in getting the enhanced powers previously given to the Cabinet of Ministers reversed.[26] The power struggle between Gorbachev and Pavlov was not over, with Gorbachev, on July 29, 1991, promising Yeltsin and Nursultan Nazarbayev that Pavlov, along with Dmitry Yazov, Minister of Defence, and Vladimir Kryuchkov, the Chairman of the KGB, would be removed from their posts following the signing and ratification of the New Union Treaty, with Nazarbayev to be appointed in Pavlov's place as Prime Minister.[28]

The 1991 Soviet coup d'état attempt, commonly referred to as the August Coup, was prompted by the slow disintegration of the Soviet Union that resulted from Gorbachev's reform policy and Yeltsin's drive towards an independent Russia. The New Union Treaty being prepared called for further decentralisation of power to the republics, which weakened the government's already tenuous hold on the economy. Pavlov received a draft of the New Union Treaty on 12 August at a Security Council meeting and managed to get it published in the Moscow News on 14 August.[29]

Opposing the decentralisation stance taken in the treaty, Pavlov was one of the key players in the establishment of the State Committee for the State of Emergency in August 1991. Pavlov's inclusion in the committee has been used to demonstrate its unwillingness to revert to pre-Gorbachev policies. The committee's main goal was to ensure that the Soviet Union continued as a highly centralised union state.[30] The Emergency Committee was led by Gennady Yanayev, Vice President of the Soviet Union, Interior Minister Boris Pugo, Defence Minister Dmitry Yazov and other hardliners[31] who were determined to take action to oust Gorbachev.[30] Vladimir Kryuchkov, the KGB Chairman, had told Pavlov of the coup on 18 August, one day before it began. He was asked by Kryuchkov to meet his co-plotters at the Moscow Kremlin, where on 19 August, he and his co-conspirators appeared on live television and told the Soviet people that Gorbachev was indisposed. As the day wore on it soon became apparent that Pavlov had been drinking since he issued several contradictory orders and repeated himself. In retrospect he admitted that he had been drinking with his son the day before. On the same day, his fellow plotters decided to depose Pavlov, sending him to his dacha where his wife took care of him. As with all the others, Pavlov was arrested following the collapse of the coup.[2] Shortly after Pavlov was hospitalised with hypertension whilst remaining in custody.[32] He was released on recognizance not to leave in January 1993[33] and granted amnesty by the Russian State Duma in 1994.[2]