Vatupic Interwar Recession

The Vatupic Interwar Recession, also sometimes called the Vatupic Interwar Stagnation, was an period of economic difficulty, variously described as a stagnation, recession, or even depression, that occurred primarily on the Vatupic subcontinent of Vidina but also neighboring regions during the First Interwar Period, lasting from 1918 to the late 1920s or early 1930s. It originated in major Vatupic economies, primarily Riyata and Ta’aroha, which both largely failed to transition their economies from wartime military production back to civilian production. The massive devastation wrought by the First World War meant that there was both significant labor shortages due to war casualties as well as capital shortages due to the destruction of important industrial areas. Military spending had generally kept Vatupic economies afloat during the war, but the postwar situation became unsustainable by government spending. The resulting full employment combined with production shortages led to a period of persistent inflation that lasted from 1918 to 1924 and was exacerbated by efforts from national governments to shore up other areas of their economies.

In most nations affected, the Vatupic Interwar Recession only resulted in economic stagnation, not GDP shrinkage. However, even the stagnant economies stood in stark contrast to the prosperous economic growth of prewar Vatupaya, causing great unrest. The economic difficulties of the Interwar Period contributed to significant social and political shifts in Vatupaya, including the rise of dictator Amapytu Ubirata in Ta'aroha and the Illustrious Revolution and resulting democratization and civil war in Riyata.

Riyata
Because its prewar industrial capacity was intended to produce a surplus of goods for export, the Riyatic economy was initially relatively unimpacted by the resolution of the war. Although it had sustained massive casualties during the conflict, government programs succeeded in moving the labor force from the military back into civilian industry. Riyata achieved full employment directly after the war, and was more or less able to avert an immediate economic recession. However, with the destruction of industrial centers such as the Tiepu River Valley, Riyatic factories were strained to even meet domestic needs and no longer had the sufficient surplus to maintain an export-oriented industrial model. Full employment resulted in a “race to the top” during which average national wages rose by 8% annually from 1919 to 1926. Rising incomes were not met with an appropriate rise in domestic supply of products, resulting in high inflation throughout the 1920s that weakened the real spending power of consumers.

Industrialists and the buffist government prioritized returning to an export economy instead of the overall economic recovery from World War I. During the war, Riyata suffered disruptions to its trade relations as civilian industries were shifted towards military production. The general consensus among contemporary Riyatic economists was that it was vital for Riyata to regain its status as a primary exporter, or else foreign powers might capture markets that were previously in Riyata’s sphere of influence. Another important goal was to quickly establish Riyata as a major exporter to new markets such as the newly-independent Kasaren nations. To these ends, the Riyatic government passed two major currency devaluations in 1919 and 1921, sparking a currency war with its trade partners that spread the Vatupic Recession to other continents, albeit on a much smaller scale. The devaluations managed to save the Riyatic export market but were greatly unpopular domestically as it contributed to the already-spiking inflation.



Following the 1919 currency devaluation, widespread fears of hyperinflation caused a series of bank runs across Riyata, beginning with the Citana Savings Bank in October 1919. In some parts of Riyata, especially in the south and east, the war had actually been a benefit to the economy as military spending brought great amounts of wealth to local industries. The threat of inflation caused creditors to attempt to withdraw these earnings from saving accounts before they lost a considerable amount of their value. After the initial closure of Citana Saving Bank, a financial panic ensued, exacerbating the problem and prompting further bank runs all over the country. Over the next three months, 881 banks closed during the Riyatic banking crisis of 1919, wiping out more than Ꝟ650 million from the economy. The Riyatic government narrowly staved off a complete financial collapse by nationalizing the largest of the failing banks starting from December 25, creating the National Industrial Bank system and saving Ꝟ1.1 billion from being wiped out. Deposit insurance was also implemented on January 15, 1920 with a banking reform bill.

By 1920, the employment rate was no longer near 100% due to shocks in the domestic economy and increasing unwillingness from factory owners to increase wages. The Vatupic Recession is considered to have begun in earnest in Riyata when the unemployment rate spiked to around 11% by mid-1920, largely a result of the currency devaluations and bank runs of the previous year. Inflation was also a major problem. Although the overall industrial production of the country had been increasing steadily from 1918, prices were also increasing because most of the new production was exported instead of sold domestically.

After the second currency devaluation of 1921 and the widespread economic instability that it caused, Emperor !person began to openly oppose the buffist factions that controlled the Riyatic government, preventing the legislature from passing any further major economic reforms. This political deadlock lasted for the rest of 1921 and well in 1922, when Emperor !person seized control over the government and temporarily dissolved the Imperial Diet during the Illustrious Revolution. When the legislature reassembled the next year, significant powers had been taken from the upper House of Electors and granted to a new, elected lower House of Representatives. Although the buffists retained control of the House of Electors, the new democratic government was much more concerned with increasing the quality of life for the Riyatic people.



To combat inflation and unemployment, the new government pursued an aggressive interventionist economic policy, greatly expanding the public sector. Numerous government-owned industrial conglomerates were established, such as Hitovy Heavy Industries and National Rail and Road, to revitalize domestic industry without directly sabotaging the export-focused private sector. These economic reforms proved vital to the recovery from World War I and were largely self-funding, as the state corporations made their own profits and were usually not dependent on government financing.